SHIRAZ HOLIDAY LIMITED v BODY CORPORATE 406198 [2023] NZSC 157

SHIRAZ HOLIDAY LIMITED v BODY CORPORATE 406198 [2023] NZSC 157 [5 December 2023]IN THE SUPREME COURT OF NEW ZEALANDI TE KŌTI MANA NUI O AOTEAROASC 94/2023[2023] NZSC 157BETWEEN SHIRAZ HOLIDAY LIMITEDApplicantAND BODY CORPORATE 406198First RespondentPROPERTY OPPORTUNITIES LIMITEDSecond RespondentBIANCO LIMITED (IN LIQUIDATION)Third RespondentAVONDALE PROPERTIES LIMITED(IN LIQUIDATION)Fourth RespondentCourt: Glazebrook, Ellen France and Kós JJCounsel: T J Rainey for ApplicantD R Bigio KC, I J Stephenson and H W Struthers for FirstRespondentC J Pendleton for Second RespondentJudgment: 5 December 2023JUDGMENT OF THE COURTA The application for leave to appeal is dismissed.B The applicant must pay the first respondent costs of $2,500.____________________________________________________________________REASONSIntroduction[1] The applicant, Shiraz Holiday Ltd (Shiraz), is the building manager of a unittitle development in Auckland pursuant to a Management Agreement entered intobetween the first respondent, Body Corporate 406198 (Body Corporate), and Shiraz'spredecessor. Under the Management Agreement Shiraz has exclusive rights to provideletting services on behalf of the unit owners.[2] The Body Corporate issued proceedings in the High Court challenging thevalidity of the Management Agreement. As the Court of Appeal said, the essence ofthe Body Corporate's concern is that the Management Agreement has the effect ofimproperly requiring unit owners to cross-subsidise Shiraz's operation of a hotel andshort-term accommodation in the development.1[3] In the High Court, the Body Corporate succeeded in part.2 In particular,Campbell J found that the provisions in the Management Agreement giving Shirazexclusive rights to provide letting services and hotel management services were ultravires the Unit Titles Act 1972. The Judge did not, however, agree with theBody Corporate that the Management Agreement as a whole or cl 5.6.6 (dealing withthe obligation to make a rental contribution) were ultra vires. The High Courtconsidered the ultra vires letting provisions could be severed from the rest of theManagement Agreement.[4] On appeal, the Body Corporate again was successful in part. Importantly, forpresent purposes, the Court of Appeal found that cl 5.6.6 was ultra vires. TheCourt of Appeal took the view the cl 5.6.6 compensation was "directly referable to theultra vires exclusive letting service" and could not be "sensibly decoupled" from thecorresponding ultra vires clauses.3 The Court of Appeal agreed with the High Courtthat the Management Agreement was otherwise lawful.1 Body Corporate 406198 v Property Opportunities Ltd [2023] NZCA 302 (Katz, Whata andDavison JJ) [CA judgment] at [4].2 Body Corporate 406198 v Property Opportunities Ltd [2022] NZHC 418 (Campbell J)[HC judgment].3 CA judgment, above n 1, at [58].[5] Shiraz has filed an application for leave to appeal the finding cl 5.6.6 was ultravires. The Body Corporate opposes the application for leave to appeal. The secondrespondent is not taking any steps in the proceeding and abides the decision of theCourt.Background[6] The background, including the relevant documentation, is discussed in somedetail in the judgment of the Court of Appeal.4 In terms of this material, we need onlynote the terms of cl 5.6.6 which are as follows: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.[7] In determining this provision could not be severed from the other ultra viresprovisions, the Court of Appeal reasoned that, where the Body Corporate had invalidlybound itself to an exclusive letting regime, cl 5.6.6, which "was directed to providingcompensation for the rental cost of the unit used for this exclusive letting regime, must also be invalid".5 The Court said this:[63] the clear purpose of cl 5.6.6 is to compensate the Manager forrental costs associated with the ultra vires exclusive letting services. A clauserequiring the Body Corporate to pay for an ultra vires purpose must also beultra vires and void ab initio. The fact that Duties and Services may also havebeen performed out of the Management Unit does not validate paymentsclearly made for an ultra vires purpose.[64] We acknowledge the point made by Campbell J that theBody Corporate was at liberty to engage a manager on terms it thoughtappropriate. But a body corporate can only bind itself to do something that isreferable to its lawful powers and duties. By purporting to bind itself to anexclusive letting service, and to pay the rental cost associated with that service,it acted ultra vires its powers and duties. A compensatory method premisedon that exclusivity is necessarily also ultra vires from inception.The proposed appeal[8] Shiraz says, first, that the proposed appeal raises questions of general or publicimportance or of general commercial significance about the applicability of the ultra4 At [7]–[42].5 At [6].vires doctrine to the Unit Titles regime where both the Unit Titles Act 1972 and theUnit Titles Act 2010 recognise the need for a flexible and responsive regime for thegovernance of unit title developments.6 In this context, Shiraz also wishes to arguethat the Court of Appeal's approach gives rise to commercial uncertainty because thefact the payment provided for under cl 5.6.6 could be linked to an ultra vires provisionwas held sufficient to make cl 5.6.6 ultra vires as well.[9] Second, Shiraz submits that a miscarriage of justice will arise if the appeal isnot heard.7 In developing the submissions on this point Shiraz raises a pleading pointand challenges the conclusion of the Court of Appeal that the payment provided for incl 5.6.6 was compensation for the letting service. Shiraz advances various reasonswhy the payment agreed to be made under cl 5.6.6 is separate. For instance, Shirazsays that under cl 5.3 the manager had to occupy the management unit to provide theDuties and Services. "Duties" and "Services" do not include the letting service.Shiraz also relies on the failure to consider the reliance interests of Shiraz which tookan assignment of the Management Agreement.[10] We are not satisfied that the proposed appeal would raise any questions ofgeneral or public importance or of general commercial significance. As theBody Corporate submits, Shiraz accepted the applicability of the ultra vires doctrineand that some provisions of the Management Agreement were ultra vires.8 Theproceedings to date have, instead, focused on the construction of a bespoke agreementand which the High Court found was governed by the 1972 Act. The challenge is anot one of principle but is, rather, fact specific.[11] The arguments that Shiraz wishes to make would essentially reprise thearguments made in the Court of Appeal. We see those arguments as having insufficientprospects of success to warrant a further appeal. There is accordingly no appearanceof a miscarriage of justice as that term is used in the civil context.96 Senior Courts Act 2016, s 74(2)(a) and (c).7 Section 74(2)(b).8 HC judgment, above n 2, at [59]; and CA judgment, above n 1, at [55].9 Junior Farms Ltd v Hampton Securities Ltd (in liq) [2006] NZSC 60, (2006) 18 PRNZ 369 at [5].Result[12] The application for leave to appeal is dismissed.[13] The applicant must pay the first respondent costs of $2,500.Solicitors:Pidgeon Judd Law Ltd, Auckland for ApplicantLane Neave, Auckland for First RespondentTurner Hopkins Solicitors, Auckland for Second Respondent