IN THE HIGH COURT OF NEW ZEALAND WHANGAREI REGISTRY CIV [2015] NZHC 884. AND BODY CORPORATE Defendant

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1 IN THE HIGH COURT OF NEW ZEALAND WHANGAREI REGISTRY CIV [2015] NZHC 884 BETWEEN DEREK PETER WHEELDON AND CAROL ANN WHEELDON, ANTHONY JOHN BUTCHER AND RUTH BARBARA ROGERS, LARRY LAWRENCE SMALL AND KM TRUSTEES SERVICES LTD, IVOR ANTHONY MILLINGTON AND NEVILLE EADE Plaintiffs AND BODY CORPORATE Defendant AND ROBYN KATHLEEN STENT Counterclaim Defendant Hearing: 2-6, and March 2015 Counsel: B E Brill for the Plaintiffs and Counterclaim Defendant TJG Allan and TJP Gavigan for the Defendant Judgment: 30 April 2015 INTERIM JUDGMENT OF MUIR J This judgment was delivered by me on 30 April 2015 at 4.30 pm pursuant to Rule 11.5 of the High Court Rules. Registrar/Deputy Registrar Date:. Solicitors: B E Brill Ltd, Kerikeri Grove Darlow & Partners, Auckland WHEELDON v BODY CORPORATE [2015] NZHC 884 [30 April 2015]

2 Introduction [1] Yet again the Courts are faced with a Body Corporate whose members have strongly divergent views as to how it should respond to alleged weathertightness issues. Together, they own the 22 apartments comprising the Bridgewater Bay Development adjacent to an estuary on the outskirts of Paihia. The development was constructed between 2003 and [2] In response to a detailed report by a specialist investigator 17 of the unit owners wish to proceed with a comprehensive repair which would, among other things, require regrading each of the apartment decks and remodelling (or replacing) existing joinery suites on the northern façade of the development. The cost is substantial. Although originally budgeted at approximately $1.7 million, recent escalation in building costs and the absence of a competitive local market has seen that budget increase to in excess of $3 million. During the course of the trial this option came to be identified by the defendant as the holistic repair. It would involve delivery of a development fully compliant with current Building Code requirements and, says the Body Corporate, would mitigate, as fully as possible, the current stigma attaching to the building. [3] The five plaintiffs, or at least those who owned apartments at the time, were initially supportive of (or passively accepted) the holistic repair option. However, with what they say is better information and in the face of escalating costs, they now submit that the Body Corporate s proposed works are ultra vires and/or have not been properly authorised. They allege capture of the Body Corporate by the Auckland based leaky building industry and cupidity on the part of individual consultants. They contend for a limited or targeted repair, deny that there are any systemic problems with the development and say that all that is currently required is remedial work to the two timber-framed penthouses which sit on the fourth floor of the building. They say that such work should be paid for by the owners of those units and that although other elements of the building, and, in particular, deck membranes for the remaining 18 apartments, may be nearing the end of their service life, all that is, in due course, required is to lift and replace the membranes and tiles at a cost unlikely to exceed $6,000 per unit.

3 [4] In addition to their attacks on the vires and procedural regularity of the Body Corporate s repair plan, the plaintiffs also challenge various payments which the Body Corporate has made and levies which it has raised in the context of investigating defects and developing its plan. They say that the Body Corporate has unlawfully raided a long term maintenance fund and that other payments were similarly in breach of the Unit Titles Act 2010 (UTA 2010). [5] Each of the plaintiffs is, in turn, the subject of a counterclaim for outstanding levies which is met by a comprehensive challenge to the legality and procedural regularity of such levies. There are multiple individual components to that challenge. [6] The counterclaim defendant, Ms Stent, is a recent purchaser, having acquired her apartment in March 2014 (settled July 2014) with full knowledge of the alleged defects and at a price reflecting what was, at least at that stage, understood to be the likely costs of repair in accordance with the Body Corporate s plans. She is the wife of counsel for the plaintiff. She is sued for outstanding levies on the same basis as are the plaintiffs on the defendant s counterclaim. In its evidence the Body Corporate claims that all of the current dissention, the voluminous exchanges of correspondence which have occurred, the significant costs which have attended major High Court litigation, the resultant delays in undertaking the remedial work and the cost escalations which have followed can all be dated back to Ms Stent s acquisition of her unit. It expresses a high degree of frustration with the current position. Background [7] Because specific design details relating to the development are more conveniently discussed in the section of the judgment relating to the requirement for repair or maintenance, I provide only a brief overview at this stage. Likewise, the history of the problems with the development and the Body Corporate s response, culminating in its various actions and resolutions, are better addressed in the context of the plaintiffs specific challenges.

4 [8] The Bridgewater development comprises four levels with the ground floor (identified as level one in the proceedings) providing car parking, storage and entry lobby. Each of levels two and three comprise 10 apartments, eight with two bedrooms and two of one bedroom. One bedroom apartments are centrally located, with the building fanning out either side in a gentle north facing arc. To either side of the one bedroom apartments are four two bedroom apartments. All apartments therefore enjoy views of the adjacent estuary and beyond from a deck on their northern side. Levels one, two and three are constructed of in situ concrete and plastered concrete block. Level four consists of two three bedroom apartments (referred to by the plaintiffs as penthouses ). Their construction consists of monolithic cladding over timber framing. A number of issues emerge in relation to the adequacy of that construction. [9] The development follows a wedding cake design whereby each of the level three and four apartments are stepped back with their decks comprising the roofs or part roofs of the apartments below. The effect is to reduce the overall scale and bulk of the development and to maximise sun, privacy and fire separation. [10] Aesthetically, the central portion of the development is characterised by three fins which are clad in an aluminium composite known as ACP panels. The centre fin starts at level four and provides privacy between the two penthouse decks. In turn it runs through to the car parking level providing the same privacy to the one bedroom apartments on levels two and three. Additional fins pass through levels two and three marking the other boundary of the one bedroom apartments. Decks to the two bedroom apartments are in turn separated by plastered masonry walls. [11] The northern façade of the building (at apartment level) is substantially glazed but each of the two bedroomed apartments also includes timber framed titan board infill panels adjacent to the master bedroom. [12] Guttering both from the roof and decks is internal through the walls which separate each of the decks. Connection to the relevant downpipes from the level four decks is through drains in the relevant level three apartment ceilings. This internal reticulation system has given rise to significant problems with water penetration

5 through level three ceilings and high moisture readings at the level one rain heads indicating that, somewhere in this encased system, leaking is occurring. [13] Problems with the development have been evident for some time. As early as 2006 the plaintiff Mr Millington, who purchased apartment 307 from the developer, was experiencing moisture problems in his ceiling which increased to the point that water began to start seeping down [his] walls and into [his] carpet. The likely source appeared to be the penthouse above whose owners he said had long been complaining about the ponding of rain water on the decks. [14] As a result, certain remedial works were undertaken to the two penthouse decks. However, problems continued and after a further lengthy period of complaints by Mr Millington he indicated an intention to bring a claim before the Weathertight Homes Resolution Service (WHRS). That was not pursued because of concerns about the development acquiring a leaky building stigma and eventually the immediate problem affecting Mr Millington appears to have been resolved. [15] Long term (albeit not continuous) committee member, Mr Andrews, deposes, however, that in the period prior to the January 2013 AGM he became aware, through discussions with other owners and as a result of his own observations, that there were a number of issues in respect of decks within the development, not limited to those at level four. These included water ponding, cracked tiles, some membrane failure and water cascading from the level three roof gutters onto the decks of level two during heavy rainfall events. [16] These concerns were ventilated at the 2013 AGM which resolved that the Committee be tasked to engage a consultant to investigate further. [17] AA Home Inspections (2000) Limited (AA) produced a report dated 22 April Its brief was limited to investigation of the level four decks and any other deck which the owners requested be inspected. In the event, six decks were examined by it. The inspection was visual only with no invasive testing. The report identified examples of water ponding and a requirement for remediation, including where applicable, establishment of positive falls to deck outlets.

6 [18] Receipt of this report alerted Mr Andrews and others to what they considered may be more significant problems with the development. Those concerns were compounded by the re-emergence of moisture problems in the ceilings of three of the third floor apartments. AA was commissioned to provide a supplementary report following removal of sections of the apartment ceilings and reported evidence of current moisture ingress. [19] Mindful of impending limitation periods and on the advice of the Body Corporate Secretary, the Committee, which at that stage comprised Ms Gray and Ms Barr (supported by Mr Andrews and Mr Nimmo) then approached specialist leaky building solicitors Grimshaw & Co for advice. That firm recommended that a comprehensive review of the development be undertaken by Mr Andrew Gray of Origin Construction Consultants Limited (Origin) (now Veron Limited). Such investigation, which included invasive testing, took place on 10 and 11 October 2013 with an extensive report and recommendations provided on 18 October 2013 (the Origin Report). In summary, Mr Gray identified what he considered to be numerous original construction and design defects in the development. He proposed a comprehensive repair plan (the Origin Repair Plan) consistent with current Building Code requirements. The Origin Repair Plan represents the holistic repair advocated for by the Body Corporate. Substantive components of that repair plan involve work within the surveyed boundaries of individual units, that is, on private as opposed to common property. This includes establishing code compliant falls to the decks and all the associated works which regrettably derive from that. In that respect the Body Corporate invokes s 138(1)(d) of UTA Application of that section and, in particular, its interrelationship with s 80(1)(g) is a central issue in the case. [20] The Origin Report, together with the further documents described later in this judgment, was then provided to the owners. An urgent Extraordinary General Meeting (EGM) was convened on 9 November 2013 to discuss its implications. The matters decided at that meeting and the actions subsequently taken by the Committee and the Body Corporate are discussed in detail at [177] to [183] of this judgment. Suffice to say, that the battle lines are now drawn between the 17 owners who wish to proceed with the holistic repair option and the five owners who favour a targeted approach.

7 Preliminary [21] In my Minute No 2, dated 2 March 2015, I recorded an oral application at the commencement of trial by counsel for the defendant to amend paragraph 14 of the defendant s statement of defence which was formerly pleaded in terms of an admission with stated reliance on the full term of the minutes of the 9 November 2013 EGM. Mr Allan for the defendant indicated that this was a mistake and that the appropriate pleading was a denial coupled with reliance on the minutes. He said that the admission was inappropriate because paragraph 14 of the statement of claim alleged a delegation to investigate defects, but that word was not used in the relevant resolution and because the delegation was, in reality, an instruction. At the time I indicated that I was not persuaded that there would be any substantial difference in the evidence if the admission were withdrawn, but acceded to Mr Brill s request that the matter be revisited in final submissions. At that point Mr Brill maintained his objection although he was unable to identify any specific prejudice. I allow the amendment. Interim decision [22] Following closing submissions on 10 and 11 March 2015 I received a memorandum from counsel for the defendant inviting the Court to issue, pursuant to r 11.2, an interim decision restricted to the plaintiff s first cause of action (declarations and injunctive relief relating to the scope of intended remedial work) and leaving the second cause of action and counterclaims (propriety of and nonpayment of levies) for later determination if required. This invitation followed unsuccessful discussions between the parties about the basis on which these claims might be adjourned by consent. There has been no response to the defendant s memorandum. [23] In my view the defendant s proposal is sensible. The key issue facing the Body Corporate and its members is the vires of the Body Corporate s intended remediation plans. Resolving that bottleneck is essential to finalising the plans, obtaining tenders and undertaking the work. That, in turn, allows the Body Corporate to quantify the claims which it and all 22 owners have progressed against parties whom they regard as responsible for the building s defects. It places at a

8 premium swift delivery of judgment and resolution of any appeals. An immediate focus on the key issues serves that purpose. [24] Moreover if (as I find) the Body Corporate s intended plans are lawful and if such judgment is either accepted or ultimately upheld on appeal, I consider there to be a high probability that the many subsidiary issues relating to the propriety of individual payments and levies will be self-resolving. For example, if the development is indeed to be fully remediated to current code standards, arguments as to whether existing consultant payments were properly made from what the plaintiffs claim is a long term maintenance fund within the terms of UTA 2010 (but which the defendant denies was ever constituted as such) are likely to be academic. Likewise, if a comprehensive repair is to take place, there are likely to be higher priorities than whether the procedural requirements associated with an existing levy have been satisfied. [25] Specifically, the defendant s memorandum suggests that, following determination of the first cause of action, the parties be given the opportunity to resolve the second cause of action and counterclaim and that, only in default of that occurring, would the Court be invited to give judgment on them. The defendant suggests the right to seek a determination after 10 working days following the determination of the first cause of action. This approach seems to me to be a practical one, although the 10 day suggested period should, in my view, be enlarged to 30 working days so that the issue can be considered in conjunction with appeal rights. Section 138(1)(d) UTA Interrelationship with s 80(1)(g) [26] Section 138(1)(d) of the UTA 2010 provides: 138 Body Corporate duties of repair and maintenance (1) The body corporate must repair and maintain (d) any building elements and infrastructure that relate to or serve more than 1 unit.

9 [27] Section 80(1)(g) in turn provides: 80 Responsibilities of owners of principal units (1) An owner of a principal unit (g) must repair and maintain the unit and keep it in good order to ensure that no damage or harm, whether physical, economic, or otherwise, is, or has the potential to be, caused to the common property, any building element, any infrastructure, or any other unit in the building: [28] Central to the plaintiffs case is the proposition that, other than in what Mr Brill describes as a Berachan type case, 1 the duties imposed on the Body Corporate under s 138(1)(d) are subordinated to the duties imposed on the unit owner under s 80(1)(g) in the sense that, only in the event of default by the unit owner in his or her repair and maintenance obligations, does the Body Corporate have the duty (and associated power) to effect the repair. In the case of building elements requiring such repair, that would necessarily involve identification by the Body Corporate of the required scope of works, notice to unit holders to undertake the works, monitoring performance of that requirement, in default undertaking the work itself and, in that event, effecting a recovery from the individual unit owner under either s 138(4) or s 127. [29] Berachan concerned the replacement of the roof on a 12-storey property, where only 20 per cent of the roof was common property. The Court of Appeal held that the body corporate was entitled to assume responsibility in relation to the repair and maintenance of unit property provided that duty could be fairly seen as incidental to the duty to maintain and repair common property. 2 [30] The Court observed at [4] that had the case arisen under s 138 of the 2010 Act, the Body Corporate would have the obligation to repair and replace the roof. Significantly, the Court of Appeal made that observation despite the fact that s 80(1)(g) of the UTA 2010 would have prima facie applied to the owner of the unit 1 2 Berachan Investments Ltd v Body Corporate [2012] NZCA 256, [2012] 3 NZLR 72. At [46].

10 who owned 80 per cent of the roof. Mr Brill s exception is therefore inevitable in light of the Court of Appeal s comments. [31] Mr Brill submits that the distinguishing characteristic of the Berachan case is that the building element concerned (the roof) was one which, in the words of the Court of Appeal, looks and functions like a single entity. Only by a line on a drawing could the separate components (those forming part of the unit and those comprising common property) be identified. Moreover, the roof was intersected by rain water collection gutters running its length through common and unit property. [32] Beyond this most obvious case, Mr Brill submits that the Body Corporate s duties under s 138 arise only in the case of unit holder default and, even in that context, require what he terms a particular and direct relationship between the relevant building element or infrastructure which requires repair or maintenance and more than one unit in the development. The limits of such particularity and directness (beyond the Berachan type situation) are not defined. [33] In support of that proposition Mr Brill taps a deep philosophical vein. He invokes Lord Coke s seventeenth century observation that a man s house is his castle and is his safest refuge. 3 Mr Brill says that, consistent with that philosophy, the legislature must be taken as having preserved maximum sovereignty in the hands of individual unit holders and not to have gratuitously moved that sovereignty to the Body Corporate. He adopts a minimalist approach whereby only such sovereignty as he says is required to be transferred to the Body Corporate, passes to it. He says that concepts such as uniformity of appearance, consistency of outcome, etc are commercial values which must be subordinated to personal values such as uniqueness and refuge because what we are dealing with here are people s homes. He invokes s 79(d) of the UTA 2010 in terms that the owner of a principal unit: 79 Rights of owners of principal units An owner of a principal unit 3 Semayne s Case [1604] 5 Co Rep 91a, [ ] All ER Rep 62.

11 (d) is entitled to quiet enjoyment of his or her unit without interruption by other unit owners or occupiers, or the Body Corporate or its agents, except as authorised by this Act or the Regulations. [34] He says that where the Act recognises a joint responsibility on the part of a unit owner and the Body Corporate for repairs and maintenance, its scheme is served by allowing the owners to be the players and the Body Corporate to be the monitor and referee. In support of that proposition he submits that: (a) Because full liability for the repair costs will likely fall upon the owner he or she should have the opportunity to choose the contractor and to negotiate the contract details; (b) As the owner will have to live with the outcome on a day to day basis he or she ought to have the first opportunity to propose the nature, extent and sensory impact of a repair that is to be introduced into their own home; (c) The right to repair is a standard incident of property rights and would ordinarily accompany the unit owner s indefeasible title and such a deeply ingrained right should be ousted only where the law and the circumstances cannot reasonably permit any other course; (d) The Body Corporate has less flexibility in relation to repair/maintenance in that it has no power to pursue a repair that involves betterment, or that extends to any in-unit items other than communal elements; and (e) Issues arise regarding the dispossession of owners for lengthy periods. While ss 138(3) and 80(1)(a)(ii) of the UTA 2010 grant the Body Corporate the right to obtain access at all reasonable hours and after giving reasonable notice to effect repairs and maintenance on private property, those powers fall well short of the lengthy periods of dispossession which a body corporate s intended repair plan may involve.

12 [35] I am unable to accept this primary submission which underpins much of the plaintiffs approach in this litigation. [36] The UTA 2010 was passed against a background of tension within the authorities about the powers of a body corporate to undertake work within unit boundaries. In Body Corporate v North Shore City Council (Sunset Terraces) 4 Heath J identified a clear distinction between common and private property rights, holding that the Unit Titles Act 1972 contemplated corporate responsibility for the maintenance and repair of common property only. In that case the relevant plan had identified the boundary between private and common property as the external face of exterior walls and glass adjoining common property in accessory units and to the centre line and walls between adjoining units. So the outside face of each exterior wall was part of an individual unit. On that basis Heath J found that an amendment to r 2(b) of the default rules, whereby the Body Corporate assumed an obligation to keep in a good state of repair the exterior and roof of the building, was ultra vires the 1972 Act. 5 [37] By contrast, Harrison J in Young & Ors v Body Corporate adopted a more expansive role for the Body Corporate. In circumstances of disunity among the owners (which closely mirror those in the present case) and where a majority of owners contemplated a complete and bespoke upgrade of the whole complex, 7 whereas the plaintiffs favoured targeted repairs based on the individual needs of each unit, 8 his Honour held that the unusual configuration of the complex (a wedding cake structure again emulated in the present case) required the Body Corporate to repair parts of the exterior that were not common property. His Honour based that decision on the fact that leakage through a failure to keep the exterior in good condition placed at risk the development as a whole including the common property Body Corporate v North Shore City Council [2008] 3 NZLR 479 (HC). At [106]-[110]. Young & Ors v Body Corporate (2007) 8 NZCPR 932 (HC). At [46]. At [10]. At [32].

13 [38] I accept Mr Allan s submission that the purposes and effect of the 2010 Act was to enshrine the more flexible position contended for by Harrison J. To the extent necessary, there is ample support for that proposition in the legislative history of the Act. When introducing the then Unit Titles Bill to Parliament for its first reading, the Minister for Housing noted that the Bill proposed a fundamental rewrite of the existing legislation and that its key changes include promoting sound property management practices. 10 He observed that a body corporate needs to be able to act quickly and decisively on behalf of all unit owners and for the good of the development as a whole when repairs and maintenance need to be done. 11 He then noted that the responsibilities of the Body Corporate for repair and maintenance will be widened to include building elements and infrastructure that affects more than a single unit and that this will mean, for example, that if an apartment block has a leaky roof, it will be the Body Corporate s responsibility to fix it rather than the responsibility of the owner of the top floor apartment. 12 [39] At the Committee stage of the Bill there was specific reference to the divergence in approach of the High Court authorities and to the fact that cl 122 (which became s 138 in the Act) followed the approach that the High Court took in the Young case. Reference was made to the clause being a practical, fair and pragmatic contribution to solving the problem of leaky homes 13 and of it taking a common-sense and pragmatic approach. 14 [40] However, in my view, recourse to this legislative history is unnecessary in that the purpose of the Act, as set out in s 3, strongly militates against the construction contended for by Mr Brill. That purpose is in terms: 3 Purpose The purpose of this Act is to provide a legal framework for the ownership and management of land and associated buildings and facilities on a socially and economically sustainable basis by communities of individuals and, in particular, (5 March 2009) 652 NZPD (5 March 2009) 652 NZPD (5 March 2009) 652 NZPD (25 March 2010) 661 NZPD (25 March 2010) 661 NZPD 9858.

14 (a) (b) (c) (d) To allow for the subdivision of land and buildings into unit title developments comprising units that are owned in a stratum estate in freehold or stratum estate in leasehold or licensed by unit owners, and common property that is owned by the Body Corporate on behalf of the unit owners; and To create bodies corporate, which comprise all unit owners in a development, to operate in managing the title development; and To establish a flexible and responsive regime for the governance of unit title developments; and To protect the integrity of the development as a whole. (Emphasis added) [41] Recognition of flexibility and responsiveness, the requirement to manage buildings on an economically sustainable basis and the requirement to protect the integrity of the development as a whole all, in my view, point strongly to a more expansive interpretation of s 138 than the default provision for which the plaintiffs contend. Indeed, in my view, the plaintiffs proposition involves the antithesis of flexibility and responsiveness. In the event of identified repair, or maintenance of building elements, with Mr Brill s necessary particular and direct relationship, the Body Corporate would be required to: (a) notify individual unit holders of the required works; (b) engage with each of them in terms of the work which the Body Corporate regarded as necessary, inevitably inviting argument from some owners (of which the five plaintiffs in this case are an example) who would assert on-going performance of the relevant building element and a requirement only to undertake the work at some future stage; (c) monitor the workmanship of what could be a disparate group of contractors so as to ensure a sufficiently adequate and uniform standard to protect the integrity of the development as a whole; (d) invoke its default power in respect of unit owners who failed to undertake the work required which (assuming others had undertaken

15 it) would involve a contract with no continuity and at an inevitably higher price; (e) referee (Mr Brill s word) the inevitable arguments between owners as to their respective responsibilities for elements of the structure which intersect their unit and other units and/or common property e.g. flashings at the junction of inter-tenancy walls and common property; (f) manage potentially difficult insurance issues which would invariably arise in respect of a part remediated building while those unresponsive to the Body Corporate s requirements were either prompted into action or the work for which they are responsible was undertaken by the Body Corporate. The difficulties in this respect are highlighted by Harrison J in Young; 15 and (g) accommodate inevitable inconsistencies in timing and warranties (if indeed the latter were available on anything other than a one contract basis). [42] In many instances, while the Body Corporate would be brokering these complex relationships, the building would continue to deteriorate, costs would escalate and the health (and ultimately safety) of the occupants would be compromised. [43] In my view this is the very outcome which the new Act was intended to prevent. [44] In LV Trust Holdings Ltd & KP Trust Holdings Ltd v Body Corporate , 16 Asher J noted the provisions of s 3 and, in particular, the flexibility and responsiveness recognised in it Young & Ors v Body Corporate 12006, above n 6, at [38]-[40]. LV Trust Holdings Ltd & KP Trust Holdings Ltd v Body Corporate [2012] NZHC At [57].

16 [45] Academic commentators likewise have emphasised the point. Mr Gibbons in his NZLS Unit Titles Intensive 2012 notes: 18 s 138 further undermines [the bright line between unit property and common property] by giving the body corporate responsibilities over building elements and infrastructure, whether they are common property or unit property. This can be seen to have implications for the property rights of unit owners, as it allows a degree of intrusion by the Body Corporate into their property; this intrusion is amplified by combining the responsibility with the right of access. Fundamentally, a wall or balcony might be private property but it is still subject to the Body Corporate right of access, and limited sovereignty in respect of maintenance. However, while this affects individual property rights it ensures the buildings can be properly maintained for the benefit of all unit owners as a group. [46] Later, in his discussion of the decision in LV Trust Holdings Ltd v BC , Mr Gibbons points out that, while the various comments made in that case related specifically to Schemes under the Act: 19 they illustrate that in relation to the division between common property and unit property a more flexible approach may increasingly find favour particularly given the scheme and purpose of the UTA The Court in LV Trust paid particular attention to the purpose of the UTA 2010 including the importance of a flexible and responsive governance regime and the importance of a socially and economically sustainable basis for the ownership and management of land and buildings: (At 56-57). In other words the purpose of the UTA 2010 allows for a more global approach to the integrity of an entire development, as opposed to the separation of unit property from common property. That was often an important theme in cases under the UTA We must remember that this was a scheme case and schemes inherently allow a more flexible approach than is normally allowed for maintenance situations that do not allow schemes. However, the Court clearly pointed towards the purpose of the UTA 2010 and specific provisions such as 138, as allowing more attention to overall needs than to the niceties of lines on a plan. Reading LV Trust together with Berachan we can look forward to a more holistic approach to maintenance issues under the UTA 2010 than was often the case under the UTA 1972, with the realities of the building in a situation of primary importance in determining the outcome of future cases. [47] In a flow chart attached to that paper Mr Gibbons identifies the first question that requires determination where a building element or infrastructure may require repair as being whether the particular building element or infrastructure serves more Thomas Gibbons Maintenance (New Zealand Law Society Unit Titles Intensive) 2012 at 66. At 72.

17 than one unit. In the event that question is answered in the affirmative, Mr Gibbons identifies an obligation upon the Body Corporate to repair that building element or infrastructure. If in the negative, then the unit plan is to be checked to identify whether the building element or infrastructure is part of a unit or common property. If the former, then it is the unit owner s responsibility to repair, and if the latter, the Body Corporate s. [48] In my view this analysis best reconciles the provisions of ss 80(1)(g) and 138(1)(d) and is consistent with the Court of Appeal s obiter observations in Berachan. It also best ensures attainment of the Act s objective to protect the integrity of the development as a whole. Integrity in that sense is not simply structural but, by virtue of the expansive definition of building elements, aesthetic as well. Exterior components of the building, like decks and associated balustrading that relate in an aesthetic sense to other units (or indeed upon my analysis to common property) properly, in my view, fall within the provisions of s 138. That reinforces an active role (indeed duty) on the part of the Body Corporate to ensure works are carried out to a uniform standard and with uniform aesthetic outcomes. None of that can be achieved (or certainly it would be appreciably more difficult to achieve) under the model Mr Brill proposes. [49] In the present case there is unchallenged evidence from the defendant s valuer Mr Taylor that in the absence of a whole of building repair effected under one contract by the Body Corporate, those units which are repaired in accordance with the Body Corporate s intentions will, on account of the existence of unremediated units in the complex (or units subject to the targeted repairs eventually contemplated by the plaintiffs), have a value which is in the order of 10 per cent less than would otherwise be achievable. In Mr Taylor s opinion, this follows from the fact that there would be a real perception of continued risk and uncertainty in relation to the 17 remediated units. Mr Taylor identified four individual components: (a) A perception of increased risk of buying a repaired unit within a multi-level, multi-unit development where five units remain unrepaired;

18 (b) A perception of increased uncertainty regarding future events, namely whether purchasers of the repaired units would be liable to contribute to any future repair of the five remaining units; (c) A perception about the adequacy of the repairs done to the 17 units, given the possibility of unforeseen defects and damage emanating from the other units; and (d) A perception that the repairs to the 17 units might be compromised by unremediated parts of the building. [50] Mr Taylor s overall position is summarised in his comment that: The concept of economic and aesthetic elements are interrelated in that the value of the units or their economic wellbeing is obviously tied to the market s perception of the overall development s structural, aesthetic and watertight integrity. [51] Mr Taylor was not cross-examined and the plaintiffs called no expert evidence to challenge his conclusions. In my view his opinions reinforce in a practical way why maintenance of the integrity of the development as a whole is an essential purpose of the Act. Only by doing so is it possible to manage the building on a socially and economically sustainable basis, as s 3 itself recognises. [52] I accept the defendant s submission that the plaintiffs should not be heard to complain that it is unfair that they have to pay for the costs of repairs and maintenance to building elements and infrastructure (within the terms of s 138(1)(a)) by ownership interests in the first instance, with the Body Corporate later deciding what recovery steps it will take. I accept that was Parliament s expressed intention and that people who want to be able to choose how and when they might repair building elements should carefully reflect on whether unit title ownership is appropriate for them. Albeit in a slightly different context, the words of Duffy J in St John s College Trust Board v Body Corporate are apposite in terms: 20 [52] Insofar as it may appear to be unfair that owners of units in one building must contribute to costs of common property located in another 20 St John s College Trust Board v Body Corporate [2012] NZHC 827.

19 building, the answer is that this is a fundamental element of this strata title development. The likelihood of this occurrence has been present from the outset. Anyone who did not want to subscribe to this type of liability need not have acquired a unit in this complex. 21 [53] That applies irrespective of the fact that the s 80(1)(g) obligation is repeated in cl 14(b) of the Body Corporate s residential operational rules. If the nature of the building element is such that the duty in s 138 is engaged, then the operational rules are necessarily trumped by the statutory obligations. [54] In summary therefore, I am satisfied that the Body Corporate was entitled to embark on a repair of the whole building without first giving individual unit owners the opportunity to effect their own repairs. Indeed, I see it as its obligation. In saying that, I assume for present purposes vires (the issue to which I now turn) and procedural regularity. Section 138(1)(d) of the UTA 2010 when does it engage? [55] I set out at [26] above the relevant provision of s 138(1)(d). [56] Section 138(5)(c) in turn provides that: 138 Body Corporate duties of repair and maintenance (5) The duty to repair and maintain includes (without limitation) a duty to manage (for the purposes of repair and maintenance), to keep in a good state of repair, and to renew where necessary. [57] A corresponding obligation arises on the part of each owner of a principal unit by virtue of s 80(1)(a)(ii) of the Act. This provides that such an owner: 80 Responsibilities of owners of principal units (1) An owner of a principal unit - (a) Must permit the Body Corporate (or its agents) to enter the unit at any time in an emergency and at all reasonable hours and 21 Recognition that those who buy into body corporate developments agree to be bound by the democratic processes which underscore them is also a feature of the reasoning in World Vision of New Zealand Trust Board v Seal [2004] 1 NZLR 673 (HC).

20 after giving reasonable notice, for any of the following purposes: (i) (ii) To maintain, repair, or renew any infrastructure for services and utilities that serve more than 1 unit and any building elements that affect more than 1 unit or the common property, or both. [58] It will be noted immediately that there are some unfortunate conflicts in what were plainly intended to be complementary sections. These include: (a) The reference to maintenance, repair or renewal in s 80(1)(a)(ii) whereas the s 138 reference is to repair and maintain. That however is addressed by s 138(5)(c) which expands the duty to repair and maintain to include renewal where necessary. (b) Where s 80(1)(a)(ii) speaks to infrastructure for services that serve more than 1 unit and building elements that affect more than one unit, the s 138(1)(d) reference is to building elements and infrastructure that relate to or serve more than one unit. So there is substitution of the word relate for affect and whereas, under s 80(1)(a)(ii), the word serve qualifies infrastructure and affect qualifies building elements, under s 138(1)(d) the words relate to or serve arguably qualify both building elements and infrastructure. (c) Significantly, whereas under s 80(1)(a)(ii) the owner of a principal unit must permit entry by the Body Corporate for maintenance, repair or renewal the building elements that affect more than 1 unit or the common property, or both, the duty under s 138(1)(d) on its face arises only in respect of building elements that relate to or serve more than 1 unit. [59] In relation to the issue identified in [58(c)] this is, in my view, one of those rare occasions where the Court should fill what I regard as an obvious omission from s 138(1)(d). It is true, as the authors of Statute Law in New Zealand state that normally courts cannot write in what the legislature has not thought fit to

21 include. 22 However, as Cooke P pointed out in Northland Milk Vendors Association Inc v Northern Milk Ltd, courts must try to make an Act work as Parliament intended and must give an interpretation that accords best with the intention or spirit of the Act. 23 Thus even where a purposive interpretation may not exactly be able to fill the gaps it may bridge a hiatus. 24 This decision has been followed in others 25 and as Messrs Burrows and Carter state, has been used to produce a sensible solution when a drafting error has given rise to a situation that is untenable. 26 [60] In my view, insertion of the words or the common property, or both into s 138(1)(d) is justified for the following reasons: (a) Only by doing so are the two sections, which were clearly intended as complementary, properly harmonised; (b) The most uncontentious of all the Body Corporate s duties has always been its obligation to maintain the common property. That obligation is recognised in s 138(1)(a) and was the basis for the Court upholding the vires of amended rule 2(d) in the Young decision. Relevantly Harrison J observed: 27 A body corporate must have all powers reasonably necessary to protect the common property in a building including a power to repair and maintain parts of the external structure, the condition of which might expose the common property to consequential physical damage. Leakage through a failure to keep the exterior in good condition places at risk the development as a whole, incorporating of course the common property. (c) A duty to maintain and repair building elements within a unit which relate to or serve more than one unit but not building elements in the JF Burrows and RI Carter Statute Law in New Zealand (4th ed, LexisNexis, Wellington, 2009) at 212. Northland Milk Vendors Assoc Inc v Northern Milk Ltd [1988] 1 NZLR 530 at 538 (CA). Burrows and Carter, above n 22, at 212. See Fleetwing Farms Ltd v Marlborough District Council [1997] 3 NZLR 257 (CA) at 267, Walker v Allan [2002] 1 NZLR 278 (HC) and BR v RL (2008) 28 FRNZ 46 (HC). Burrows and Carter, above n 22, at 213. Young & Ors v Body Corporate , above n 6, at [32].

22 same location which relate to or serve common property makes little sense and leaves the common property exposed. Indeed, I go further. I accept Mr Allan s submission that throughout the country there are likely to be hundreds of structures in which unit properties are constructed on top of common property and that for a body corporate to be under an obligation to repair both the common property and every unit in the development relating to another unit but not those units sitting on top of common property is truly nonsensical ; (d) Any other approach is inconsistent with the stated purpose of the Act in s 3(d) to protect the integrity of the development as a whole. [61] However, if I am wrong in that approach, Mr Allan urges a purposive construction of the word unit in s 138(d) to include, in that context, the common property. [62] Unit is a defined term meaning: 28 In relation to any land, means a part of the land consisting of a space of any shape situated below, on, or above the surface of the land or partly in one such situation and partly in another or others, all the dimensions of which are limited and that is designed for separate ownership. (Emphasis added) [63] In terms of s 54 UTA 2010: (a) The common property is owned by the Body Corporate. (b) The owners of all units are beneficially entitled to the common property as tenants in common in shares proportional to ownership interest (or proposed ownership interest) in respect of their respective units. [64] Mr Allan s argument in this respect is that the separate ownership referenced in the definition of unit may include ownership as tenants in common in shares. Since that proposition is self-evidently correct in relation to any principal 28 Unit Titles Act 2010, s 5.

23 unit of which there are multiple proprietors as tenants in common, it is difficult to resist his further proposition that a unit could include areas of the building in the separate albeit common ownership of the respective proprietors. [65] However, I prefer to deal with the matter in the manner indicated, namely by reading into s 138(1)(d) the same words or the common property, or both which appear at the conclusion of s 80(1)(a)(ii). [66] In the context of the Bridgewater development this conclusion means that in relation to the plaintiffs vires challenge I may look to the manner in which any level 2 building elements relate to or serve the common property. As I will expand on later in the judgment, that relationship is as obvious as the (conceded) relationship which the level 3 decks have to level 2 units. The Jurisdictional Facts [67] With that background there are accordingly three of what Mr Brill describes as jurisdictional facts which underpin the Body Corporate s s 138(1)(d) duties, namely that: (a) repair, maintenance or renewal is necessary in respect of (b) any building elements and infrastructure that (c) relate to or serve more than one unit or the common property, or both. 29 [68] In relation to each of these jurisdictional facts the plaintiffs assert a civil onus on the defendants to satisfy the Court that the relevant criteria are established. [69] For its part the defendant says that it has no such onus and further that, although it was obliged to act on expert advice and has done so, that is the limit of its obligations and that, so long as there was some material that could justify the 29 The statement of claim and Mr Brill s submissions were premised on the proposition (rejected by me) that the body corporate has no duty in relation to building elements on private property that serve common property.

24 decision made by it, even though contrary views were tenable, its decision to act under s 138(1)(d) cannot be challenged. [70] In support of that proposition the defendant relies on the decision of Jaine J in Re Bell 30 as adopted by Heath J in World Vision of New Zealand Trust Board v Seal. 31 [71] Re Bell involved an application for relief under s 42 of the former Act where, absent relief, a unanimous resolution would have been required. The relevant resolution related to sale of the caretaker s flat and was supported by 96 of the 99 proprietors. Jaine J noted that s 42 gave no guidance to the Court of the principles upon which it was to act. He went on to say, however, that: 32 The merits of the matter are best determined by those who are affected by it and have personal knowledge of it and after the matter has been considered by them with the opportunity for debate at a properly convened meeting of the Body Corporate. It should not be for the Court to substitute its view on the merits of the proposal and this Court is not persuaded that the reasons for opposing the motions must be examined with a view to considering whether the minority view on the merits of the proposal should be upheld with the result that the wishes of the majority could not be given effect to. This Court s attention should be directed towards the procedures that led to the passing of the resolutions rather than the merits of them and a consideration of whether there was some material that could justify the decision, even though a contrary view was tenable. If there was an irregularity or impropriety in the procedures followed or it was apparent that there was no information upon which any reasonable person could reach the decision contained in the resolutions, then this Court may consider refusing an order sought under s 42 even though the required majority was obtained. [72] I reject both the plaintiffs and the defendant s arguments on this issue. In my view, subject to the question of procedural regularity to which I will later return, once a decision has been taken by a body corporate to discharge its duties under s 138(1)(d) the onus is on any party (here the plaintiffs) to prove, on the balance of probabilities, that the jurisdictional requirements of the section are not satisfied. In so far as those jurisdictional requirements are concerned, however, I do not regard as a complete answer the fact that the Body Corporate has acted on expert advice with some material to justify its decision. I accept in that sense the plaintiffs reference Re Bell HC Wellington M243/92, 22 October World Vision of New Zealand Trust Board v Seal, above n 21. Re Bell, above n 30, at 5-6.

25 to jurisdictional facts. If the plaintiffs are able to demonstrate on the balance of probabilities that the various criteria of s 138(1)(d) are not engaged, then there can be no duty to undertake repairs within unit property and the proprietor s entitlement to quiet enjoyment, under s 79(d), must prevail. [73] However, in my view, the observations of Jaine J are particularly apposite to the next stage in any body corporate s assessment namely, having determined that it must act, what the particular nature of its response should be. Such response will inevitably be conditioned on expert opinion. That much is recognised in Brooker v Body Corporate , 33 and in my opinion the merits of one repair plan over another are best determined by those who are affected by and have to fund it, have personal knowledge of it, have participated in any discussions relating to it at a properly convened meeting of the Body Corporate, and have decided accordingly. [74] I accept therefore the defendant s submission that, provided the Body Corporate has acted on expert advice, that the expert engaged was suitably qualified, and that the advice was given in good faith, how the Body Corporate chooses to act, whether by way of the holistic solution proposed by the defendant or the targeted repairs for which the plaintiffs vigorously contend, is a matter for the Body Corporate and its decision should, ordinarily, be respected even if contrary views are tenable. However, that position assumes vires. [75] This accords with the approach of Asher J in LV Trust Holdings Ltd v Body Corporate where a distinction was drawn between the position of minorities in relation to economic issues affecting them alone and the position of such minorities with regard to decisions affecting the development as a whole. His Honour noted in respect of the competing schemes before him: [60] The fact that the applicants are in a minority of one and the majority of 14 are against their proposal is far from conclusive in the particular circumstances of this case. The assumption referred to in Tisch that the greater level of support from owners with the proposed scheme, the more likely it is to do justice, does not in all circumstances follow. As the Court of Appeal observed, the assumption does not invariably apply because a majority of owners may support a scheme that is unfair to the minority. 33 Brooker v Body Corporate (2005) 6 NZCPR 953 (HC) at [64].