IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE	
CIV-2020-404-000744
[2021] NZHC 242	

UNDER	the Unit Titles Act 2010	
BETWEEN	BODY CORPORATE 324371
Applicant	

Hearing:	22 February 2021	
Appearances:	David Powell and Janice Wong for the Applicant No appearance by any other party	
Judgment:	22 February 2021	

JUDGMENT OF MOORE J
[Approval of s 74 scheme]

This judgment was delivered by me on 22 February 2021 at 3:00 pm pursuant to Rule 11.5 of the High Court Rules.

Registrar / Deputy Registrar Date:

RE: BODY CORPORATE 324371 [2021] NZHC 242 [22 February 2021]

Introduction

[1]	The applicant is a body corporate which is seeking orders under s 74 of the Unit Titles Act 2010 (“the Act”) settling a scheme in relation to the unit title complex situated at 11 Anzac Avenue, Auckland, known as “Century On Anzac” (“the Development”). Widespread and significant defects have been identified throughout the 100 or so units and common areas. The defects include weathertightness and fire safety defects. Remedial works have been recommended. The details of those defects and evidence relating to them and proposed remediation is set out in the affidavit of a registered building surveyor, Nicholas Batchelor, and an expert on passive fire protection, Ronald Green.

[2]	All but one of the owners at an extraordinary general meeting called by the Body Corporate, voted in support of a resolution that the Body Corporate instruct solicitors to prepare a s 74 scheme for the remedial work in consultation with the Body Corporate Committee. Regrettably, the Body Corporate’s Minutes record neither the identity of the objector nor his/her reasons for objecting.

[3]	The present application was filed in this Court on 10 June 2020. Mr Powell, for the Body Corporate assures me and I am independently satisfied the application has been served on all interested parties. No notices of opposition have been filed. No evidence in opposition is before the Court and at the various procedural callings of this matter, including at the hearing before me, no party has appeared in opposition.

[4]	From the bar Mr Powell properly advised me that late last week he corresponded with one of the owners who had suggested to him that the draft scheme, as presented, might be improved in certain, specified ways. Mr Powell was uncertain whether this owner was the same person who objected at the extraordinary general meeting. In any event, he tells me he advised the owner that he was at liberty to come to Court today and address me on his concerns and suggestions for improvement. No one other than Counsel for the Body Corporate was in attendance and, accordingly, I must deal with the application and draft scheme as presented.

[5]	Notwithstanding the lack of opposition, the applicant still carries the burden of satisfying this Court on balance that its jurisdiction to order a scheme has been triggered and, if it has jurisdiction, it should grant the scheme as filed.

[6]	I am satisfied that the orders sought are appropriate and should be made. My reasons follow.

Legal principles

[7]	Section 74 provides:

“74	Scheme following destruction or damage

(1)	This section applies if any building or other improvement comprised in any unit or on the base land is damaged or destroyed, but the unit plan is not cancelled.

(2)	The High Court may, by order, settle a scheme on the application of—

(a)	the body corporate; or

(b)	if the unit title development is in a layered unit title development, the body corporate of the head unit title development or any subsidiary unit title development in that layered unit title development; or

(c)	an administrator; or

(d)	the owner or one of the owners of a unit; or

(e)	a registered mortgagee of a unit.

(3)	A scheme under subsection (2) may include provisions—

(a)	for the reinstatement in whole or in part of the building or other improvement; or

(b)	for the transfer of units to the body corporate so as to form part of the common property.

(4)	If an order is made under subsection (3)(b), sections 58(1)(c) and 59 apply to the transfer, so far as applicable, but subject to any order of the High Court to the contrary.

(5)	A notice of any application made under subsection (2) must be lodged with the Registrar who must enter on the supplementary record sheet a notification that the application has been made.

(6)	On any application to the High Court under subsection (2), the following persons have the right to appear and be heard:

(a)	any person having or claiming to have any estate or interest in any unit or in the whole or part of the base land; or

(b)	any insurer who has effected insurance on the buildings or other improvements comprised in any unit or in the whole or part of the base land.

(7)	In the exercise of its powers under subsections (2) and (3), the High Court may make any orders that it considers expedient or necessary for giving effect to the scheme, including orders—

(a)	directing the application of any insurance money; or

(b)	directing payment of money by or to the body corporate or by or to any person; or

(c)	directing the deposit of an appropriate new unit plan; or

(d)	imposing any terms and conditions that it thinks fit.

(8)	The High Court may cancel, vary, modify, or discharge any order made by it under this section.

(9)	The High Court may make any order for payment of costs that it thinks fit.”

[8]	In general terms, the approval of a scheme under s 74 requires the Court to be satisfied of three things:

(a)	the building comprised in any unit has been damaged or destroyed;

(b)	the scheme is necessary and should be granted in order to effect the repairs; and

(c)	the terms of the scheme are such that the Court can impose them and fairly balance the interests of the unit owners.

[9]	The relevant principles are now well settled. They were summarised by the Court of Appeal in Tisch v Body Corporate 318596.1 Although that decision related to the forerunner of s 74,2 it was in all material respects identical. The Court of Appeal observed:

“First, a scheme with a broad support is to be preferred. The greater the level of support from owners for the proposed scheme, the more likely it is that the scheme does justice between owners. This will not invariably be so, because a majority of owners may support a scheme that is unfair to a minority …

Secondly, the scheme should be appropriately detailed. The more detailed a scheme, the less cope for later misunderstanding and argument about it.

Thirdly, providing that what has been done by the body corporate before the s 48 scheme is actually approved is in accordance with the scheme, the order has retrospective effect …

Fourthly, work should normally be done to the same stand and at the same time …

Fifthly … the terms of the s 48 scheme should depart from the scheme of the Act and from the body corporate rules no more than is reasonably necessary to achieve what is fair as between unit owners in the circumstances. Thus the Act and the Body Corporate rules remain relevant considerations. An exception to this fifth guiding principle is a scheme unanimously agreed to by all unit owners.”

[10]	As the Court observed in Tisch, the overarching principle in such applications is that a balance should be struck between the interests of each unitholder in a way that imposes terms which achieve the outcome fairest to all unitholders. In that context, the Court pointed to five guiding principles:3

(a)	a scheme which enjoys board support is to be preferred;

(b)	the scheme should be appropriately detailed;

1	Tisch v Body Corporate 318596 [2011] NZCA 420, [2011] 3 NZLR 679 at [45]-[49].
2	Unit Titles Act 1972, s 48.
3	At [44]-[49].

(c)	providing that what the Body Corporate has done before the scheme is approved is in accordance with the scheme, the order has retrospective effect;

(d)	the work should normally be done to the same standard and at the same time; and

(e)	the terms of the scheme should depart from the scheme of the Act and the Body Corporate rules no more than is reasonably necessary to achieve what is fair as between the owners in the circumstances (unless, of course, a scheme is unanimously agreed by all unit owners).

Analysis

[11]	I propose to adopt the three step analysis set out in Tisch.

Has the building been damaged or destroyed?

[12]	I have reviewed the unchallenged evidence. I am satisfied this step is met.  Mr Batchelor explains that there are significant building defects in the balconies, cladding and roof of the building. Those defects have caused damage and destruction in the following ways:

(a)	cracking and loss of adhesion of the titles on the vast majority of the balconies;

(b)	cracking to the fibre cement cladding sheets (which, in some locations, has caused sheet sections to fall off the building);

(c)	spawling of concrete beams and columns;

(d)	decay to timber wall framing and damage to internal linings and carpet;

(e)	damage and decay to the timber plywood below the roof membrane; and

(f)	damage to the internal wall and ceiling linings of both penthouse apartments.

[13]	The scope of the remedial work is extensive. According to Mr Batchelor, it includes:

(a)	a curtainwall system to enclose the balconies (east and west elevations, Levels 1-12) with new integrated joinery to all elevations featuring this new system;

(b)	new solid aluminium cladding to all walls and exposed concrete columns (Level 13);

(c)	new screed to terraces with new falls and new drainage outlets, and new waterproof membranes (east and west terraces/elevations), and new screed, membrane and tile systems;

(d)	a new solid aluminium cladding and balustrade system (north and south elevations); and

(e)	to the roof, a new two-layer torch-on membrane on a new plywood substrate, and new solid aluminium cladding to exposed concrete roof beams, and cap and saddle flashings.

[14]	Mr Green, the fire protection expert, deposes that there are numerous defects in the passive fire safety systems in the building complex. These include:

(a)	inadequate fire stopping in multiple locations;

(b)	lack of substrates to mechanical and hydraulic risers;

(c)	incorrect installation of fire doors; and

(d)	a lack of or incorrectly installed fire rated dampers to basement ducts.

[15]	These defects amount to breaches of C3.3 of the Building Code.

[16]	He describes the work required to address the fire safety issues defects as follows:

(a)	installation of fire stopping (and associated remediation of walls where required);

(b)	installation of fire collars;

(c)	installation of sealant around gaps in the metal boxes houses electrical, data and service cable penetrations, and intumescent pad within the metal boxes;

(d)	in some locations, rebuilding of panel shaft walls and installation of fire stopping systems;

(e)	removal of architraves around fire doors, reinstallation with correct gaps, sealant and/or other fire related products as required; and

(f)	installation of new fire rated dampers.

[17]	Thus, Mr Batchelor’s evidence establishes that the building has been damaged as a result of the building defects and Mr Green’s evidence establishes that in the event of a fire, significant avoidable damage will be caused to the building due to its compromised ability to resist the spread of fire and smoke.

[18]	It follows that the development has been damaged, the fire safety systems require remediation and all the remedial works listed above are required.

Is the scheme appropriate in the circumstances?

[19]	Alternatively, this proposition may be reframed as to whether the scheme is necessary and should be granted in order to effect the repairs.

[20]	A Body Corporate is charged with the obligation to maintain the building elements, which under s 138 of the Act, imposes on the Body Corporate a duty to repair and maintain any building elements and infrastructure which relate to or serve more than one unit.4

[21]	The duty in s 138(1)(d) is compensated with the power to recoup the cost of exercising the duty either:

(a)	whether the work takes place wholly or within one principal unit, by levying that owner;5 or

(b)	whether the work substantially benefits one owner or some of the owners more than others, by levying those owners.6

[22]	In these circumstances, I am satisfied that a scheme under s 74 of the Act is an appropriate way to:

(a)	enable the necessary remedial works to the building be undertaken to a consistent standard;

(b)	enable consultants, experts and contractors to deal with the Body Corporate alone;

(c)	clarify the basis on which levies for the remedial works to be raised;

(d)	clarify the obligations owed by the Body Corporate and unit owners in undertaking the remedial works; and

(e)	bind current and future owners of units in the complex to the terms of the scheme.

4	Unit Titles Act 2010, s 138(1)(d).
5	Section 38(4)
6	Section 126.

[23]	It follows I am satisfied a scheme under s 74 of the Act is appropriate for the development.

Are the terms of the proposed scheme such that the Court can impose them and fairly the balance the interest of the unit owners?

[24]	Under this heading, I shall consider the evidence relevant to each of the five guiding principles set out in Tisch.

[25]	First, the proposed scheme enjoys broad support. The affidavit of Jessica Dellow is that at an extraordinary general meeting held on 17 April 2018 the Body Corporate resolved to instruct its solicitors to prepare a s 74 scheme for the remedial work, in consultation with the Body Corporate. She deposes that the vote in support of that resolution was almost unanimous with 36 votes in favour and only one against. She also deposes that the Body Corporate Committee has approved the content and form of the proposed scheme. It is attached to the application which has been served on all interested parties. At no stage in the procedural history of these proceedings has there been any indication of opposition from any person.

[26]	The second factor is whether the proposed scheme is appropriately detailed. I am satisfied that it is. Very similar schemes have been approved by this Court previously.7

[27]	Thirdly, the proposed scheme provides that it is to apply retrospectively in relation to the approval of costs which have already been incurred in identifying the building defects or carrying out repairs and the collection/levying of all costs incurred on the remedial works before the scheme is ordered.

[28]	Fourthly, the proposed scheme provides that the remedial works are to be carried out irrespective of whether they are to common property or to unit property. It requires the Body Corporate to have the works undertaken as diligently and as expeditiously as possible. It also requires the Body Corporate to obtain a building consent and a code compliance certificate (“CCC”) for the remedial works.

7	Body Corporate 355492 HC Auckland CIV-2018-425-32, 28 August 2018; Body Corporate 384825 HC Auckland CIV-2018-425-76, 21 October 2019.

[29]	Fifthly, and finally, the terms of the scheme should depart from the scheme of the Act and from the Body Corporate Rules no more than is reasonably necessary to achieve what is fair as between unit owners in the circumstances. In that context, I note the following:

(a)	s 121 of the Act, which provides that levies raised to maintain the Body Corporate’s accounts/funds (including contingency funds for unbudgeted expenditure) are to be apportioned to each owners’ utility interests;

(b)	s 126 of the Act, which provides that the costs of repair work are to be apportioned between units that derive a substantial benefit from the repair work according to the utility interests of those units (unless it would be inequitable to apportion them that way); and

(c)	s 138 of the Act, under which the Body Corporate is required to repair and maintain the common property and any building elements and infrastructure that relate to or serve more than one unit.

[30]	As for costs apportionment, I am satisfied that the present scheme meets those accepted by the Court in Body  Corporate  v  Marine  Parade  Holdings  Limited.8 Mr Batchelor’s and Mr Green’s evidence establishes that the building defects are systemic throughout the whole Development. Thus, all Development owners will benefit from the remedial works and the obtaining of a CCC for the building.

Conclusion

[31]	For these reasons I am satisfied that the orders sought by the Body Corporate should be made in terms of the proposed scheme attached as Schedule A to the application.

8	Body Corporate v Marine Parade Holdings Limited [2019] NZHC 1311.

Result and orders

[32]	The application is granted. The Court approves the settlement under s 74 of the Act and the proposed scheme as set out in Schedule A to the application dated  26 May 2020.

Moore J
Solicitors:
Grimshaw & Co, Auckland