IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE	
CIV 2018-404-001541
[2019] NZHC 970	

UNDER	the Unit Titles Act 2010	
BETWEEN	BODY CORPORATE 401803 a Body
Corporate constituted pursuant to the provisions of the Unit Titles Act 2010 Applicant	
AND	NANDA & ORS (as listed in Schedule 1) Respondents	

Hearing:	4 April 2019	
Appearances:	T Hollewand for Applicant
No appearances for or by Respondents	
Judgment:	6 May 2019	

JUDGMENT OF VAN BOHEMEN J

This judgment was delivered by me on 06 May 2019 at 3.00pm Pursuant to Rule 11.5 of the High Court Rules

…………………………

Registrar/Deputy Registrar

Solicitors:
Grimshaw & Co, Auckland

BODY CORPORATE 401803 v NANDA & ORS (as listed in Schedule 1) [2019] NZHC 970 [6 May 2019]

Introduction

[1]	Body Corporate 401803 (Body Corporate) applies for an order under s 74 of the Unit Titles Act 2010 (the Act) settling a scheme for the remediation of defects at the unit title development at 4 Wagener Place, Mount Albert (the Tremont property).

Relevant background1

[2]	The Tremont property is a five story, multi-unit residential building containing 106 apartments, a gymnasium, a sauna, offices and an outdoor pool and tennis court.

[3]	In 2016 the Body Corporate engaged GBC Group Ltd (GBC) and Origin Fire Consultants Ltd to investigate the Tremont property for non-compliance with the New Zealand Building Code. In an affidavit sworn on 20 July 2018, Andrew Gray, a registered building surveyor and director of GBC, identified the following defects at the Tremont property that fail to meet relevant provisions of the Building Code:

(a)	The structural and weathertightness elements of the podium area and the tennis and swimming pool areas;

(b)	The below-ground waterproofing;

(c)	The private deck construction;

(d)	The roof cladding;

(e)	Further cladding that failed to prevent water ingress;

(f)	The fire stopping features of the walls and floors; and

(g)	The joinery junctions.

[4]	The identified defects are substantial and require extensive remedial works at an estimated value of $10.4 million.

1	As drawn from affidavit sworn on 19 July 2018 by Peter Lewis Sharman, chairperson of the Body Corporate.

[5]	Many of the defects are to areas of “common property” or to “building elements” as those terms are defined in the Act.2 Defects to areas within “principal units” such as the private deck areas are common to many of the units.3

[6]	Following the identification of the defects, the Body Corporate engaged Resolution Architecture Limited (Resolution Architecture) to prepare designs for the required remedial works and obtain the necessary building consents. On 1 June 2018 Resolution Architecture lodged an application with the Auckland Council for the appropriate consents.

[7]	On 19 March 2018, an extraordinary general meeting (EGM) of the Body Corporate resolved unanimously that a scheme for the undertaking of the remedial work be prepared pursuant to s 74 of the Act. The EGM also resolved unanimously

2	Under s 5 of the Unit Titles Act 2010:
building elements includes the external and internal components of any part of a building or land on a unit plan that are necessary to the structural integrity of the building, the exterior aesthetics of the building, or the health and safety of persons who occupy or use the building and including, without limitation, the roof, balconies, decks, cladding systems, foundations systems (including all horizontal slab structures between adjoining units or underneath the lowest level of the building), retaining walls, and any other walls or other features for the support of the building

common property means—

(a)	all the land and associated fixtures that are part of the unit title development but are not contained in a principal unit, accessory unit, or future development unit; and

(b)	in the case of a subsidiary unit title development, means that part of the principal unit subdivided to create the subsidiary unit title development that is not contained in a principal unit, accessory unit, or future development unit

3	Under s 7(1) of the Unit Titles Act 2010:
(1)	In this Act, principal unit means a unit—
(a)	that is designed for use (whether in conjunction with any accessory unit or not) as a place of residence or business or for any other use of any nature, and that is shown on a unit plan as a principal unit; and
(b)	that—
(i)	contains a building or part of a building or is contained in a building (although the unit may or may not be bounded by the physical dimensions of the building); or
(ii)	is 1 or more car parks.

that the sum of $200,000 plus GST be raised and levied on an ownership interest basis to all owners to cover the remedial works process through to building consent stage.4

[8]	In accordance with the decisions taken at the EGM, a proposed scheme was prepared pursuant to s 74 of the Act to reinstate the Tremont property by undertaking the repairs as set out in the proposed scheme. Under the proposed scheme, the costs of the remedial work would be levied to the owners in accordance with their respective utility interests.

[9]	On 23 July 2018, the Court made directions as to service of the Body Corporate’s application requiring that the Body Corporate:

(a)	Serve the originating application and the two supporting affidavits on all the registered charge holders/mortgagees and on the insurer of the Tremont property;

(b)	Obtain a signed acknowledgment of service form confirming receipt of the originating application and the two supporting affidavits from each of the proprietors; and

(c)	Serve the Registrar-General of Land in accordance with s 74(5) of the Act.

[10]	On 25 February 2019, the applicant filed the sworn affidavit of Thomas Hollewand, a solicitor from Grimshaw & Co confirming that service had been effected as directed. The last date for filing a notice of opposition was 25 February 2019. No notice of opposition has been filed.

Amendment to scheme as originally submitted

[11]	The scheme as submitted to the Court defines “the Defects” as:

… building defects to common and unit property and resulting damage identified by the Body Corporate’s building consultants and may contain

4	See Minutes of Extraordinary General Meeting annexed as PS4 to affidavit of Peter Lewis Sharman sworn on 19 July 2018.

further defects and/or damage identified during the course of further investigations and/or repairs …

[12]	The scheme defines “the Repairs” as:

… remedial work to rectify the Defects and associated damage to the Property

[13]	By minute dated 21 March 2019, Lang J expressed concern as to whether the scope of repairs envisaged under the scheme extended to work that was not necessary to rectify defects or damage but rather to obtain code compliance.

[14]	By memorandum dated 26 March 2019, counsel for the applicant said that arguably, any repairs that may be required by the Council to issue a code compliance certificate are encompassed by the scheme because any work required by the Council to remedy defects would come within the definition of repairs, being remedial work necessary to rectify the defects. To remove any doubt, however, the applicant proposed that the following sentence be added after the definition of repairs in Recital D:

For the avoidance of doubt, the Repairs includes all work the relevant authorities require be undertaken in the course of rectifying the Defects.

[15]	At the mention on 4 April 2019, I indicated that this amendment appeared to address the concern expressed by Lang J. However, by minute dated 17 April 2019 I said that, having reflected on the matter further, I was not persuaded that the amendment fully covered the concern expressed by Lang J. That concern related not to whether the Council issued a code compliance certificate for work to repair the defects that were the reason for the scheme but to the possibility that, in the course of inspecting the works necessary to repair the defects, the Council identified other areas where work was required to bring the building into compliance with the current Building Code. Work to ensure code compliance in these areas might not necessarily be work to rectify the defects.

[16]	For these reasons, I suggested that the proposed addition to Recital D be amended along the following lines:

For the avoidance of doubt, the Repairs includes all work the relevant authorities require be undertaken to ensure code compliance in the course of or in association with work to rectify the Defects.

[17]	I invited counsel to submit a revised scheme that included that amendment. I said I did not consider that the amendment substantively altered the terms of the scheme and that service of the amendment on the owners of the units making up the development was not necessary.

[18]	By memorandum dated 22 April 2019, counsel for the applicant filed an amended proposed scheme incorporating the amendment I had suggested. As indicated in my minute dated 17 April 2019, I waive the requirement to serve the amendment to the scheme on the owners of the units in the Tremont property.

Analysis

[19]	The question before me is whether the Court should grant an order settling the amended proposed scheme to repair the defects at the Tremont property in accordance with s 74 of the Act.

[20]	Section 74 of the Act 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

…

(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

…

(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.

[21]	The leading authority on s 74 is the Court of Appeal’s decision in Tisch v Body Corporate 318596.5 Although Tisch was decided under s 48 of the Unit Titles Act 1972, the wording of s 74 is the same as s 48 of the 1972 Act for current purposes and Tisch continues to be applied in decisions made under s 74 of the 2010 Act.6

[22]	The Court of Appeal in Tisch held that a court must follow a three-step process when considering an application to settle a proposed scheme:7

(a)	Step one: the court must be satisfied that the building has been damaged or destroyed.

(b)	Step two: if so satisfied, the court must decide whether to settle a scheme. That is, the court must decide whether the scheme is appropriate in the circumstances.

5	Tisch v Body Corporate No 318596 [2011] NZCA 420, 3 NZLR 679.
6	See Body Corporate 355492 [2018] NZHC 2250 and Body Corporate 184013 [2017] NZHC 2194.
7	Tisch v Body Corporate No 318596 [2011] NZCA 420, 3 NZLR 679 at [35].

(c)	Step three: if the court decides the scheme is appropriate, it must then decide what the terms of the scheme should be.

[23]	The affidavit sworn on 20 July 2018 sworn by Andrew Gray of GBC states that the Tremont property has been damaged by water ingress and other defects that render the building non-compliant with the Building Code. I am satisfied the first step has been met.

[24]	With regard to step two, the Court in Tisch agreed that the primary focus should be on pragmatic considerations such as the need for work to common and private areas to be undertaken at the same time or where the scheme represents the collective will of the owners who participated in discussions on how to solve problems in the buildings.8 The Court also held that it is not necessary that the remedial work be essential.9

[25]	I am satisfied that the scheme is pragmatic and appropriate in the circumstances. It also reflects the collective will of the owners in as much as the works are to be carried out pursuant to the scheme prepared in accordance with a resolution that was adopted unanimously at the EGM held on 19 March 2018 and no owner has lodged an objection to the application following service in accordance with the Court’s directions. The scheme will enable the necessary repair work to be undertaken to a consistent standard, enable contractors to deal with the Body Corporate alone, clarify the basis upon which levies are to be raised, clarify the obligations of the Body Corporate and owners, assist owners in obtaining funding from their banks and will bind both current and future owners.

[26]	The amendments made to the scheme at the suggestion of Lang J and myself do not change the scheme substantively; they are intended to ensure that the Body Corporate may, if required by the Council, undertake works associated with the defects to ensure the building complies with the Building Code.

8	Tisch v Body Corporate No 318596 [2011] NZCA 420, 3 NZLR 679 at [37]-[43].
9	At [42].

[27]	In terms of step three, the Court of Appeal in Tisch identified five principles to be considered when assessing a proposed scheme:10

(a)	A scheme with broad support is to be preferred.

(b)	The scheme should be appropriately detailed. The more detailed the scheme, the less scope for later misunderstanding and argument about it.

(c)	The scheme will have retrospective effect;

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

(e)	The scheme should depart from the legislation and the body corporate rules no more than is reasonably necessary to achieve what is fair between unit owners in the circumstances.

[28]	As already noted, the scheme was prepared with the support of all owners who participated at the EGM on 19 March 2018 and there has been no opposition to the scheme.

[29]	The scheme defines “the Defects” and “the Repairs” as set out in [11] and [12] above. While those definitions are stated generally, that is because the full scale of the damage to the building and of the repairs that may have to be undertaken may not become apparent until further work is undertaken. I am satisfied, nonetheless, that the scope of the defects and repairs as set out in the proposed scheme are appropriately detailed in terms of the Tisch principles, having regard to the fact that the scope of the works to be undertaken pursuant to the scheme were provided and explained to the unit owners by Mark Callendar of Resolution Architecture and Andrew Gray at the EGM held on 19 March 2019.11

10	Tisch v Body Corporate No 318596 [2011] NZCA 420, 3 NZLR 679 at [45] – [49].
11	See Minutes of Extraordinary General Meeting annexed as PS4 to affidavit of Peter Lewis Sharman sworn on 19 July 2018.

[30]	The applicant has adequately addressed the concerns of Lang J by amending the definition of Repairs which was originally set out as “the remedial work necessary to rectify the defects and associated damages to the property.” The amendment added the following to the end of the original definition – “for the avoidance of doubt, the Repairs includes all work the relevant authorities require be undertaken to ensure code compliance in the course of or in association with rectifying the defects.” This amendment removes any room for misunderstanding in regard to the scope of the repairs in respect of compliance with the Building Code.

[31]	In addition, the language of the scheme is plain and clear and there are adequate procedures in place to address any disagreements or disputes that may arise.

[32]	With respect to retrospectivity, the scheme is concerned principally with future work. As noted at [7], the Body Corporate has already endorsed expenditure up to the building consent stage. The scheme also provides that remedial work already undertaken in furtherance of obligations imposed under the Scheme is to be ratified and confirmed as forming part of the scheme.

[33]	The scheme also facilitates the work being carried out at the same time and completed to the same standard.

[34]	The proposed scheme does not depart from the Act or the Body Corporate Rules. It is consistent with s 138 of the Act, which provides that the Body Corporate is to repair and maintain all common property and any unit property that relates to or serves more than one unit. The scheme is further consistent with s 121 whereby repairs are to be levied in accordance with utility interest and pursuant to ss 126 and 138(4) where that levy is subject to the Body Corporate’s discretion at the conclusion of the remedial work.

[35]	Accordingly, I am satisfied that the amended proposed scheme accords with the principles set out in Tisch, that the terms of the amended proposed scheme are appropriate, that each of the three Tisch steps have been made out, and that it is appropriate that I order that the scheme be settled. This conclusion is consistent with

prior decisions of this Court which have previously settled schemes involving similar circumstances.12

Result

[36]	Accordingly, I make orders under s 74 of the Unit Titles Act 2010 settling the amended proposed scheme as annexed to the applicant’s memorandum dated 22 April 2019.

G J van Bohemen J

12	See for example Body Corporate [2018] NZHC 2250.

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