VELICH V BODY CORPORATE NO. 164980 CA CA116/04

VELICH V BODY CORPORATE NO. 164980 CA CA116/04 19 May 2005IN THE COURT OF APPEAL OF NEW ZEALAND CA116/04BETWEEN PAUL JOHN VELICH Appellant AND BODY CORPORATE NO. 164980 Respondent Hearing: 19 April 2005 Court: Anderson P, McGrath and William Young JJ Counsel: G J Satherley for Appellant P F A Woodhouse QC and C Baker for Respondent Judgment: 19 May 2005JUDGMENT OF THE COURT A The appeal is allowed. B The judgment of Frater J granting a declaration and permanent injunction is set aside. C There is declaration that rule 2.1(f) of the body corporate's rules is ultra vires. D In all other respects the summary judgment applications of both parties are dismissed. E The interim injunction granted by Frater J is to lapse on the expiry of 14 days after delivery of this judgment unless re-instated by order of the High Court. F Mr Velich is entitled to costs in this Court of $6,000 together with costs and disbursements (including the reasonable travel and accommodation expenses of counsel) to be agreed and in default of agreement to be fixed by the Registrar.REASONS(Given by William Young J)Introduction[1] This is an appeal from the decision of Frater J given in the High Court at Auckland on 21 May 2004 in which she entered summary judgment for the respondent, Body Corporate No. 164980 against the appellant, Mr Velich. The effect of her judgment is to prevent Mr Velich finishing a partially completed deck which is associated with his apartment on the fourth and fifth floors of a building at 148 Quay Street, Auckland.The factual context[2] The building at 148 Quay Street was built in the early 1970's to provide office accommodation for government departments. By the early 1990's, it was surplus to government requirements. Its owner, GPS Investments Ltd ("GPS"), in conjunction with a developer, set about redeveloping the building as an apartment complex. The interior of the building was gutted and proposed apartments were marketed by the developer off the plans. Financial difficulties experienced by the developer held up progress and this led to some of the purchasers becoming frustrated and beginning to complete their apartments. All of this led to some tension between the purchasers and GPS which remained the owner of the building. [3] This case primarily concerns apartment 4G. The apartment includes, inter alia, a principal unit (4G) and accessory units AU49 and AU50. When the difficulties to which we have just referred developed, this apartment was under contract to a purchaser. It then consisted physically of a shell on the fourth floor of the building but also encompassed the fifth floor for which a further apartment structure (referred to in valuations as "the sky cabin") and a deck (with fine views over Waitemata harbour) were proposed. That a deck was envisaged is apparent from the unit plan which designates part of the fifth floor (comprising part of AU 49) as such.[4] As at 15 February 1995, GPS was still the owner of all the principal units comprising the unit plan. So it controlled the body corporate. On that day, at the first annual general meeting of the body corporate, GPS authorised work to a number of units including apartment 4G. The alterations authorised were as shown on plans prepared by a firm of architects. They provided for the construction of the "sky cabin" and deck on the fifth floor. This approval was conditional upon all work being completed within two years of 15 February 1995. This condition was apparently imposed with a view to placating some prospective purchasers who did not want the work that was then proposed to be effected. [5] In accordance with this approval, the "sky cabin" was constructed and the roof over the fourth floor has been strengthened (with steel beams) so as to be ready for the construction of the deck. Gas and electricity lines have been laid up to the proposed deck. But the deck itself was not completed within the two year period stipulated in the consent given by the body corporate. [6] In early 2002, Mr Velich purchased apartment 4G. He wished to complete the deck on the fifth floor and this required the provision of decking (to sit on top of the vacant roof area over the top of his fourth floor apartment) and a safety rail. This safety rail could be in the form of a glass, see-through, balustrade. He obtained a building consent from the Auckland City Council but was unable to obtain the consent of the body corporate. [7] At this point it is necessary to refer to rule 2.1(f) of the body corporate's rules.Duties of proprietorA proprietor shall in relation to any unit of which that proprietor is the registered proprietor: (f) make no additions or alterations to the unit (including any alteration to installations for the supply of gas, water or electricity) or in any way alter the elevation or external appearance of the unit without the consent in writing of the Body Corporate. The consent of the Body Corporate shall not be unreasonably or arbitrarily withheld or delayed where:(i) the additions and alterations to the unit are of a non-structural nature, do not in any way alter the external elevation or appearance of the unit, and are being carried out in order to fit-out or partition the unit; and (ii) prior to work on the non-structural partitions or alterations commencing the proprietor shall provide to the Body Corporate with written evidence that the proprietor's builder has in place a public liability insurance policy for a sum of not less than $1m with such policy noting the Body Corporate as an interested party; and (iii) the proprietor shall comply with such rules and regulations as the Body Corporate may reasonably stipulate in relation to the carrying out of the non-structural additions or alterations and in particular, but without limitation, the Body Corporate may designate a route for ingress to and egress from the building and require the proprietor to use contractors approved by the Body Corporate to make alterations required to any of the building services contained within the unit (and in particular the sprinkler system) in order to accommodate the non-structural additions or alterations.[8] The body corporate maintains that its consent is required before Mr Velich can complete his work and, further, it has declined to give consent. The position it has adopted is captured in a letter from its solicitors to the solicitors for Mr Velich on 16 April 2003:Rule 2.1(f) requires the body corporate to not "unreasonably or arbitrarily" withhold or delay consent to a request for adding to or altering a unit where, inter alia – "(i) The additions and/or alterations to the unit are of a non-structural nature, do not in any way alter the external elevation or appearance of the unit, and are being carried out in order to fitout or partition the unit " Within the relevant rule under (ii) and (iii) are further cumulative requirements to prevent that arbitrary or unreasonable withholding of consent. The works proposed appear to be structural, particularly in relation to the erection of the 1 metre high boundary wall around the perimeter of the roof area in question, but certainly alter the external appearance of the unit. The rule by its terms appears to allow an arbitrary or unreasonable withholding of consent given at the very least the alteration to the external appearance of the unit within the proposed works. However, the body corporate has approached this matter by considering the request reasonably and non-arbitrarily. The effect of the proposed works on the roof area in question will affect units in the neighbouring tower of 148 Quay Street within the body corporate. Two units are on the same stratum as the proposed works and will have their view lines directly affected thereby. Two units have the potential to be looked down onto by a person or persons presumably fromtime to time occupying the area comprising the proposed works. The proprietors of those units have indicated dissatisfaction with that change in "status" of their potential privacy. Finally, a number of other units will look down onto the area in question and regard the potential "population" of the area in question as detrimentally affecting their outlook and sense of privacy. For these considered reasons, consent to undertake the proposed works on the roof area outside of and abutting unit 4G is not given.[9] Relations between Mr Velich and the body corporate have become strained (to say the least) but the details of this are not really material for the purposes of this judgment. It is sufficient to say that by August 2003, Mr Velich had become frustrated with the attitude of the body corporate and he commissioned builders to complete the work necessary to permit use of the proposed deck area as a deck. [10] The body corporate then sought injunctive relief and the matter was placed before Frater J.The decisions of Frater J[11] On 12 August 2003, Frater J granted an interim injunction against Mr Velich to prevent him from completing the deck. This was on the basis of an ex parteapplication and she does not appear to have delivered a reasoned judment. [12] The body corporate then applied for summary judgment seeking:A. A declaration that the defendant may not undertake any works to the roof area outside the mezzanine level of unit 4G and AU50 within body corporate 164980. B. A permanent injunction preventing the defendant from undertaking any works to the roof area outside the mezzanine level of unit 4G and AU50 within body corporate 164980 without the consent in writing of the plaintiff body corporate. C. An order pursuant to section 37(12) of the Unit Titles Act 1972 preventing the defendant from undertaking any works to the roof area outside the mezzanine level of unit 4G and AU50 within body corporate 164980 without the consent in writing of the plaintiff body corporate.D. Solicitor/client costs pursuant to section 34 of the Unit Titles Act 1972. [13] Mr Velich opposed the application for summary judgment and in turn counterclaimed for summary judgment seeking, inter alia, declarations as to his claimed entitlement to finish the deck and, if necessary, to obtain from the body corporate such consents as may be required for these purposes. [14] On 21 May 2004, Frater J entered summary judgment for the body corporate. She held that the body corporate's rules required Mr Velich to obtain the consent of the body corporate before he completed the deck. She also held that such consent had not been granted. She made declarations accordingly. She also granted a permanent injunction preventing Mr Velich undertaking any further works without the written consent of the body corporate. She did not determine some elements of the counterclaim by Mr Velich which, at least theoretically, remain open to him to pursue in substantive proceedings. [15] The central focus of her decision was the application of rule 2.1(f) of the body corporate's rules:[67] In my view the text of Rule 2(1)(f) is quite clear and unambiguous. It is that a registered proprietor cannot make any additions or alterations to a unit or in any way alter the elevation or external appearance of it without the written consent of the Body Corporate. [68] While I accept that if the proposed deck is within the area of one or other of the defendant's units it may not be an addition, and that whether or not the work will alter the elevation of the unit cannot be determined on a summary judgment application, it is unarguable that it will alter the external appearance of the unit. It does not matter whether it is a substantial or minor alteration. The rule states that no additions or alterations shall be made without consent. It imposes an absolute prohibition without consent. [69] If the proposed work is of a non-structural nature, does not alter the external elevation or appearance of the unit and is being carried out in order to fit out or partition the unit and the other conditions set out in Rule 2(1)(f)(ii) and (iii) are met, the plaintiff's consent cannot be arbitrarily withheld or delayed. But there is no getting round the requirement that consent must be sought in each case.[16] Having found that rule 2.1(f) applied on its terms, Frater J went on to hold that:[72] Nor is it any answer for the defendant to claim that when he applied subsequently consent was unreasonably or arbitrarily withheld. [73] On its face Rule 2(1)(f) allows the plaintiff to act arbitrarily or even unreasonably in making anything other than minor, non-structural alterations. An adverse decision may well affect a proprietor's use of their units, but that does not mean that the rule itself is ultra vires.[17] Frater J discussed the 1995 consent in this way:[70] Consent was sought and given in 1995 for a range of work, including the construction of a deck. The work the defendant is proposing to do may have been covered by that consent, if it were not for the condition imposing a time limit on completion. Given the circumstances at the time, and the competing interests of other proprietors, it was a perfectly reasonable condition to impose. It did not preclude the work being done subsequently. It simply meant that after the time had expired the consent lapsed and had to be re-applied for.Overview of case[18] We propose to discuss the merits of the case by reference to the following issues: (a) Is rule 2.1(f) is ultra vires? (b) If rule 2.1(f) is ultra vires, does the completion of the deck require the consent of the body corporate? (c) Assuming that consent of the body corporate is required before the deck may be completed, on what basis is the body corporate entitled to refuse consent? [19] We are very conscious of the reality that we are hearing an appeal from a summary judgment. Further, some of the issues which we see as being significant were not the subject of full argument before us. As will become apparent, our conclusion on the first of the questions which we have identified and our inability to give a definitive answer to the second of these questions resolves the appeal. But, because the history of these proceedings to date suggests that a substantive trial isnot unlikely, it may be of assistance to the parties and to the High Court if we express views as to some of the questions which we are not able to resolve.Is rule 2.1(f) ultra vires?The difference between default rule 1(f) and rule 2.1(f) as adopted by the body corporate[20] Section 37 of the Unit Titles Act 1972 provides for body corporate rules. That section and the second and third schedules to the Act provide for default rules. [21] In the second schedule the rules appear under the following headings, "Duties of proprietor", "Powers and Duties of Body Corporate", "Committee of a Body Corporate" and "General meetings of a Body Corporate". In the third schedule are rules which relate to the use by proprietors of their units and the common property. [22] Rule 1(f) of the default rules in the second schedule (which appears under the heading "Duties of Proprietor") provides that a proprietor shall:Make no additions or structural alterations to the unit without the consent of the body corporate.[23] The scope of this rule is limited and it is arguable whether the completion of the deck proposed by Mr Velich would require consent if this rule were applicable. On the other hand, the position is different under rule 2.1(f). That rule prohibits, without the consent of the body corporate, a proprietor from making: additions or alterations to the Unit (including any alteration to installations for the supply of gas, water or electricity) or in any way [altering] the elevation or external appearance of the Unit .We think it perfectly clear that if this rule applies, the consent of the body corporate is required for the work which Mr Velich proposed to carry out. This is essentially for the reasons given by Frater J.[24] The key differences between default rule 1(f) and rule 2.1(f) are that under the latter rule, alterations require consent even if not structural and this extends, expressly, to alterations to the elevation or external appearance of a unit.Was it open to the body corporate to replace the default rule 1(f) in the second schedule with rule 2.1(f)[25] Section 37 permits the default rules to be varied. That section relevantly provides:37 Rules (5) Any amendment of or addition to any rule shall relate to the control, management, administration, use, or enjoyment of the units or the common property, or to the regulation of the body corporate, or to the powers and duties of the body corporate (other than those conferred or imposed by this Act). Provided that no powers or duties may be conferred or imposed by the rules on the body corporate which are not incidental to the performance of the duties or powers imposed on it by this Act or which would enable the body corporate to acquire or hold any interest in land or any chattel real or to carry on business for profit. (6) No rule or addition to or amendment or repeal of any rule shall prohibit or restrict the devolution of units, or any transfer, lease, mortgage, or other dealing therewith, or destroy or modify any right implied or created by this Act.[26] By way of context, we refer also to definitions of "accessory unit", "principal unit" and "unit" which appear in s 2 of the Act:accessory unit means a unit that is designed for use with any principal unit (whether as a garden, garage, car parking space, storage space, swimming pool, laundry, stairway, passage, or other like purpose) and that is shown on a unit plan as an accessory unit.principal unit means a unit that is designed for use (whether in conjunction with any accessory unit or not) as a place of residence or business or otherwise, and that is shown on a unit plan as a principal unit.unit, in relation to any land, means a part of the land consisting of a space of any shape situated below, on, or above the surface of the land, or partly in one such situation and partly in another or others, all the dimensions of which are limited, and that is designed for separate ownership.[27] The units associated with apartment 4G in relation to the fifth floor of the building are in the nature of a space defined primarily by reference to the surface area of the roof over the fourth floor. Mr Velich's entitlements as an owner in fee simple of the stratum estate necessarily include rights of use in relation to the entire space on the fifth floor of the building in respect of which he has title. Such rights must necessarily be seen as "implied or created" by the Unit Titles Act for the purposes of s 37(6). [28] Under s 37(5) amendments of, or additions to, the rules must relate to: (a) The control, management, administration, use, or enjoyment of the units or the common property; or (b) The regulation of the body corporate; or (c) The powers and duties of the body corporate (other than those conferred or imposed by the Act). [29] Rule 2.1(f) undoubtedly relates to "the powers and duties of the body corporate". For this reason it is within the scope of the proviso to s 37(5). Accordingly it is only valid if the new powers and duties conferred can fairly be seen as "incidental" to the performance of powers and duties imposed on the body corporate by the Act. [30] The only duty imposed by the Act which could be invoked to justify rule 2.1(f) is that provided by s 15(1)(a), "to carry out any duties imposed on it by the rules". As a matter of common sense, it is only powers and duties which are extant at the time of the rule change which are relevant. So the only new powers or duties which may be conferred by rule change on a body corporate are those which are "incidental" to existing powers and duties. [31] At the time rule 2.1(f) was adopted, there was no rule in place which required the body corporate to carry out the functions contemplated by rule 2.1(f) to the extent that they go beyond those required by default rule 1(f). So rule 2.1(f)expanded the powers and duties of the body corporate and further, did so appreciably. A rule which appreciably expands the existing powers and duties of the body corporate (as rule 2.1(f) purports to do) cannot fairly be regarded as merely "incidental" to those existing powers and duties. [32] It follows that rule 2.1(f) is ultra vires. [33] At the hearing of the appeal, Mr Satherly, for Mr Velich, advanced his ultra vires argument primarily on a basis which differs somewhat from the way in which we have just approached the issue. He relied primarily on s 37(6) which is set out in [25] above. He submitted that rule 2.1(f) purported to destroy or modify Mr Velich's right to use accessory unit 49 as a deck. [34] Given what we have said already (see [27] above), we think it would not be open to a body corporate to make rules which prohibit the use of a unit as such rules would be inconsistent with s 37(6). For instance, if an apartment includes an auxiliary unit designated as a car park, it would not be open to the body corporate to pass a rule to the effect that auxiliary units are not to be used for car parking purposes. This would be inconsistent with s 37(6). Likewise, if the body corporate had passed a rule which prohibited Mr Velich using his auxiliary unit as a deck despite its designation as such in the unit plan, this too would be invalid as being inconsistent with s 37(6). [35] Although we recognise the force of Mr Satherly's argument in this respect (and indeed see it as material to another aspect of the case which we are about to mention) we do not consider that it bears directly on the vires or otherwise of rule 2.1(f). This is because rule 2.1(f) does not directly purport to limit the way in which proprietors may use their units.If rule 2.1(f) is ultra vires, does the completion of the deck require the consent of the body corporate?[36] The body corporate submitted that a conclusion that rule 2.1(f) was ultra vires would have no practical impact on the result of the case; this because, as expressed in paragraph 19 of its written submissions: Rule 2.1(f) is to the same effect as the default rule prescribed by the Act and such a rule cannot be ultra vires the body corporate.[37] This submission assumes that if rule 2.1(f) is ultra vires, default rule 1(f) must be regarded as applying and that the work proposed by Mr Velich is caught by default rule 1(f). [38] When the body corporate adopted its new rules, it began by repealing all default rules set out in the second and third schedules to the Act. The body corporate's argument that default rule 1(f) is available to it rests on the assumption that the repeal of each of the default rules (notwithstanding that such repeal was effected globally) should be regarded as being conditional upon the replacement rule as adopted by the body corporate not being ultra vires. That is certainly a possible (and indeed pragmatic) approach to the problem associated with our conclusion that rule 2.1(f) is ultra vires but it is not self-evidently correct. As we did not hear argument addressed to this issue it would be wrong for us to express a view. [39] As is apparent from our ultra vires conclusion as to rule 2.1(f) we see a substantial practical difference between it and default rule 1(f). [40] When Frater J decided the case against Mr Velich, she focused on elements of rule 2.1(f) which go beyond the prohibition provided for by default rule 1(f). This is apparent from what she said at [68]:While I accept that if the proposed deck is within the area of one or other of the defendant's units it may not be an addition, and that whether or not the work will alter the elevation of the unit cannot be determined on a summary judgment application, it is unarguable that it will alter the external appearance of the unit. It does not matter whether it is a substantial or minor alteration. The rule states that no additions or alterations shall be made without consent. It imposes an absolute prohibition without consent.[41] As we have not heard argument on whether default rule 1(f) is applicable and in any event because there is an inadequate evidential basis upon which we could determine whether or not it applies to what is proposed by Mr Velich, our conclusion that rule 2.1(f) is ultra vires means that the appeal against the summary judgment must be allowed.Assuming that consent of the body corporate is required before the deck may be completed, on what basis is the body corporate entitled to refuse consent?[42] This issue need not be resolved given our conclusion that the appeal by Mr Velich must be allowed in any event. But, as there may well be a trial of these proceedings and Frater J's judgment implicitly assumes that consent may be unreasonably withheld, some brief discussion is appropriate. [43] The structure of rule 2.1(f) (which made limited provision for circumstances in which consent might not be unreasonably withheld) encouraged the solicitors for the body corporate to maintain in correspondence that it was open to the body corporate to act irrationally and capriciously in all other circumstances, see [8] above. This indeed seemed to be the view of Frater J as well. With the conclusion that rule 2.1(f) is ultra vires, the contextual considerations which supported that view are no longer material. We have to say, however, that even if rule 2.1(f) were intra vires, we think it plain that the body corporate would not be entitled to act capriciously in terms of granting or refusing consent. Our conclusion on this point applies a fortiori in relation to default rule 1(f). [44] Contracts sometimes provide that particular actions may not be carried out without the consent of another party but that such consent is not to be unreasonably withheld. Where such language is used in body corporate rules, it might be thought to be a signal that the reasonableness tests developed by the courts in relation to such clauses are applicable. Such reasonableness tests, however, could not apply in relation to rule 2.1(f) (if it were valid) other than in relation to those circumstances in which the rule provides that consent of the body corporate may not be unreasonably withheld. Likewise, such reasonableness considerations would not be applicable tothe decision required of a body corporate under default rule 1(f). So much is obvious. [45] There is, however, a public law dimension to the case which seems to have been overlooked. A decision by a body corporate to grant or withhold consent under either rule 2.1(f) or default rule 1(f) would involve the exercise of a statutory power of decision for the purposes of s 3 of the Judicature Amendment Act 1972. This does not mean that the body corporate must act as if the rules provided that consent not be declined unreasonably. But we think it elementary that the body corporate, when exercising its statutory power of decision, must give proper effect to the rules and the statutory scheme as a whole. It follows that there is jurisdiction to review as irrational and indeed invalid a decision which cannot sensibly be supported in light of that regulatory and statutory scheme. [46] As we have indicated, it would not have been open to the body corporate to pass a rule preventing Mr Velich using as a deck that portion of his auxiliary unit which is designated on the unit plan as a deck. It would be surprising if it could achieve the same effect by refusing permission to complete the very minor works necessary to facilitate such use. [47] Both rule 2.1(f) and default rule 1(f) are addressed to alterations and additions and cannot be properly applied for the purpose of preventing a proprietor using his or her unit pursuant to rights created or implied by the Unit Titles Act. [48] In this context, we think it well arguable that any decision by the body corporate to refuse consent would be invalid on administrative law grounds. The argument would go along these lines. No sensible or rational body corporate could take exception to the roof over the fourth floor apartment being covered with decking. In itself, this does not have any adverse effect on the look of the building or indeed otherwise. Likewise, a glass balustrade in itself would appear to be of little moment. Its effect on the appearance of the building and indeed sight lines from other apartments might be thought to be negligible. Against that background, it is well arguable that opposition to the completion of the deck is only incidentally addressed to the physical results of that completion and is primarily related to adesire to ensure that Mr Velich is unable to use his auxiliary unit for the purpose for which it was designed.Result[49] The appeal is allowed. [50] The judgment of Frater J granting a declaration and permanent injunction is set-aside. There is a declaration that rule 2.1(f) of the body corporate's rules is ultra vires. In all other respects the summary judgment applications of both parties are dismissed. [51] The interim injunction granted by Frater J is to lapse on the expiry of 14 days after the delivery of this judgment unless re-instated by order of the High Court. In deciding whether or not to seek re-instatement of the interim injunction the body corporate will of course be required to consider its exposure under the undertaking as to damages which will be required. [52] Mr Velich is entitled to costs in this Court of $6,000 together with costs and disbursements (including the reasonable travel and accommodation expenses of counsel) to be agreed and in default of agreement to be fixed by the Registrar.Solicitors: Glaister Ennor, Auckland for Appellant Price Baker Berridge, Auckland for Respondent