Manchester Securities Ltd v Body Corporate 172108

• Jurisdiction: New Zealand
• Judge: French J
• Judgment Date: 17 November 2017
• Neutral Citation: [2017] NZCA 527
• Docket Number: CA120/2017
• Court: Court of Appeal
• Date: 17 November 2017

Between

Manchester Securities Limited

Appellant

and

Body Corporate 172108

Respondent

Between

Body Corporate 172108

Appellant

and

Manchester Securities Limited

Respondent

[2017] NZCA 527

Court:

French, Cooper and Brown JJ

CA120/2017

CA372/2017

IN THE COURT OF APPEAL OF NEW ZEALAND

Leaky Building — Appeal against a High Court decision which varied a scheme of remediation under s48 of the Unit Titles Act 1972 (“UTA”) (scheme following destruction or damage) to repair a leaky apartment complex on the grounds increased repair costs had rendered the scheme unjust — default scheme under the UTA reinstated

Counsel:

M C Harris and H E McQueen for Manchester Securities Limited

T J G Allan and S F Powrie for Body Corporate 172108

• A Manchester Securities Limited's appeal in CA120/2017 is dismissed.

• B In CA120/2017 Manchester Securities Limited must pay Body Corporate 172108 costs for a standard appeal on a band A basis and usual disbursements. We certify for second counsel.

• C Body Corporate 172108's appeal in CA372/2017 is dismissed.

• D In CA372/2017 Body Corporate 172108 must pay Manchester Securities Limited usual disbursements and 50 per cent of costs for a standard appeal on a band A basis. We certify for second counsel.

JUDGMENT OF THE COURT

REASONS OF THE COURT

(Given by French J)

Introduction

1 In 2011 Heath J settled a scheme of remediation under s 48 of the Unit Titles Act 1972 1 to repair a leaky high rise apartment complex known as Hobson Apartments. 2 The scheme was designed to achieve a balance of the competing interests of the owner of the top floor, Manchester Securities Ltd (Manchester), and the remaining unit owners represented by Body Corporate 172108.

2 Two years later the Body Corporate applied for a variation of the scheme under s 48(6) of the Unit Titles Act on the grounds that a major costs blow out had rendered the scheme unjust. Section 48(6) provided that the High Court “may from time to time cancel, vary, modify, or discharge any order made by it under this section”.

3 The application was granted by Fogarty J. 3 The Judge varied the scheme by removing a cap that had been placed on Manchester's liability for the cost of the repairs and by reinstating the default statutory scheme. The variation rendered Manchester fully liable to contribute to the cost of repairing common property on all levels of the building, the amount of its contribution to be calculated in accordance with its ownership interest. 4

4 Manchester now appeals that decision in appeal CA120/2017. In a separate appeal, CA372/2017, the Body Corporate appeals Fogarty J's subsequent costs decision. 5

Background

5 Hobson Apartments is a 12 storey unit title development in Central Auckland with an unusual feature. The exterior of levels 1–11 is common property owned by the Body Corporate but not the exterior of the 12th floor. Almost all of the 12th floor is private property owned by Manchester. This came about because the 12th floor which is aesthetically and physically different from the rest of the building was constructed separately after the rest of the building had been completed. The 12th floor has a penthouse, Unit 12A, which covers the entire floor. The only common property on the 12th floor comprises the lift and stairwell shafts, ducts and a small recessed area at the rear on the eastern side.

6 Unit 12A is the largest and most valuable unit in the complex. The ownership interest or unit entitlement of unit 12A is 11.88 per cent. 6

7 As at October 2009, the building had suffered damage as a result of severe water ingress. The Body Corporate applied under s 48 of the Unit Titles Act for a scheme of remediation empowering it to carry out repairs under a single building contract to the whole of the complex, including private property as well as common property. Without a court sanctioned scheme, the default position under the Unit Titles Act was that the Body Corporate could only undertake repair associated with common property. 7

8 In terms of cost allocations, the Body Corporate wanted Manchester to meet the costs of repair associated with Manchester's private property plus 11.88 per cent of all repairs undertaken in respect of common property.

9 Manchester opposed the application. It wanted to repair all of level 12 itself, and not be required to contribute to the cost of any other work. At that time, it was thought the leaks to the structure were principally emanating from the failure of the cladding in levels 1–11. Apart from the small area on the east, the exterior cladding of level 12 was heavy sandstone tile protected by overhanging eaves. Sandstone cladding was superior to the different cladding (mostly Harditex) used on the other levels and, following invasive testing, was assumed not to be leaking. It was known there was some leaking of the roof on level 12 but that was considered relatively minor, only requiring modest repairs. Manchester argued that in those circumstances it would be inequitable to require it to subsidise the cost of repairing common property below as well as paying for the repair work to level 12. It asked the Court to exclude level 12 from any repair solution that involved a single contract to the whole building.

10 The terms of the scheme were settled in four judgments issued by Heath J between 3 March 2010 and 10 February 2011. 8

11 In his first judgment, Heath J articulated the basis on which he would be prepared to approve a scheme. Notwithstanding Manchester's objections, he considered it would be in the interests of all concerned for there to be a single contractor appointed to undertake all work, a single work programme and if feasible a single building consent to cover all work. 9 He acknowledged that level 12 was in private ownership but was also mindful of the fact that inadequate work on level 12 would impact on the other owners. 10 To accommodate Manchester's understandable concern to have some control over the repairs to level 12, the Judge said Manchester should be able to appoint a joint project manager for the level 12 work. 11

12 As regards the cost allocation, Heath J noted the unusual ownership structure but also noted that Manchester would obtain benefit from the repair of the common property on the lower levels. 12 Weighing up the competing interests, he considered a fair solution would be to require Manchester to contribute to the repairs of the common

property as well as paying for the level 12 work but on the basis its liability would be capped at 11.88 per cent of the total costs of repairs to the whole building. 13

13 On the indicative figures provided to the Judge, the total cost of repairs including both common and individual property for the entire building was estimated at $6.25 million. That comprised $5.75 million for the repairs to levels 1–11 and $500,000 for the repairs to level 12. 14 Capping Manchester's liability at 11.88 per cent of the total cost of repairs (that is 11.88 per cent of $6.25 million) meant on these figures that Manchester would contribute $242,500 to the levels 1–11 common property work after expending $500,000 on the level 12 work. 15

14 Justice Heath acknowledged that his proposed formula (11.88 per cent of the total cost of repairs to the whole building including repairs to private property) represented a departure from the default scheme under the Unit Titles Act but considered it justified in the circumstances. 16 As already mentioned, under the default statutory scheme, Manchester would have been required to pay for its own private work plus contribute 11.88 per cent of the repairs to all common property at all levels.

15 The Judge ordered the parties to prepare and file a draft amended scheme in accordance with the principles he had articulated. 17 In a subsequent minute dated 30 March 2010, he identified two additional issues which might potentially impact on the final terms of the scheme. 18 The first was whether the Body Corporate wanted to defer the repair work pending trial of proceedings it had issued against the Auckland City Council over the water damage. 19 The Body Corporate subsequently confirmed that it did want to defer the repairs.

16 The second issue was whether Manchester wanted to proceed with what had been termed the “half-way house” option for the repairs to level 12. 20 The Body Corporate had obtained a building consent that entailed a complete re-clad of

the entire building. An expert retained by Manchester was of the view re-cladding on level 12 was unnecessary and that little or no repair work was required. Another expert suggested a compromise halfway house solution which involved replacing the decks on level 12 but retaining its sandstone cladding and only re-cladding the walls on the eastern face where the same Harditex cladding as used in levels 1–11 had been applied. The re-cladding product was to be Dimondek 400 and/or Alucomat

17 Manchester subsequently decided not to adopt the halfway house solution but said it would proceed on the basis of the original building consent which as mentioned entailed a complete re-cladding of all levels. Manchester further advised Heath J that the delay arising from the Body Corporate's decision to defer the repairs was highly prejudicial to it. It wanted to commence repair work on level 12 immediately.

18 As the Judge noted in his second judgment, the decisions made by the parties since his first judgment meant the options of a single building programme, a single contractor, and joint project managers were no longer available. 21 The Judge made some amendments to the draft, but did not alter the formula for fixing Manchester's overall contribution to the total repairs authorised by the scheme. That remained at 11.88 per cent (the Manchester costs formula).

19 The Judge's third judgment has no significance on appeal and the fourth judgment was a costs...