WHARE CORPORATION LIMITED V BODY CORPORATE 206552 HC AK CIV 2007-404-006500

WHARE CORPORATION LIMITED V BODY CORPORATE 206552 HC AK CIV 2007-404-006500 7 July 2008IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY CIV 2007-404-006500BETWEEN WHARE CORPORATION LIMITED Appellant AND BODY CORPORATE 206552 Respondent Hearing: 25 June 2008 Appearances: P Murray for Appellant N Maharajah and A Clemow for Respondent Judgment: 7 July 2008 at 2.00 p.m.JUDGMENT OF VENNING JThis judgment was delivered by me on 7 July 2008 at 2.00 p.m. pursuant to Rule 540(4) of the High Court Rules. Registrar/Deputy Registrar DateSolicitors: DLA Phillips Fox, Auckland Gaze Burt, AucklandIntroduction[1] Judge Cadenhead entered judgment on Body Corporate 206552's claim to recover special and annual levies from Whare Corporation. Whare Corporation appeals that decision.Background[2] Whare Corporation agreed to buy two units in a block of apartments at Browns Bay on the North Shore in mid-February 2004. Whare Corporation sought a s 36 certificate from the Body Corporate. The Body Corporate issued a certificate, dated 2 March, stating, among other things:(e) &(f) The body corporate has not entered into any contract or undertaken work that is likely to incur any obligation of the proprietor under section 33 or section 34 of the Act. The body corporate has not received notice of any proceedings against it.[3] At the time it issued the certificate the Body Corporate was aware that there were some leaks in the building. The minutes of an owners' meeting held on 23 February recorded that 19 apartments showed leaks. The leaks appeared to come from the upper fourth floor penthouse units. It was thought that the leaks were through tiles which were effectively the roofs for protection to lower apartments. The meeting resolved to obtain a legal opinion about the respective responsibilities of the Body Corporate and the owners of the apartments for liability to repair the tiles. [4] Following that meeting, on 25 February 2004 Centurion Management Services Limited, the Body Corporate secretary sought an opinion from the Body Corporate's solicitors noting:we currently have a problem with the courtyard decks of the penthouse apartments leaking into the units below. The Body Corporate would like a brief opinion of who is responsible for repairing the membrane under the tiles. It has been suggested by owners of the units that the membrane that seals the decks is the roof of the unit below and that the Body Corporate should be responsible for ensuring its water tightness.Questions: (a) Who is legally responsible for repairing the leak? (b) Can the Body Corporate resolve to carry out the repair at a General Meeting if they choose to do so? (c) Please clarify the Body Corporate's responsibilities/obligations in relation to rule 3 (i).[5] After it agreed to buy the apartments, Whare Corporation became aware the apartment building had water damage. The damage was referred to in a valuation report it obtained. The report referred to damage to the apartment ceilings. Whare Corporation then obtained an inspection report which confirmed the leaks. Whare Corporation went ahead and settled its purchase on 16 March 2004. [6] Subsequently, both the Body Corporate and Whare Corporation became aware that the leak problem was significantly more extensive than initially thought. Reports were obtained to confirm the extent of the damage and the repairs required. The special levies were set to pay for some of the repairs. [7] Whare Corporation refused to pay the levies. The Body Corporate brought an application for summary judgment. Whare Corporation opposed the application on the grounds that it had a set-off for its loss as a consequence of completing the purchase of the two units because:• the Body Corporate owed it a duty of care to ensure that the contents of the s 36 Certificate were true and correct in every respect and it breached that duty of care;• the s 36 Certificate was false because at the time the Certificate was issued, the Body Corporate had instructed solicitors and was thus likely to incur an obligation under s 33 of the Unit Titles Act;• the Body Corporate had made a false misrepresentation and was in breach of the Fair Trading Act.The issues[8] The issues that arise on this appeal are:• Whether the Body Corporate owed Whare Corporation a duty of care in the circumstances;• Was the act of seeking legal advice substantially for the benefit of some of the units in the building so as to engage ss 33 of the Act and, if so, what is the effect of the failure to disclose that the Body Corporate had instructed solicitors?• Whether the Body Corporate made a false representation for the purposes of the Fair Trading Act;Did the Body Corporate owe Whare Corporation a duty of care to ensure the certificate was correct in every respect?[9] This issue raises the scope of a common law duty of care based upon a statutory scheme. The scheme of the Unit Titles Act 1972 and the nature of Body Corporate has recently been considered in some depth by Heath J in the case of Body Corporate 188529 & Ors v North Shore City Council & Ors HC Auckland CIV 2004-404-3230 30 April 2008. In summary, the Body Corporate is empowered to carry out any duties imposed upon it by its rules. It is obliged inter alia to insure and keep insured all buildings and other improvements on the land to replacement value. It must control, manage and administer the common property and do all things reasonably necessary for the enforcement of rules. It must keep common property in a state of good repair. In order to raise finance to deal with the management of the common property and to meet outgoings (including insurance premiums, rent and repairs), the Body Corporate is empowered to establish and maintain a fund for administrative purposes and to determine from time to time the amounts to be levied for that purpose. A Body Corporate is prohibited from involving itself in trading activities but otherwise is granted all powers reasonably necessary to carry out the duties imposed upon it by the Act and its rules: s 16.[10] The Body Corporate is, as Heath J noted at para [98]:[98] ... the corporate vehicle through which efficient management of common property is undertaken. The body corporate is administered by a committee, with assistance from a secretary. Sometimes, depending on the size or complexity of the development, a commercial company will provide secretarial services for reward.[11] The Judge also went on to consider the effect and purpose of a s 36 Certificate, as follows:[100] Any prudent person intending to buy a dwelling within a unit development will seek a certificate under s 36 of the 1972 Act from the body corporate. The purpose of a s 36 certificate is to advise a purchaser or a mortgagee of any outstanding obligations or risks relating to the acquisition of a unit or securing borrowing against it. The certificate must identify contributions required of a proprietor to the body corporate, the manner and time of payment of that contribution and the extent to which any contribution has been paid by the existing proprietor. The body corporate is also required to identify any amount payable by the existing proprietor to the body corporate. [101] The certificate must state whether the body corporate has performed or entered into any contract to perform any repair, work or act in respect of which the existing proprietor is likely to incur a liability and the rate at which interest is accruing in respect of any amount owing to the body corporate by the proprietor. Section 36 states expressly that the certificate shall be conclusive evidence, "in favour of any person dealing with that proprietor" of the matters certified in it. [102] The body corporate is also required to certify whether it has "received notice that any proceedings are pending against the body corporate". Although that suggests a contingent liability, the required disclosure does not go so far as the identification of any damage to the unit development that might have manifested itself prior to the purchaser or mortgagee seeking a certificate. (emphasis added)[12] As a matter of statutory interpretation, Heath J concluded that the disclosure required by the s 36 certificate did not require identification of damage to the unit development which might have manifested itself prior to the purchaser or mortgagee seeking a certificate. With respect, I agree with that interpretation. It follows from a natural construction of the wording of the section and the form of certificate. [13] Such a finding is also consistent with authority that suggests a reluctance to superimpose a common law duty of care upon a statutory duty. In the case ofDeloitte Haskins & Sells v National Mutual Life Nominees Ltd [1993] 3 NZLR 1, the Privy Council referred to an earlier decision of Yuen Kun Yeu v Attorney-General of Hong Kong [1988] AC 175, Lord Keith of Kinkel delivering the judgment:"In these circumstances their Lordships are unable to discern any intention on the part of the legislature that in considering whether to register or deregister a company the commissioner should owe any statutory duty to potential depositors. It would be strange that a common law duty of care should be superimposed on such a statutory framework." In the present appeal it would be even stranger that a common law duty of greater scope should be superimposed upon the statutory duty contained in the subsection. Their Lordships can see no justification for such a course.[14] In that case, the focus was on s 50(2) of the Securities Act 1978. Section 50(2) did not create a statutory duty to form an opinion but it was submitted that a common law duty to do so was superimposed on the duty under s 50(2). The Privy Council concluded that the statutory wording provided no support for the view that the legislature intended the subsection to impose any duty on an auditor other than to report when he had formed the relevant opinion. [15] The obligation under s 36 is to certify inter alia:(e) Whether or not the body corporate has performed or entered into any contract to perform or resolve to perform any repair, work, or act in respect of which a liability has been or is likely to be incurred by the proprietor under section 33 or section 34 of this Act and the general nature of the repair, work or act:[16] The subsection is directed at ensuring a proprietor, their purchaser or mortgagee is advised of any financial obligation that has been or is likely to be incurred in respect of that unit under ss 33 or 34 of the Act. The only financial obligation the Body Corporate had incurred at the time it issued the certificate was to pay the solicitors for the legal advice it had sought. There is no evidence and the appellant does not suggest that at the time the certificate was issued the Body Corporate had resolved to perform any repair, work or act other than to instruct its solicitors to give it the general advice it sought in the letter of 25 February 2004.[17] There is no basis for imposing on the Body Corporate, as issuer of the s 36 certificate, a duty to include in that certificate anything other than is referred to and required by s 36 itself. [18] In the present case I agree with Judge Cadenhead that a tortious duty having the scope argued for by the defendant cannot arise on the facts. I also agree with him that the factors that militate against such a duty are:• The limited scope of the statutory duty;• The abuse of any express undertaking of responsibility;• The lack of any express or implied representation;• The duty contended for is based on an omission. [19] In addition there are sound policy reasons for excluding such a duty. A duty should not be imposed on the Body Corporate with the consequence that it would owe a responsibility to one particular unit owner in these circumstances. The Body Corporate is no more an entity administered by a committee of other owners. To impose a duty in this case would effectively be to impose liability on all other unit owners in favour of one. That is not the purpose of a s 36 certificate. [20] I reject the submission there can be a duty of care argued for by the defendant in these circumstances. [21] For the reasons that follow, even if a duty was owed, there was no breach in this case in any event.The ambit of the s 36 certificate[22] The word "act" as used in s 33 includes the defence of legal proceedings and is not restricted to physical work to and about the property: Myers Park ApartmentsLimited v Sea Horse Investments Limited (2006) 7 NZCPR 454 and Hart v Body Corporate No. 180455 HC AK CIV 2005-404-001429 14 June 2005 Courtney J. [23] Accepting for the purposes of argument that the act of the Body Corporate instructing its solicitors was, at the time of the issue of the s 36 certificate, an act which may have benefited more substantially the units on level 4 (which were the cause of the leaks known at that stage) and the units on level 3 (which were suffering direct damage from the leaks) than the units on levels 1 and 2 which were not affected, then s 33 may have been engaged. [24] But that does not assist the appellant. The effect and ambit of the certificate is set out in ss 36 and 33. It is to be evidence of the matters certified in it for the purposes of dealing with the proprietor of a unit and in relation to a claim under s 33. Assuming the appellant's argument is correct and s 33 applied, at most the failure to refer to the act of instructing the solicitors would have protected Whare Corporation from having to pay any levy in relation to the cost of obtaining the legal advice. But its effect goes no further than that. [25] Further, even if the certificate should have referred to the contact with the solicitors – and thus the incurring of an obligation to pay that account, to comply with s 36, the certificate would only have been required to refer to the fact that advice had been sought from the solicitors. Section 36(e) requires the disclosure of the general nature of the work or act. In this case the work or act was the action of taking advice from solicitors and thus incurring a liability for that. There was no requirement to disclose the details of the advice sought. [26] There is an additional point. It arises from the decision of Attorney-General v Carter [2003] 2 NZLR 160. In that case, the Ministry of Transport issued an interim certificate of survey for a ship. The claimant alleged that the survey certificate had been issued negligently and that the condition of the ship did not justify the issue of the certificate. The Court of Appeal held there were no duty of care on the part of the defendants to protect the plaintiff's economic interests. For that reason the claim in negligence was struck out.[27] The Court then went on to observe that there was no cause of action of negligent breach of statutory duty. If the statute itself created a duty to take care, a breach of that duty would result in a breach of statutory duty simpliciter, not a negligent breach of statutory duty. The statutory duty in the present case was to advise Whare Corporation that it might be liable for its particular share of the legal costs, but extended no further than that.Representation[28] The last point raised by the appellant is that the Body Corporate made a false representation. As I understood the appellant's case, that submission was based not on the s 36 certificate but on the representations that Mr Dawson of the Management Corporation made to Mr Hulse of Whare Corporation. [29] Mr Hulse said that on receipt of a valuation which referred to a possible leak problem, he arranged for a building inspection company to undertake an inspection of the apartments. He also raised the matter with Mr Johnson, the vendor's real estate agent. Mr Johnson arranged for Mr Hulse to meet him on-site together with Mr Dawson, the Buildcorp manager. At the meeting Mr Johnson told Mr Hulse it was just a minor leak which had been caused by a planter box in the penthouse terrace blocking a drain. Mr Hulse said that Mr Dawson confirmed that was correct. Mr Hulse said that he was reassured by Mr Dawson confirming Mr Johnson's explanation. [30] Mr Dawson was an employee of Buildcorp Management Limited which was the manager appointed by the Body Corporate. However, Buildcorp was also, as Mr Crew, the Body Corporate manager confirmed, the property manager for the owners of the apartments that Whare Corporation was buying. Buildcorp was acting for the owner of the apartments when it showed potential purchasers through the properties which the vendor was selling. Mr Dawson was not acting in his capacity as manager for the Body Corporate when he showed Mr Hulse through the apartments mentioned and made the comments attributed to him.[31] It was no part of the Body Corporate's role or the building manager's when acting on its behalf to be involved in showing purchasers through the building. [32] The appellant relies on a false representation under the Fair Trading Act. The Body Corporate is not in trade; indeed there is an express statutory prohibition on trading: s 16. While s 45 of the Fair Trading Act may apply in certain circumstances to fix a principal with liability for the statements of its agent that can only be in relation to representations given within the scope of the actual or apparent authority of the agent. [33] In the present circumstances, there was no statutory basis or authority for Mr Dawson to make the representations he made to Mr Hulse on behalf of the Body Corporate. The Body Corporate did not give him authority to make those representations. There is no evidence to support an argument that the Body Corporate held Mr Dawson out as able to make representations of that nature on behalf of the Body Corporate. The Body Corporate simply had no role to play in making any such representation to interested purchasers such as Whare Corporation. The representations were outside both his actual and apparent authority. There is no basis for fixing the Body Corporate with them.Result[34] It follows that the appellant is unable to make out any of the grounds of its appeal. The appeal is dismissed.Costs[35] Costs are reserved at counsel's request. If counsel are unable to agree costs memoranda may be exchanged. __________________________ Venning J