Hai Min Gu, Jian Hua Chen, Qayium Abdul and Lubna Abdul v Body Corporate 211747

• Jurisdiction: New Zealand
• Judge: Wylie J
• Judgment Date: 01 October 2018
• Neutral Citation: [2018] NZCA 396
• Docket Number: CA639/2017
• Court: Court of Appeal
• Date: 01 October 2018

Between

Hai Min Gu, Jian Hua Chen, Qayium Abdul and Lubna Abdul

Appellants

and

Body Corporate 211747

Respondent

[2018] NZCA 396

Court:

Winkelmann, Simon France and Wylie JJ

CA639/2017

IN THE COURT OF APPEAL OF NEW ZEALAND

I TE KŌTI PĪRA O AOTEAROA

Leaky Building — appeal against a High Court (“HC”) decision which varied a scheme under s74 Unit Titles Act 2010 (“2010 Act”) that costs of additional repair works to remediate a leaky building should be apportioned on a unit-entitlement basis — whether there was a rebuttable presumption that payment for body corporate works should be on a unit-entitlement basis

Counsel:

J Heatlie and J M Wood for Appellants

G B Lewis and B J Mills for Respondent

• A The appeal is allowed in part. The respondent must prepare a further variation to take into account the amounts received by residential owners under the financial assistance package put in place by the Weathertight Homes Resolution Services Act 2006, and refer that varied scheme to the High Court for settlement under s 74(8) of the Unit Titles Act 2010.

• B In all other respects, the appeal is dismissed.

• C The respondent must pay the appellants one set of costs for a standard appeal on a band A basis and usual disbursements.

JUDGMENT OF THE COURT

REASONS OF THE COURT

(Given by Wylie J)

Introduction

1 The appellants own four of five commercial units on the ground floor of the Uptown apartment complex, situated at 83–91 New North Road, Auckland. The respondent is the body corporate for the complex.

2 The complex comprises a four-storey building. There are 60 residential units and five commercial units. Each of the commercial units and six of the residential units are located on the ground floor. On each of levels one to three, there are 18 residential units. Car parking is located in the basement within the building envelope, and also adjoining New North Road but outside the building envelope.

3 The complex was completed in about 2002. It transpired that it had weathertightness issues that required substantial repair work. In October 2011, the High Court settled a scheme under s 74 of the Unit Titles Act 2010 (the 2010 Act) dealing with the reinstatement of the building to address these issues. In the course of undertaking the weathertightness work, additional defects became apparent. Additional work had to be done, significantly increasing the costs of remediating the building complex. The body corporate sought to vary the settled scheme pursuant to s 74(8) of the 2010 Act to apportion the additional costs between unit owners in accordance with their ownership interests.

4 In an interim judgment dated 8 September 2017, 1 and in a final judgment dated 11 October 2017, 2 Muir J varied the earlier scheme largely in accordance with the body corporate's proposals.

5 The appellants appeal these decisions.

Background

6 The cost of remediating the weathertightness issues was estimated at approximately $5,000,000 and in October 2011, prior to work being commenced, the body corporate obtained an order from the High Court settling a scheme under s 74 of the 2010 Act. That scheme provided for the allocation of costs for the remediation of the weathertightness issues as follows:

• (a) all owners were to pay for the costs of repairs to the basement and roof in accordance with ownership (utility) interest; 3

• (b) the owners of the ground floor units (both residential and commercial) were to pay for repairs to their units and the exterior of their units (substantial parts of which were common property);

• (c) other repairs required on the ground floor — for example, repairs to parking areas, lift access areas and fire egress points — were to be paid for by all owners according to ownership interest; and

• (d) the owners of the residential units on levels one to three were to pay for repairs on those floors according to ownership interest (notwithstanding that parts of the exterior on those levels were common property).

7 Physical works commenced in January 2015. In the course of undertaking the works, the contractors identified significant additional defects. They were described by Mr Manning of Maynard Marks Ltd, who were acting as consultants to the body corporate, as follows:

Passive fire protection

• (a) The steel framing has inadequate protection to ensure it retains structural integrity in the event of a fire so as to allow occupants to escape and firemen to work in the building. The steel framing requires an intumescent coating or fire resistant panels, however this was not provided. This is a breach of clauses C3 (spread of fire), C4 (movement to a place of safety) and C6 (structural stability during fire) of the building code.

• (b) The inter-tenancy walls do not have adequate fire protection in that:

  • (i) The steel framing does not have an intumescent coating or fire rated enclosure; and

  • (ii) The fire rated walls do not extend to underside of the roof covering.

  This is a breach of clauses C3 (spread of fire) and C6 (structural stability during fire) of the building code.

• (c) The fire stopping designed to prevent the passage of fire and smoke around cables, water pipes, drainage pipes and apartment ventilation ducts where they penetrate inter-tenancy walls, corridor walls and floor slabs is inadequate in that the penetrations are not properly sealed by way of intumescent sealant or fire collars. There are some fire seals and collars missing and some fire collars that are incorrectly installed or of indeterminate origin and adequacy. This is a breach of clause C3 (spread of fire) of the building code.

  Non-compliant extract risers

• (d) The two ventilation extract risers in the building are non-compliant in that:

  • (i) The extract riser from the ground floor restaurant to the roof:

    • 1. Is enclosed by gib board framing with corners and joints that are not correctly formed;

    • 2. Has a duct which has been disconnected from the range hood in the restaurant kitchen. The disconnection of this duct increases the volume of air which may be discharged from the kitchen range hood but it results in air contaminated with grease from the range hood discharging into the extract riser rather than the duct causing damage to the ducts in the riser and the plasterboard walls of the riser. The grease forms a coating which is flammable and gives rise to a fire hazard contrary to clause C3 (spread of fire) of the building code.

  • (ii) The extract riser from the ground floor cafe to the roof is enclosed by gib board framing with corners and joints that are not correctly formed.

  This breaches clause C3 (spread of fire) of the building code.

  Extraction/air supply ductwork

• (e) The ventilation extraction and air supply ductwork is defective in that:

  • (i) In apartments and common areas at levels 1 to 3 ducts are constricted, obstructed or disconnected;

  • (ii) The apartment kitchen extract ducts are plastic rather than steel.

  This leads to inadequate ventilation and an increased risk of the spread of fire and smoke. This is a breach of clauses C3 (spread of fire) and E3 (internal moisture) of the building code.

8 Further and substantial remediation was required to address these additional defects. The anticipated cost was approximately $6,630,000.

9 The body corporate proposed a variation to the scheme which had earlier been settled by the High Court. The variation sought to retain the cost allocations set out in the earlier scheme, but with exceptions for expenditure on “structure and fire” and “extract risers”. It proposed that the cost of the works required to remedy these items should be apportioned amongst all owners in proportion to their respective ownership interests. The costs associated with additional work resulting from grease contamination to the interior surfaces of the risers were to be paid for by the owner(s) of the unit(s) responsible for that contamination.

10 Under the proposed variation, the commercial unit owners would be responsible for, in total, 15.4 per cent of the additional costs. 4 This equated to, on average, $257,339 for each commercial unit. 5 If the additional costs were apportioned in accordance with the settled scheme, the commercial unit owners would be required to pay, on average, $112,833 for each unit.

11 The proposed variation was carried at an extraordinary general meeting of the body corporate on 7 March 2016. The only opposition was from the first two named appellants, Mr Gu and Ms Chen, who own commercial units two and three.

12 On 5 April 2016, the body corporate made an application to the High Court under s 74(8) of the 2010 Act seeking to vary the settled scheme. Mr Gu and Ms Chen opposed the application. They were joined by the owners of commercial units four and five — the other two appellants, Mr Abdul and Mrs Abdul.

13 Units two and three are used as a restaurant. Unit four is a coffee shop and unit five is used as a mini-mart. The use of the other commercial unit — unit one — was not disclosed in the papers filed.

14 The additional works have been completed and paid for.

The High Court decisions

15 Before Muir J, the appellants argued that the additional expenditure required to attend to the fire protection works, the non-compliant extract risers and the extraction/air supply duct work, should be apportioned in accordance with the settled scheme. 6 This would have seen the commercial unit owners responsible for the additional works within their own units, but not for the additional works required on levels one to three. The appellants did concede that they should contribute to the costs of remediating the extract risers based on ownership interest, given that they benefit from that particular building element, along with the owners of the residential units. 7 Further, there was no challenge to the variation insofar as it provided that additional costs resulting from grease...