IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE	
CIV-2020-404-2385
[2021] NZHC 729	

UNDER	Section 210 of the Unit Titles Act 2010	
IN THE MATTER	of an originating application by a minority for relief against resolutions of the majority	
BETWEEN	WONG SUN EEN AND OTHERS
Applicants	
AND	BODY CORPORATE 384911
First Respondent

PANDEY VIADUCT QUAYS LIMITED
Second Respondent

PANDEY VIADUCT SUITES LIMITED
Third Respondent
…/cont	

Hearing:	31 March 2021	
Appearances:	P Rice for the Applicants
S Carey for the First Respondent
No appearance by or on behalf of the Second to Fifth Respondents	
Judgment:	1 April 2021	

JUDGMENT OF GORDON J

This judgment was delivered by me on 1 April 2021 at 3.30 pm, pursuant to r 11.5 of the High Court Rules

Registrar/Deputy Registrar Date:

Solicitors:	Haigh Lyon, Auckland
Edmonds Judd, Te Awamutu Farry and Co, Auckland
Counsel:	P Rice, Auckland S Carey, Auckland

EEN v BODY CORPORATE 384911 [2021] NZHC 729 [1 April 2021]

PANDEY VIADUCT SUITES TWO LIMITED
Fourth Respondent

PANDEY VIADUCT SUITES THREE LIMITED
Fifth Respondent

[1]	This originating application is made by a minority group of unit holders (the minority) in a multi-storey building (part of which operates as a hotel) under s 210(1) of the Unit Titles Act 2010 (the Act) seeking an order setting aside a resolution passed at an Extra Ordinary General Meeting (EGM) of the first respondent, Body Corporate 384911 (Body Corporate) on 12 November 2020, regarding the provision of security for the building.

[2]	The effect of the resolution is that security services are now provided to the Body Corporate 24 hours a day, seven days a week (I will use the expression 24/7 as a convenient shorthand) and the Body Corporate members will be levied for the cost of the security.

[3]	The complaint of the minority, in short, is that the effect of the resolution is oppressive to them because it requires them to subsidise what it says is the exorbitant cost of providing 24/7 security for the respondents’ five star hotel from which they say they are excluded. The minority say the resolution should be set aside and replaced with one limited to providing reasonable security for the building, at a reasonable cost.

[4]	The Body Corporate, which is the body corporate for the building, opposes the application and maintains that the resolution is not oppressive.

[5]	The second to fifth respondents, who own a majority of the units in the building (the majority), abide the decision of the Court.

Background

[6]	There are two further related proceedings: one an originating application and the second a standard proceeding, both brought by the minority. The originating application is also brought under s 210 of the Act in relation to resolutions passed by the majority on 7 September 2020, relating to the conduct of a hotel business in the building, and the use of the common property for the purposes of a hotel. That originating application was filed out of time. The minority accordingly filed a separate proceeding on the ordinary track, essentially covering the same ground but pleading

breaches of the Act and Body Corporate Rules in a somewhat more fulsome manner and adding an equitable claim.1

[7]	On 15 December 2020, Hinton J gave a decision on two interlocutory applications in those two related proceedings. The majority, appearing under protest to jurisdiction, applied for the originating application brought by the minority to be dismissed on the basis it was brought outside the timeframe specified in s 210 of the Act. That application to dismiss the proceeding and the protest as to jurisdiction were dismissed.2

[8]	In the second interlocutory application the minority sought an interim injunction prohibiting the Body Corporate and the majority from licensing the common property for use in a hotel business without obtaining a special resolution to that effect; or allowing a hotel business to be conducted in the building except for the benefit of all residential unit owners on terms no less favourable than prevailed under a previous arrangement. Hinton J was satisfied that there was a serious question to be tried as to whether the majority and Body Corporate were entitled to operate a hotel in the building without first obtaining a special resolution under s 56 of the Act,3 but dismissed the application because the balance of convenience favoured the majority.4

[9]	I take the following summary of the factual background from the summary contained in the judgment of Hinton J referred to above.

[10]	The building concerned is at 21 Viaduct Harbour Avenue, and was completed in 2007. The unit title development within the building is comprised of 191 units, being 175 residential units and 16 commercial units. The commercial units are those parts of the building, other than guest rooms and hallways, that are needed to operate a hotel.

[11]	The minority are the owners of 85 of the 175 residential units such that they own about 45 per cent of the total units. The second respondent owns the

1	Een v Body Corporate 384911 [2020] NZHC 3340 at [27].
2	Een v Body Corporate 384911, above n 1.
3	At [58].
4	At [64].

16 commercial units and third to fifth respondents, that is the majority, own 84 of the 175 residential units. All together the majority controls just over 52 per cent of the units in the building. The six other residential units in the building are owned by other persons who are not party to this proceeding or the two related proceedings.

[12]	The second to fifth respondents are owned and controlled by the Pandey family whose group of companies, the CP Group, own hotels in New Zealand, Australia and Fiji.

[13]	Between 2007 and 2010 all units in the building were leased to a company called LQHML, which engaged an international hotel company to operate a Westin Hotel from the premises. LQHML was part of the CP Group. The Westin Hotel operated out of 21 Viaduct Harbour Avenue until LQHML went into receivership in 2010.

[14]	In 2011 the second respondent, Pandey Viaduct Quays Ltd (PVQL) bought the commercial units in the building and persuaded most of the residential unit owners to lease their units to another CP Group company, Viaduct Quays Hotel Ltd (VQHL) for the purpose of operating a hotel in the building.

[15]	VQHL in turn appointed a company associated with the Accor Hotels brand as hotel manager and from March 2012 until 6 July 2020, Accor managed a luxury hotel business in the building, trading as Sofitel Auckland Viaduct Harbour. VQHL paid unit owners for the use of their units as part of the hotel.

[16]	On 6 July 2020, Prakash Pandey, the sole shareholder of VQHL, placed that company into voluntary liquidation as a result of the challenging climate brought about by the Covid 19 pandemic. The liquidators of VQHL disclaimed the leases and the management agreement with the Accor Hotels company, terminating the hotel business that had operated since 2012.

[17]	After the hotel business closed on 6 July 2020, the CP Group spent $4.2 million refurbishing the hotel which reopened on 8 October 2020.

[18]	The majority are currently participating in the new hotel business in the building, also under the name of the Sofitel Auckland Viaduct Harbour. The new business operates by the second to fifth respondents leasing their residential and commercial units to a company, Custom Street Hotel Ltd (Custom Street), of which Prakesh Pandey is the director. Custom Street has a hotel management agreement with AAPC Property Pty Ltd (AAPC) which is part of the Accor group and which manages the hotel under the Sofitel brand name.

[19]	The minority have not leased their residential units to Custom Street.

Circumstances leading to the resolution passed on 12 November 2020

[20]	Murray Davison, the Vice President of Procurement at the CP Group, gives unchallenged affidavit evidence that during the eight year period of operation as a Sofitel, up to July 2020, a security presence was in place on site 24/7, operating from a desk at the main entrance. Mr Davison says as part of the possible reopening of the hotel, Sofitel advised that it wanted to maintain the status quo in respect of security. In other words, Sofitel wished to provide the same level of security from the same place as had been the case previously. Importantly, Sofitel said it would do so at no cost to the Body Corporate.

[21]	The proposal by Sofitel was put to the members of the Body Corporate at an EGM on 12 November 2020 as Resolution 1. The minority voted against Resolution 1 and (being a special resolution requiring a 75 per cent majority) it was defeated.

[22]	Before the 12 November 2020 EGM, because the minority had signalled their opposition to the hotel’s security proposal (claiming they had been excluded from participation in the new hotel – unless they agreed to new lease terms), the Body Corporate was aware that Resolution 1 could fail. Mr Davison says that if  Resolution 1 failed the site would be without any arrangement for on-going security, so a second, alternative resolution was also put to the membership. This was Resolution 2, under which the Body Corporate would arrange security for the site and levy members for the cost. Resolution 2 was an ordinary resolution. The minority voted against it and the majority voted in favour and it was passed.

[23]	The full wording of the two resolutions is as follows:

Resolution 1

It is proposed that the Body Corporate resolve, by special resolution, to approve the manning of the concierge desk for security and H & S reasons (particularly to comply with covid 19 requirements that may be in place from time to time). The hotel to provide this service at no direct cost to the Body Corporate.

OR

Resolution 2

It is proposed that the Body Corporate resolve, by ordinary resolution, that if approval for manning the concierge desk is not given, the Body Corporate is authorised to contract with a security company to provide 24/7 security services for the BC, and to levy the members for this cost.

[24]	Mr Davison refers to what he describes as the predicament faced by the Body Corporate by reference to an email from the General Manager of the hotel which states that, without being able to place security at the main entrance where it had previously been:

(a)	“The hotel cannot be held liable for the security risks we are currently exposed to”;

(b)	“We are required to advise the Body Corporate representing all unit owners, the safety and security of their asset/s is at their risk and liability, not that of the hotel”; and

(c)	“Consideration should also be given around the risks associated with the insurance policy covering the building, its assets and all employees/visitors. Under the current situation, we are unsure if any claim would be approved, due to the highlighted risk and potential perceived lack of duty of care in relation to security”.

[25]	Mr Davison says with the minority having rejected the offer from the hotel to keep security as it had been at no cost to the Body Corporate, this left the Body Corporate facing a host of issues, including around potential liability, and a lack of insurance, if there were any security breaches to the building, including to the

minority’s units or the common areas of which they share ownership. Mr Davison says that was simply not an acceptable position for the Body Corporate to be in, which was why Resolution 2 was offered as an alternative. One way or the other, the Body Corporate premises had to be secured.

Legal principles

[26]	Section 210 of the Act relevantly provides:

210	General relief for minority where resolution required

(1) In any case where this Act requires a resolution and the resolution is passed, any person who voted against the resolution may apply to the appropriate decision-maker for relief on the grounds that the effect of the resolution would be unjust or inequitable for the minority.

[27]	The statutory test requires a high threshold of material unfairness or injustice to be met by the minority.5

[28]	The inquiry is not confined solely to the interests of the minority. All the circumstances of the case are to be taken into account. That enables consideration of a broad range of circumstances including the position of the majority unit holder or holders. The Court must assess the effects of the proposed act on an objective basis having regard to the established facts.6

[29]	Mr Carey for the Body Corporate places particular reliance on the Court of Appeal judgment in Tremont Holdings Ltd v Body Corporate 401803.7 There the Court of Appeal said:8
… The starting point for any consideration of an application for relief under s 210 is that, given all members of the Body Corporate stand to benefit [from the actions approved in the resolution], each should meet its rateable share of the costs incurred for that purpose.

5	Tremont Holdings Ltd v Body Corporate 401803 [2015] NZCA 314 at [19] citing Young v Body Corporate 120066 (2007) 8 NZCPR 932 (HC) at [43] and [49]; Hart v Body Corporate No 180455 (2005) 5 NZConvC ¶95-498 (HC) at [8]; World Vision of New Zealand Trust Board v Seal [2004] 1 NZLR 673 (HC) at [45]; Spencer-Inight v Johnston [1999] 3 NZLR 103 (HC) at 106.
6	Spencer-Night v Johnston [1999] 3 NZLR 103 at 106.
7	Tremont Holdings Ltd v Body Corporate 401803, above n 5.
8	At [21].

[30]	The Court went on to say:9

Excusing one or more from compliance with a levy would unfairly disadvantage the majority of owners who otherwise funded [the actions approved by the resolution].

Discussion

[31]	The minority have not pleaded in the originating application that the resolution is unlawful.

[32]	The injustice/inequity pleaded is that the minority have been excluded from sharing in any benefits associated with the operation of the hotel and accordingly should not share in any costs associated with the hotel; and that 24/7 security services are not reasonably required to protect the minority’s units or the common property.

[33]	Mr Rice for the minority makes a passing submission that providing security for a hotel forms no part of a body corporate’s duties. However in the absence of a pleading as to any unlawfulness, I read that submission as part of the context for his following submission that the resolution should be replaced with one providing for reasonable security for the building at a reasonable cost.

[34]	Responding to Mr Rice’s submission at a basic level: the minority accept they will benefit from the security now operating pursuant to Resolution 2. The resolution was to provide 24/7 security services. Following Tremont, if the minority benefit, then they should meet their rateable share of the cost of such security services.

[35]	I now move on to examine further circumstances in order to consider whether I should reach a different view.

“Exclusion” claimed by minority

[36]	This issue is addressed in Mr Davison’s affidavit. He says that while he accepts that the minority’s units are not currently part of the hotel operation, that was a choice they have made. He refers to “significant efforts” being made to get the minority to

9	At [21].

engage in negotiations to provide new leases for their units to the new manager, Custom Street, to then make them available to the hotel, but to no avail. Mr Davison notes that one non-litigant unit owner has added his unit to the hotel pool. He says that owner was not “excluded” and nor are the minority. They are free to  contact  Mr Pandey if they wish to do so and they have been invited to do so on a number of occasions. He says the apparent reality is that the minority want to lease their units to Custom Street on the same terms as they previously leased their units to VQHL.

[37]	Mr Davison’s surmise as to the apparent reality is reflected in the submissions for the minority. Mr Rice says the minority would happily participate in the new hotel operation on the same or similar terms as those that applied under their leases with VQHL.

[38]	However, the evidence is the leases with VQHL were disclaimed as onerous by that company’s liquidator.  New  leases,  with  a  new  manager,  were  agreed. Mr Davison gives the (not surprising) evidence that the commercial climate and outlook, particularly for hotels, has changed significantly for the worse. Mr Davison says, at the risk of stating the obvious, the advent of Covid 19 had a hugely negative impact on the tourism and hotel markets in New Zealand with the attendant border closure and lack of visitors. He says the lack of visitor numbers to Auckland led to a direct flow-on drop in hotel occupancy rates. Specifically in relation to the Sofitel, the occupancy rates dropped from somewhere in the 90 per cent region to single digits. Mr Davison says it is not realistic to ignore the fact of the significantly altered commercial climate and insist on the same commercial terms as if nothing has changed.

[39]	Mr Davison’s evidence is not challenged in reply.

[40]	Whether the minority was right or wrong to adopt the position that they would participate in the hotel operation, but only on the same or similar terms as before, has limited relevance. What is relevant is that taking that course was the minority’s choice. I do not accept they have been excluded from the hotel operation.

Rejection of offer of free security

[41]	Mr Rice submits that the minority could not have accepted the offer by the hotel to pay for security. He says to have done so would have undermined their position in the related proceedings where they are seeking to prevent the hotel operating until the required legal steps are taken.

[42]	I do not accept that submission. It would have been open to the minority to have accepted the provision of free security services on a without prejudice basis to their position in the related proceedings.

What is the benefit to the unit holders of the security arrangement?

[43]	Mr Davison addresses the minority’s contention that the security now provided under Resolution 2 is solely for the hotel and nothing to do with the Body Corporate. Mr Davison says that is not the case: the security is needed for, and is provided for, the building as a whole, including the units owned by the minority and the common areas. He says that a comment by Mr Lip in his affidavit in support of the application that the minority will have  “no  control”  over  the  security  guards  is  incorrect.  Mr Davison says, to the extent that control will be effected on the security team, it will be undertaken by the Body Corporate as an entity, not by the majority as unit owners, and will therefore include the minority as they are members of the Body Corporate.

[44]	Mr Davison refers to the email from the General Manager of Sofitel, referred to in [24] above, where the General Manager put the Body Corporate on notice that security of all unit owners’ assets is at risk. He says similarly the insurance cover for the building as a whole would be at risk without security, which is something that affects all members.

[45]	Mr Davison says the Body Corporate took the view that, as the hotel’s offer was rejected, the next best option was for the Body Corporate to arrange security. In doing so, the Body Corporate made it clear to its members the cost would lie with the Body Corporate.

[46]	I accept that on Mr Davison’s evidence, all unit holders, including the minority, receive a benefit from the proposed security arrangements, both in relation to their individual units and the common areas. And, as already noted, the minority accept they receive a benefit.

Scope and cost of security

[47]	I next address the minority’s submission that 24/7 security is not required and they therefore should not have to pay for that level of security. They say the cost at
$29,000 per month is exorbitant.

[48]	There is conflicting evidence as to the necessity of the level of security and the consequential cost.

[49]	The minority rely on the evidence of Craig Leishman, the director of Boutique Body Corporates Ltd (Boutique) which manages 320 complexes throughout New Zealand. In summary, Mr Leishman’s evidence is that a 24/7 concierge service is well beyond the security measures adopted by any comparable residential complex managed by Boutique. He says most have a building manager with an electronic access control system, coupled with CCTV cameras. Another high end complex in the same neighbourhood, Wyndham Central, with no building manager, engages nightly security patrols at a cost of approximately $25,000 per annum over the last three years.

[50]	However, Hamish Kerr, the director and owner of Scope Investigations Ltd (Scope) which is a registered and licensed private investigation company established in 1987, says he would strongly recommend 24/7 security. Mr Kerr has relevant background  as a former  New Zealand Police detective and he has, over the last     15 years, provided consultancy on many security risk projects where he was engaged to identify areas of risk and provide recommendations to mitigate any such risks. This included many different environments. He is also a fully licensed security consultant.

[51]	Mr Kerr says that the “unique design” of the building, means that it could not be directly compared to the buildings cited by Mr Leishman. Mr Kerr refers to the building having multiple access points at ground level which make it extremely difficult to manage from a security perspective.

[52]	The minority filed a reply affidavit from Mr Leishman dated 24 March 2021. It was two months out of time. It was filed without any application under r 1.19 of the High Court Rules 2016 to extend time. Mr Rice made an oral application at the hearing to do so. He indicated that the filing of reply evidence was simply overlooked and in the interim the parties had been involved in discussions such that a hearing might not be required. Mr Carey objected to the Court reading the affidavit at all. In the alternative he raised particular objections to two paragraphs (Mr Rice accepted that a third paragraph should be withdrawn). Mr Carey said there was no indication given that a reply affidavit would be filed and the filing was at a time after the submissions had been filed and served. He submitted that the two paragraphs to which particular objection was taken were not reply evidence in any event. And finally he had not been able to speak to Mr Kerr prior to the hearing about Mr Leishman’s evidence. In all those circumstances, the first respondent was prejudiced by the late filing.

[53]	I do not admit the reply affidavit. The reasons for it not being filed on time are inadequate. And in any event, the evidence does not assist the Court one way or the other in reaching a decision.

[54]	The Court cannot resolve the differences between the evidence of the two witnesses without cross-examination. In the end it is not necessary to do so in order to determine the issue as to whether the effect of the resolution is unjust or inequitable.

Is the effect of Resolution 2 unjust or inequitable?

[55]	I take into account the following

(a)	The minority was not excluded from the hotel operation. The offer to participate in the hotel operation remains open to this day. The minority chose not to be part of the hotel by seeking terms that were the same or similar to their previous involvement, but which are not sustainable in the current commercial climate for hotels;

(b)	The hotel offered to provide security services at the cost of the hotel. In other words, security was offered at no cost to the Body Corporate. In voting against Resolution 1, the minority rejected that offer;

(c)	An alternative form of security was accordingly required. I note that there was no evidence which suggests that the security provider is not charging at market rate. The security contract was put to tender and the preferred option was the lowest cost;

(d)	All unit holders receive a benefit from the security operation put in place as a consequence of the passing of Resolution 2; and

(e)	If the cost of $29,000 per month is distributed evenly amongst the 191 unit owners, the approximate monthly cost would be $151.80. This cost is modest. It may be even less, when calculations are made for each owner’s utility interest (having regard to the existence of the commercial units).

[56]	In short, what the minority (and in fact all unit holders) receive is the benefit of security 24/7 for the modest cost of $151.80 per month (or perhaps less). That, against the background I have discussed above, does not suggest the effect of the resolution is unjust or inequitable for the minority. The minority have not established material unfairness or injustice at the high level required.

Result

[57]	The minority have not met the high threshold required for s 210 relief. The application is refused.

Costs

[58]	I did not hear from the parties on costs. I therefore reserve costs. The first respondent, as the successful party is prima facie entitled to costs. If the parties can agree costs, a joint memorandum should be filed within 20 working days of the date of this judgment. If costs cannot be agreed, the first respondent is to file and serve its memorandum within five working days of the date for the joint memorandum. The applicants are to file and serve their response within a further five working days.

[59]	Costs memoranda should not exceed four pages, excluding any attachments.

[60]	I will determine costs on the papers.

Gordon J