Vermillion Wagener Ltd, Tremont Holdings Ltd, Sage Property Management Ltd and Tmt Amenities Ltd v Body Corporate 401803

JurisdictionNew Zealand
CourtCourt of Appeal
JudgeHarrison J
Judgment Date21 Jul 2015
Neutral Citation[2015] NZCA 313
Docket NumberCA150/2015

[2015] NZCA 313

IN THE COURT OF APPEAL OF NEW ZEALAND

Court:

Harrison, Keane and Wylie JJ

CA150/2015

BETWEEN
Vermillion Wagener Limited, Tremont Holdings Limited, Sage Property Management Limited and Tmt amenities limited
Appellants
and
Body Corporate 401803
Respondent
Counsel:

T J Rainey and J P Wood for Appellants

S C Price and I Rosic for Respondent

Appeal against a High Court decision that agreements by a Body Corporate (BC) to guarantee and assume primary liability for all rental and other sums payable by third parties to the appellants, as lessor of three units within the complex, were invalid — appellant was the developer of the unit title development — owned a residential unit which was used as a residence by the complex manager — also leased amenities units to a company which agreed to provide the amenities to the BC members — BC had been meeting the rental payments on the units — the manager was related to the director/shareholder of the lessor company — whether the agreements to guarantee and assume liability for the rent were ultra vires the BC's powers — whether s16 Unit Titles Act 1972 (body corporate shall have all such powers as are reasonably necessary to enable it to carry out the duties imposed on it by this Act) provided authority for entry into the agreements.

The issue was whether the Body Corporate had the power to guarantee obligations assumed by third parties under the two separate leases.

Held: Where a body corporate relied on a default rule, that rule had to be valid pursuant to s37(5) UTA 1972 which prohibited the conferring of powers by amending rules “which are not incidental to the performance of the duties or powers imposed upon it by the [UTA 1972]”. The amending rules were only valid to the extent that they conferred powers which were incidental to the performance of express statutory powers or duties. Neither the default rules nor the 2008 amended rules on which Vermillion relied conferred a power on the BC, incidental to an express statutory duty or power, to guarantee the manager's lease obligations. None of the default rules nor the amended rules could possibly be construed as authorising or obliging the BC to assume that contractual duty.

Clause 3.4 of the management agreement did not assist: if there was no underlying duty to provide a guarantee, an agreement with a third party could not confer the necessary authority. Without an identifiable duty, cl 3.4 could not stand.

The existence of a power, whatever its source, was not enough to authorise the BC to guarantee a third party obligation which had no tenable relationship with an underlying legal duty. Without an identified duty within the rules to secure accommodation for the manager and more importantly, for the Body Corporate to assume a primary obligation to pay the manager's rent, the guarantee could not possibly be justified. A power, for example, to accommodate a manager or guarantee its obligations could not possibly be inherent in the power to engage the manager.

Vermillion also could not rely on a power derived under s16 UTA 1972. Vermillion had to show that it was exercising a power which was reasonably necessary to enable it to carry out the duties imposed on it by [the UTA 1972 and by its rules. The question of whether a power was “reasonably necessary” was to be determined objectively, and not by what H or his companies subjectively considered necessary. No duty had been identified for which it was reasonably necessary for the BC to provide accommodation for a building manager or, more particularly, that giving a guarantee was reasonably necessary to performance of any of the duties imposed by s15 UTA (Duties of body corporate). In the normal course any arrangement between the members of the BC and the manager to meet or subsidise rental would be met by a contractual provision for reimbursement of the rental component or part of it. It would not be satisfied by an obligation in the name of a guarantee to pay rental to the owner or lessor of the manager's unit.

In respect of the amenities lease, the argument based on r3.4 failed for the same reasons as the challenge to the management lease guarantee failed. The amenities deed was not an agreement by which the BC agreed to provide all its members with access to and use of the amenities. Only Vermillion could grant BC members access to and use of the amenities. Further, r 3.4 was simply an empowering provision, authorising the BC to enter into an agreement with the owner of a unit to provide amenities or services to BC members: it did not impose any duties relating to the provision of amenities. Moreover, r 3.4 could not possibly apply because the guarantee was not an agreement between the BC and the proprietor or an occupier of any unit for the BC to provide amenities or services. Rule 3.4 did not empower the Body Corporate to enter into an agreement to procure the services and amenities at issue.

Even if r 3.4 should be interpreted as submitted, Vermillion had failed to establish how the BC's provision of a guarantee of rental and related obligations could be reasonably necessary to enable members of the BC to secure access to the amenities. A proposition that a guarantee was “part and parcel of the agreement”, and thus within any power given by r 3.4, defied serious consideration.

Even if (as was submitted) the terms of the resource consents for the development required Vermillion to put in place the unusual contractual structure for the provision of amenities, it could not operate as the source of a duty to give a guarantee.

Appeal dismissed.

JUDGMENT OF THE COURT
  • A The appeal is dismissed.

  • B The appellants must pay the respondent costs for a standard appeal on a band A basis together with usual disbursements.

REASONS OF THE COURT

(Given by Harrison J)

Introduction
1

The appellants (collectively Vermillion) are the developer and related companies of a 106unit title residential development in St Lukes, Auckland, known as the Tremont complex. The respondent, Body Corporate 401803, is the Body Corporate.

2

At issue on this appeal from a judgment of Muir J in the High Court 1 is the validity of agreements by the Body Corporate to guarantee and assume primary liability for all rental and other sums payable by third parties to Vermillion Wagener Ltd, and its related and successor company Tremont Holdings Ltd, as lessor of three units within the complex — one being a residential unit occupied by the complex manager, Sage Property Management Ltd (Sage) (the apartment lease); the other two units comprising a swimming pool, tennis courts, gymnasium and other amenities (the amenities lease).

3

In the period between June 2008 and June 2013 the Body Corporate paid Vermillion and Tremont about $1.32 million under the agreements but has since suspended payments pending the result of this litigation.

4

The Body Corporate applied for summary judgment on its claim that both guarantees, and a related guarantee obligation imposed by the management agreement with Sage, were void. 2 Muir J held that the Body Corporate had no power to guarantee the apartment lease in the absence of an express duty under the Unit Titles Act 1972 (the UTA 1972), which was then in force, or the amended rules, to secure accommodation for the building manager. 3 The Judge also held that the Body Corporate had no separate duty to provide the amenities and thus no power to guarantee the amenities lease. 4 As Vermillion had no arguable defence to the Body Corporate's claim, summary judgment was entered. Vermillion now appeals.

5

The Body Corporate has not cross-appealed against Muir J's dismissal of its application for summary judgment on the alternative ground that the agreements

were harsh and unconscionable and should be terminated under's 140 of the Unit Titles Act 2010, which applied to that claim.
Background
6

In 2002 Vermillion Wagener Ltd was incorporated for the purpose of developing the Tremont complex. Its sole director and majority shareholder is Geoffrey Hodgkinson. Between 2004 and 2007 Vermillion obtained resource consents to construct the complex and amenities which it subsequently developed. Vermillion was the initial owner of all the units within the complex on completion.

7

Before us Mr Rainey emphasised evidence from Mr Hodgkinson that Vermillion applied for a separate resource consent for the proposed pool and tennis court on the ground that they would enhance the quality of life of the unit owners and occupiers. As part of its application Vermillion proposed to amend the Body Corporate rules, and later did so, to include conditions for the use and enjoyment of the tennis court and swimming pool by unit owners and occupiers.

8

Mr Rainey also emphasised that the complex was designed to have a resident building manager to enforce the rules and operate as a point of contact for any complaints; and that the manager's residence was specified in the resource consent application as being located adjacent to the amenities area.

9

On 3 June 2008 the Body Corporate, of which Vermillion was the sole member, resolved to amend the default operational rules under the UTA 1972. Amended rules were approved accordingly. Mr Hodgkinson signed the minutes and the notice of change of rules on behalf of both Vermillion and the Body Corporate. Immediately after the rules were amended, Vermillion and the Body Corporate entered into the three impugned agreements.

10

In August 2008 Mr Hodgkinson incorporated Tremont, which in November 2008 bought the units in issue — the manager's and the amenities units — and is now the lessor of all three to the Body Corporate. Mr Hodgkinson's partner, Lilly Zhang, owns 50 per cent of the shares in Sage, which manages the complex. Mr Rainey does not suggest that the rule changes and agreements were arm's length transactions. It is plain that Mr Hodgkinson controlled all parties and stood to benefit from the...

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1 cases
  • Tremont Holdings Ltd v Body Corporate 401803
    • New Zealand
    • Court of Appeal
    • 21 Julio 2015
    ...judgment was entered for the Body Corporate. In a judgment delivered concurrently today ( Vermillion Wagener Ltd v Body Corporate 401803 [2015] NZCA 313), this Court has dismissed an appeal by Vermillion and Tremont. 2Tremont Holdings Ltd v Body Corporate 401803 (Tremont Residences) [2014] ......