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Dominion Finance Group Limited (in receivership and liquidation) v Body Corporate 382902 [2012] NZHC 3325 (11 December 2012)

Last Updated: 11 December 2012

IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY

CIV 2012-409-2133 [2012] NZHC 3325

BETWEEN DOMINION FINANCE GROUP LIMITED (IN RECEIVERSHIP AND LIQUIDATION)

First Applicant

AND ROBYN AULD AND PATRICIA ANN AULD

Second Applicants

AND LATHAM JOHN BERRY, GEORGE LATHAM BERRY AND CAROL MARGARET BERRY

Third Applicants

AND AJITH DEVINDA POLONOWITA AND OVADAPREMI POLONOWITA

Fourth Applicants

AND LYELL GEOFFREY MCMILLAN AND VALERIE MAY MCMILLAN AND BENBRAKAH TRUST LIMITED

Fifth Applicants

AND IAN CHARLES ANDERSON AND FIONA MARY ANDERSON

Sixth Applicants

AND BODY CORPORATE 382902

First Respondent

AND GATAY HOLDINGS LIMITED Second Respondent

AND CLARKVILLE TRUSTEES LIMITED Third Respondent

AND DAVID JOHN WEST AND ZDENA KASPAR WEST AND KARL KASPAR Fourth Respondents

AND MARGARET ELAINE JOHNSON AND MALCOLM JAMES JOHNSON

_{Fifth Respondents}

DOMINION FINANCE GROUP LIMITED V BODY CORPORATE 382902 HC CHCH CIV 2012-409-2133 [11 December 2012]

AND PETER JOHN OAKLEY AND SHIRLEY JOAN MONK

Sixth Respondents

AND COLIN GEORGE KING AND AVIS ROSALIE KING AND THOMAS JOHN PERRY

Seventh Respondents

AND GRAHAM JOHN STANSFIELD AND VERONICA STANSFIELD

Eight Respondents

AND TANCRED NOMINEES LIMITED Ninth Respondent

AND JUNG JAE JANG Tenth Respondent

AND SPENCE FARMS LIMITED Eleventh Respondent

AND BAA INVESTMENTS LIMITED Twelfth Respondent

AND OCEAN TRUSTEES LIMITED Thirteenth Respondent

AND FT 2 TRUSTEES LIMITED Fourteenth Respondent

AND WESTPAC NEW ZEALAND LIMITED Fifteenth Respondent

Hearing: 26 and 27 November 2012

Appearances: J E Bayley and T S Brito for Applicants

P F Whiteside and H Holderness for Second to Ninth and Eleventh and Twelfth Respondents

Judgment: 11 December 2012

RESERVED JUDGMENT OF FOGARTY J

Index

Introduction [1] Chronology of Facts [10] (a) The units [10] (b) Earthquake [13] (c) Annual general meeting [14] (d) The reassessment [30] The scheme of the Unit Titles Act 2010 [34] The meaning and effect of the first insurance special resolution [44] Just and equitable relief [65] Evaluation of the merit of the reassessment of the ownership interests [89] The reassessment [92] Date of reassessment of ownership interests [117] The methodology of reassessment [126] Conclusion on detriment [139] General conclusion [140] Orders [143] Summary of judgment [147]

Introduction

[1] This is a dispute about the allocation of about $16 million between persons who were the owners of the Gallery Apartments at Gloucester Street, next to the Art Gallery, which were irretrievably damaged by the February 2011 earthquake and later demolished. They were well insured. They decided not to rebuild, but rather took a cash settlement. They distributed the insurance settlement among themselves in proportion to which they owned the whole of the building.

[2] As the owners were proceeding to the cancellation of the unit title, in order to complete the sale of the land to the Christchurch City Council, they realised for the first time that, under the Unit Titles Act, it was necessary for their ownership interests to be reassessed. That was done. The registered valuer’s certificate of reassessment changes their ownership interests if that cancellation proceeds. If that reassessment stands the consequence is there has to be an adjustment in the order of nearly one million dollars. Substantial sums of money have to be paid back by some of the unit holders, who are the applicants in these proceedings. The respondents are some of the remaining unit holders, who stand to gain from the reassessment.

[3] The legal title to the land is regulated under the Unit Titles Act 2010. Under that Act there are two ways to cancel the unit title plan. One is to apply to the Registrar-General of Land, together with a contemporaneous reassessment of the ownership interests. The other is to apply to the High Court for a “just and equitable” cancellation of the plan. The owners had decided to apply to the Registrar-General of Land. It was near the completion of this exercise that they first realised the need for reassessment. Up to then they have been acting under a mistake of law.

[4] In these proceedings, the applicants apply to the High Court to cancel the plan under the “just and equitable” criteria, by leaving in place the original

ownership split. Alternatively, the applicants ask for an order setting aside the current resolution to cancel and requiring a new reassessment.

[5] The application to cancel on the “just and equitable” ground invokes the legal method of equity. Equity looks at all the facts. It is necessary therefore to examine carefully the process all the owners first pursued and which some of the owners want stopped. This involves careful examination of what the law would find they actually resolved to do, and, secondly, whether or not the reassessment of values is according to law. Thirdly, there is then an inquiry as to whether or not the mistake of law, ignorance of the need for reassessment, warrants, on all the facts, leaving the distribution of monies to date undisturbed.

[6] All of these issues fold into consideration of whether it is just and equitable to cancel the plan using the existing ownership issues, which were established in

2007, or moving to a different set of ownership entitlements calculated now or just prior to the earthquake.

[7] For these reasons, the judgment begins with a chronology of facts. It goes on to introduce the scheme of the Unit Titles Act 2010. Thirdly, it then examines the meaning and effect of the first resolution, which was to distribute the insurance monies, which I call the insurance resolution. There was a second special resolution in May 2012, which was the resolution to apply to the Registrar-General of Land to cancel the unit plan, which I call the cancellation resolution. There is no doubt about the meaning of the cancellation resolution. It was in consequence of that cancellation resolution that a certificate was sought from a registered valuer reassessing the ownership interests, as required by s 177(7) of the Act. The reason for examining carefully the meaning of the first insurance resolution is that its meaning, and its intended meaning, if the two are different, is directly relevant to evaluating the degree of conflict between what the owners appear to have agreed at the Annual General Meeting and what they resolved to do. To the extent that there is confusion, that directly appeals to the justice of this Court intervening on a just and equitable basis.

[8] Accordingly, having concluded the analysis of the meaning of the insurance resolution, the next stage of the judgment examines the merit of the High Court intervening on just and equitable grounds. After introducing and explaining the just and equitable ground, the decision identifies the ultimate issue as being whether there is sufficient detriment to the applicants to justify departing from the certificate of reassessment readjusting the ownership issues. That topic is examined by evaluating the financial consequences and the merit of the reassessment. This is a substantial part of the judgment.

[9] That leads to a conclusion on detriment, moving on to a more general conclusion as to what orders need to be made.

Chronology of facts

(a) The units

[10] There were 18 principal units in two buildings, north and south, the north building facing onto Gloucester Street, Christchurch. They were known as the Gallery Apartments. The ground floor of the north building contained unit 100. This was a commercial premises, a private art gallery. There were 11 residential units in the north building, numbered units 1-11. There was one unit on each floor, with the exception unit 11 which occupied both the twelfth and thirteenth floors. In the south building there were six units, 12-18, each having a floor to themselves, excepting unit 12 which had two floors.

[11] The original unit title assessment certificate is dated 6 March 2007 and was prepared by a valuer, Mr David Harris of Fright Aubrey Ltd. It was at the time peer reviewed by Mr C J Graham, also a valuer in the same firm. Fright Aubrey has operated as Colliers International Valuation (Christchurch) Ltd since 2003.

[12] At the time of the original unit title assessment, Mr Harris and Mr Graham were of the view that the units in the north building would be more valuable than the units in the south building. The first sales of the units were off the plans. These were necessary to enable bank funding of the development. Upon completion of the development, the developer held on to a number of units, in the south block. It was

the opinion of Mr Graham that the developer could have sold those units reasonably readily before the recession. After the recession he held onto the units, hoping land values would recover.

(b) Earthquake

[13] The apartments were severely damaged in the earthquake on 22 February

2011. The Body Corporate lodged claims with its insurer NZI and the Earthquake

Commission in respect of the damage.

(c) Annual general meeting

[14] The Body Corporate held its AGM on 27 October 2011. At that meeting, it was unanimously resolved that the Body Corporate would accept a cash settlement from NZI. The resolution passed was:

THAT the Body Corporate hereby resolves to accept a cash settlement in settlement of the insurance claim on the building.

[15] The Body Corporate’s solicitor, Mr Buchan, informed the meeting that a further special resolution would be required to enable the proceeds of the insurance claim to be paid out to unit holders following receipt of the funds by the Body Corporate, but that it would be premature to pass that resolution at this meeting.

[16] In the context, it was obvious that all the members were agreeing not to rebuild. The minutes note also that until the dissolution of the Body Corporate, all unit holders would be tenants in common of the land in proportions of utility interests. About five weeks later, on 1 December 2011, the Body Corporate’s solicitor sent an email to all the unit holders. It opened:

Following on from the unanimous resolution at the recent AGM to accept a cash settlement from NZI, I write to advise that a cash settlement in the amount of $16,859,000.00 (GST inclusive) representing the amount due under the policy has now been agreed. This payment does not include any payment under the policy extensions for loss of rent, temporary accommodation, stress payments, landlord's contents and common property. These extensions will be dealt with separately with NZI. Further, the above payment is predicated on EQC making payment of $1,700,000.00 plus GST (less its 1% excess) being $100,000.00 plus GST on 17 units (i.e. one of the

18 units is commercial and EQC has no responsibility in that regard). Such payment is yet to be confirmed by EQC and it has been agreed with NZI that if EQC should not pay for 17 units (e.g. it considers that there are two commercial units and only pays for 16 units) then NZI will “top up” its settlement amount appropriately.

[17] The email then went on to address the need for a special resolution. Mr

Buchanan explained:

... under the Unit Titles Act 2010, the moneys received by the Body Corporate are to be spent on reinstating the building unless there is a resolution passed by 75% of unit owners that the building not be reinstated and that rather the moneys received be distributed to owners in accordance with their unit ownership interests (unit entitlements). The voting on this resolution can occur by way of postal vote and I will now liaise with John Pitcaithly to provide him with an appropriate resolution that he will distribute to you all for voting on. The show of hands at the AGM indicated that such a resolution would have unanimous support from those present but nonetheless it is necessary for this formal voting to now take place.

[18] After covering other matters, including dealing with the mortgagees of different units and reserving some monies to cover the costs of demolition and other expenses, the email went on:

Please note that each owner’s entitlement will be a percentage of the total unit entitlements having regard to the unit entitlements shown on the attached schedule.

An example was given and the attached schedule shows the unit entitlements as established in 2007. The email then went on to provide for distribution of the NZI and EQC monies as received (those with mortgages had to arrange for the release of their mortgage).

[19] Owners were asked to provide a bank account into which any monies payable to them can be paid.

[20] The email continued:

As you will be aware, demolition is now proceeding. While there is no real rush to do so, at some stage (and certainly following the releases of all mortgages) we can then proceed to cancel the unit plan with the outcome being that each of the individual owners will then become a tenant in

common in the underlying fee simple land in the percentage that their unit entitlement represents (e.g. Gatay Holdings will be a tenant in common as to

3.74% of the underlying land). There will be quite a bit of paperwork to be done in this regard and I would suggest that this is a job for the new year.

[21] On 6 December 2011, all unit holders received a circular letter from

Pitcaithly Body Corporate Services Ltd in the following terms:

Please find attached a form of Special Resolution prepared by John Buchan of Buddle Findlay in relation to the manner in which the insurance proceeds from the Body Corporate insurance claims will be dealt with. As agreed at the AGM held on 27 October 2011 the vote on this resolution will be held in accordance with Section 104 of the Unit Titles Act (2010) which does not require the calling of a General Meeting.

[22] There were then instructions as to how to complete the resolution. The resolution was as follows:

Pursuant to section 136(4) of the Unit Titles Act 2010 (“the Act”) and in accordance with section 104 of the Act it is hereby resolved that all insurance moneys received from NZI and EQC not be applied in or towards reinstatement of the Gallery Apartments and that rather, the same after payment of Body Corporate obligations be paid out to owners as provided by section 185(2)(b) of the Act, being a payment according to ownership interests (unit entitlements). It is noted that payments will be made on a staged basis as funds become available and having regard for the need for the Body Corporate to retain sufficient moneys to meet its obligations in respect of the demolition of the Gallery Apartments and other ancillary expenses.

This resolution was passed with all those that responded voting in favour (one vote is unaccounted for).

[23] On 22 December 2012, Mr Buchan sent the owners an email advising that the NZI Insurance payment was expected that day. He attached a spreadsheet calculating payments according to the unit entitlements as established in 2007.

[24] On 19 January 2012, Mr Buchan reported by email to all the unit holders, with a statement detailing the flow of funds and advising:

Later this year we can take steps to cancel the unit plan and at which time the ownership of the fee simple land will be held by each of the 18 unit owners as tenants in common in the proportions as set out in the attached statement. There is no time pressure to do this and the only real drive in this regard will be the desire to sell the land to a third party.

The attached interim statement recorded the payments made in proportion to the

unit’s share of the property.

[25] In April 2012, Mr Buchan reported to the unit holders that the Christchurch

City Council had expressed an interest in purchasing the site, and accordingly:

... we will now proceed with the legal formalities to cancel the unit plan. As previously advised this will result in all owners owning the resultant fee simple title as tenants in common in shares equal to their unit entitlements/utility interests.

[26] On or around 21 May 2012, Pitcaithly Body Corporate Services sent out a notice of resolution, which I call the cancellation resolution:

SPECIAL RESOLUTION OF BODY CORPORATE NUMBER 382902

(the “Body Corporate”)

Sections 104 and 177(3) Unit Titles Act

RESOLVED this day of 2012:

1. the Body Corporate apply to the Registrar-General of Land to cancel unit plan 382902 (the “Unit Plan”) in accordance with section 177 of the Unit Titles Act 2010;

2. the Body Corporate prepare any documents, give any notices and take any action required in order to cancel the Unit Plan; and

3. this resolution may be signed by eligible voters and any number of counterparts (including by way of electronic transmission), each of which when so signed will be deemed to be an original and such counterparts together will constitute one and the same instrument.

That resolution was passed in late May.

[27] On 21 June 2012, Mr Buchan corresponded with the unit holders, advising them of receipt of the EQC money and identifying three final tasks to be done, including cancelling the unit plan.

[28] On 14 August 2012, Mr Buchan emailed the owners advising that as the sale and purchase agreement with the Council was unconditional, it was necessary to finalise the technical formalities and retain the fee simple title. In his evidence, Mr Buchan recorded:

It was about this time that full consideration was given to the procedural requirements for cancellation of the unit plan. I identified that it was necessary to obtain a certificate from a registered valuer reassessing the ownership interests of all the units in the unit title development under section

177(7) of the Act.

[29] It was not until after the resolution of the owners to cancel the unit plan that the Body Corporate’s solicitors identified the requirement under the Act for a reassessment of the ownership interests of all the units. Up until this point in time all the advice given by the solicitor of the Body Corporate to the unit holders and all the discussions by the unit holders were founded on a common assumption that the proceeds of the insurance claims and of the sale of land would be distributed in proportion to the share of the unit titles of the whole property as established in 2007. By the time the cancellation resolution was put to the vote in late May 2012, the NZI proceeds had already been paid out (at the end of December 2011). The EQC proceeds were received and payments made to the owners on 27 June 2012. The remaining sums to be paid were the proceeds of the sale and purchase agreement on settlement of the sale with the Council. That settlement has not proceeded yet because of the need to establish a new title whereby the unit holders are now tenants in common in unequal shares.

(d) The reassessment

[30] The Body Corporate’s solicitors instructed Colliers to do the reassessment. This was undertaken by Mr Graham who it will be recalled had peer reviewed the original assessment by Mr Harris.

[31] He took as the effective date for reassessment 21 February 2011, being the day before the major event that caused the damage to the Gallery Apartments and required their consequential demolition. He thought this date was the most appropriate and practical date. In the course of this exercise, he came to the judgment that the relativity between the units had altered over the intervening period between the original assessment in 2007 and the reassessment. He based his view on sales evidence and his knowledge of the original assessment. As a result of his view, he readjusted the relative unit entitlements, reflecting a stronger market preference for the units in the north building compared to the south building.

[32] Mr Graham included in his sales analysis all the sales from within the subject property from its conception in 2005. The report/written assessment stated that Colliers noted that “a number of the earlier sales were off plans and a number of the more recent sales were influenced by forced sale conditions.”

[33] At all times during this narrative, the owners thought they were complying with the Unit Titles Act.

The scheme of the Unit Titles Act 2010

[34] Section 3 of the Unit Titles Act 2010 (the “Act”) provides:

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 individual owners and, in particular,—

(a) to allow for the subdivision of land and buildings into unit title developments comprising units that are owned in stratum estate in freehold or stratum estate in leasehold or licence by unit owners, and common property that is owned by the body corporate on behalf of the unit owners; and

(b) to create bodies corporate, which comprise all unit owners in a development, to operate and manage unit title developments; and

(d) to protect the integrity of the development as a whole.

[35] Part 2 of the Act sets out all the provisions to set up the unit titles. Subpart 5 deals with ownership interests. It requires the ownership interests to be fixed by a registered valuer. Section 38(1) and (2) provide as follows:

38 Ownership interest

(1) Before a unit plan is deposited under section 17(1), 21(1), or

24(2)(a),—

(a) every principal unit and every accessory unit must be assigned an ownership interest; and

(b) every proposed principal unit and every proposed accessory unit must be assigned a proposed ownership interest.

(2) The ownership interest or proposed ownership interest is fixed as follows:

(a) in the case of a unit plan deposited under section 17(1) or 21(1), the ownership interest is that fixed by a registered valuer on the basis of the relative value of the unit in relation to each of the other units and shown on any documentation required to be lodged with the unit plan:

(b) in the case of a stage unit plan or complete unit plan deposited under section 24(2), the ownership interest is that fixed by a registered valuer on the basis of the relative value of the unit in relation to each of the other units and shown on any documentation required to be lodged with the proposed unit development plan.

[36] The Unit Titles Act 2010 replaced the Unit Titles Act 1972. The original Act did not provide for reassessment of the relative entitlements of unit titles consequent upon a resolution to cancel a unit title plan.

[37] The revaluation is now prescribed by s 177 which provides:

177 Application by body corporate for cancellation of unit plan

(1) The body corporate for a unit title development may apply to the Registrar for the cancellation of the unit plan that relates to that unit title development.

(2) The application must be made in the prescribed form.

(3) Before making an application under subsection (1), the body corporate must agree by special resolution to the cancellation.

(4) Sections 212 to 216 (which provide for an objection process) apply to a resolution under this section.

(5) Before making the application for cancellation of the unit plan, the body corporate must (in addition to complying with section 213(1))—

(a) serve a copy of the draft application on—

(i) every unit owner; and

(ii) every person who has a registered interest in, or caveat or notice of claim entered on the register over, any unit or the common property; and

(b) if the unit title development is a stratum estate in leasehold, serve a copy of the resolution and the draft application on the lessor of the base land.

(6) In addition to the matters required to be included in the certificate required under section 216, the body corporate must also certify that—

(a) the documents required by subsection (5) to be served have been served on the persons specified in that subsection; and

(b) if an objection was made under section 213 and the High Court confirmed the resolution, the standard period for lodging any appeal in respect of the matter has expired or the outcome of any appeal or appeals is that the decision of the High Court to confirm the resolution is upheld; and

(7) The application for cancellation of the unit plan must be accompanied by a certificate from a registered valuer reassessing the ownership interests and proposed ownership interests (if any) of all the units in the unit title development.

[38] The revaluation is not set in stone. Although s 177(3) prescribes that an application by a body corporate for cancellation of a unit plan is by special resolution, this resolution can be challenged by the minority.1 As required under s 177(7), a s 177(3) application has to be accompanied by a certificate reassessing the ownership interests. Accordingly, the statute envisages that the application to the Registrar-General of Land for cancellation will follow a certificate from a registered valuer reassessing the ownership interests. The scheme of the Act is, however, that the resolution to cancel precedes the reassessment.

[39] The Unit Titles Act 2010, by contrast with its predecessor, allows for a reassessment of the relative entitlements of unit holders immediately prior to the cancellation of the plan. The Act, however, builds in two safeguards to this process. One is the ability of disaffected minorities (obviously those unit holders whose entitlements are adversely affected by the reassessment) to apply to “the appropriate

_{decision-maker” to set aside the application or to the High Court
to bypass the}

1 Part 5 General Provisions, subpart 3 – Minority and Majority Relief, s 210 and following.

normal process of cancellation of the plan and for orders which are tailored to the specific facts. Both applications depend for success on the same test of “just and equitable”.2

[40] If a resolution for cancellation of a unit plan is followed by a registered valuer’s reassessment of the ownership interests, then disaffected minorities can apply to set aside that resolution on the ground that the resolution “would be unjust or inequitable”. This is provided for by s 210 which 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. (Emphasis added.)

(2) An application for relief under subsection (1) must be made within 28 days of the passing of the resolution.

[41] The same test is used in the alternative to cancellation of the plan by the

Registrar-General of Land; this is cancellation of unit plans by the High Court, ss

187-190. Section 188(2) provides:

188 Cancellation of unit plan by High Court

(1) The persons described in paragraphs (a) to (f) of section 187(2) have the right to appear and be heard.

(2) The High Court may authorise that the unit plan be cancelled if—

(a) the High Court is satisfied that it is just and equitable that the body corporate be dissolved and the plan cancelled having regard to—

(i) the rights and interests of any creditor of the body corporate; and

(ii) the rights and interests of every person who has any interest in any unit or in the base land or in any part of the base land; and

(b) no principal unit in the unit title development to which the plan relates contains a subsidiary unit title development. (Emphasis added.)

2 Section 210(1) Unit Titles Act 2010, part 4, sub-part 2 and part 5, sub-part 3. Section 188(2)(a).

[42] The Unit Titles Act is a remedial statute. It was not intended to undermine basic principles of property law. On the contrary, it was intended to facilitate the applications of principles of property law to multiple dwelling and/or commercial units in one building or on one title. The architecture of the statute is plain, and relevant parts of it have been briefly described. The property rights protected by the statute are intended to be robust. It is not possible for a developer to unilaterally decide upon the relative percentage of the ownership interests of the whole per individual unit. It has to be a decision by a registered valuer. Likewise, upon the cancellation of the plan, Parliament intends that the value of the unit at the time of cancellation be allocated on rational grounds, and fairly, without oppression of a minority, amongst all the owners of the property.

[43] Equitable remedies were developed because it is not possible to anticipate all events. In this statute, Parliament has recognised that room should be left for the Court to exercise its equitable jurisdiction, having otherwise followed the law, to ensure that all the outcomes of the statute are just and equitable. The analysis moves on then to examine the legal consequences of both the resolutions, before judging whether equitable principles should apply.

The meaning and effect of the first insurance special resolution

[44] To aid comprehension of the following analysis I set out text of this resolution again:

[45] The readers of that resolution, the unit holders, had never had s 185(2)(b) of the Act explained to them. It reads:

185 Body corporate dissolved when unit plan cancelled

...

(2) Unless otherwise determined beforehand by the body corporate by special resolution,—

...

(b) all other property and money (including insurance money received by the body corporate) must, subject to any right of set-off, be distributed among the unit owners according to their ownership interests immediately before the cancellation.

[46] Even if the unit holders had read that section, they would not have been alerted to the fact that their ownership issues might change from what they were at the time they were asked to vote on this special resolution to what they would be immediately before the cancellation. This is because s 185(2)(b) does not refer at all to s 177. They were not alerted to s 177(7) which provides:

[47] The unit holders would naturally read the first special resolution, revised on 6

December 2011, as a legal formality following upon the broadcast email on

1 December and their Annual General Meeting on 27 October. The last sentence of the special resolution would be readily familiar and comprehensible to the readers as it summarises what had been discussed and agreed at the Annual General Meeting on

27 October and reiterated in the broadcast email on 1 December.

[48] There is nothing in the text of the special resolution to alert the reader that there might be some change in the unanimous agreement already reached. Rather, this resolution was anticipated and forecast in the email of 1 December. It was there described as money received to be distributed to owners in accordance with the unit ownership interests (unit entitlements). There is absolutely no suggestion that those unit entitlements might change. Nor was that the expectation of Mr Buchan when writing that email.

[49] Notwithstanding the insertion of s 185(2)(b) of the Act into the resolution, counsel before me separately argued that the special resolution made sense. For the disaffected landowners who lost interest in the reassessment, Mr Bayley argued that I should essentially ignore the words “by s 185(2)(b)”. Putting those words aside, it was to be read as a resolution to distribute the insurance monies according to existing ownership interests on a staged basis as funds became available.

[50] To the contrary, Mr Whiteside, for the owners who benefited by the reassessment, argued that the phrase “by s 185(2)(b)” could not be ignored and so took effect according to the terms of the first long sentence. The second sentence was a note, nothing more, and could not be used to read down or read out the reference to s 185(2)(b).

[51] The third option is that the resolution is incoherent. The incoherent proposition was not formulated by either side but was put by me to counsel in argument. It is thus. If you read s 185(2)(b) and presume familiarity with the Act, then you also know about s 177(7), that is that there will have to be a reassessment of the ownership interests. Therefore, you read the first part as anticipating that the payment ultimately will be to the ownership interests as they have been reassessed. You then turn to the second sentence. The second sentence is to be read as recording what has already been agreed, that payments will be made on a staged basis as funds become available. That decision was not made on the basis that payments would be made contingently. On the contrary, it was made on the basis that payments would be made with finality. Those parties who had mortgages had to get discharges of the mortgages before they would receive their money. The normal practice would be for the bank to provide a discharge of mortgage on condition that the monies were paid directly to a bank account number nominated by the bank. It was essentially a procedure designed to ensure that the bank as mortgagee would not lose the benefit of any payments. There was no prior agreement that these payments might be repayable. If there had been any suggestion that they would be repayable, in the context of the obvious indebtedness of many of the unit title holders, the payment simply would not have been made until the reassessment. Therefore, the agreement

noted in the last sentence is totally inconsistent with the concept of the payments being allocated according to the reassessed values effective upon the cancellation of the plan.

[52] It is a basic principle of common law to strive against finding a deed or other solemn document to be incoherent, but it does not go so far as to find meaning where there is none.

[53] It is easy to see what happened. Everybody (the lawyers, the managers of the Body Corporate and the unit title holders) knew that they were on a path to dissolution of the Body Corporate. The unit holders made a decision to take the money rather than rebuild. Cancellation of the unit plan was inevitably the endgame.

[54] Everybody knew that the whole enterprise was regulated by the Unit Titles Act, as Mr P G Gregg the Chair emphasised in his affidavit. The presence of references to the Act in a formal resolution would not have come as a surprise. But there was no warning that these references changed what had already been agreed at the AGM and discussed in the broadcast email of 1 December. The resolution was anticipated, but to be voted upon as a formality.

[55] It is normal for legal draftspersons when dealing with regulated transactions to refer to the relevant statutory provisions, as the resolutions of 6 December 2011 and 21 May 2012, or thereabouts, did. The 6 December resolution referenced s

136(4) of the Act, which provides:

136 Insurance: principal insurance policy

...

(4) Money paid by the insurer under the principal insurance policy must be applied in or towards reinstatement of the unit title development unless the body corporate decides otherwise by special resolution at a general meeting.

The resolution expressly refers to s 104 of the Act, which enables the passing of a resolution without a general meeting. Strictly speaking, neither of these sections

needs to be referenced. Nor do ss 177 or 185 need mention, but the inclusion of these references, except s 177, was presumably simply part of the prudent techniques of commercial lawyers.

[56] The result, however, is that the reference to the section literally incorporates the content of the section into the resolution. But to really understand that incorporation it is necessary to read the sections. Here there is a trap because reading s 185 alone will not lead you to s 177. There is no cross-reference in s 185 to s 177. It is true that an assiduous unit holder with access to the Act, or a unit holder who sought further legal advice might have figured or been told of the application of s 177(7). There is no evidence though that that happened. All the evidence is the other way. No one it seems, least of all the draftsperson of the resolution, appreciated that payments were to be made on a staged basis according to the existing ownership interests which could be reassessed immediately prior to the cancellation.

[57] The weakness of the applicants’ argument is that to get to the meaning of a resolution to resolve according to existing ownerships it is necessary to read out the phrase “by s 185(2)(b)”. The weakness of the respondents’ submission is that to get to the meaning that it provides ultimately for distribution according to reassessed interests, one must disregard the second sentence, which is plainly recording a conflicting common assumption and, indeed, unanimous agreement of all the unit holders.

[58] For reasons which become apparent from the balance of this judgment, it is not necessary for me to resolve the meaning of this resolution.

[59] I prefer the conclusion that it is simply incoherent, or at second best, that all the references to the Unit Titles Act are superfluous and never intended by the signatories to the special resolution to affect the meaning of the text otherwise. In that regard, if I had to, I would consider following the English Court of Appeal in

_{Holding and Barnes Plc v Hill House Hammond
Limited.}3 _{In that case, the issue
was}

3 Holding and Barnes Plc v Hill House Hammond Limited [2001] EWCA Civ 1334.

the true construction of the landlord’s repairing covenant in a lease. The landlord was suing for rent due under the lease, and the tenant counterclaimed damages for breach of the landlord’s repairing covenant and sought an injunction requiring the landlord to comply with it. The subject provision provided:

4. THE Landlord agrees with the Tenant:

...

4.3 TO keep the foundations and the roof in good and tenantable repair and condition and to keep the structure and the exterior of the Building (other than those parts comprised in the property) in good and tenantable repair and condition.

[60] Clause 4.3 was in a lease of a whole building. That lease was executed along with six other leases on the same day between the same parties, as part of a sale of a business. Five of the other leases were for part only of a building. In those five leases, this clause meant that the landlord had to keep the foundations and roof in good repair, and those other parts of the building not forming part of the property being leases. In this lease, where the whole building was being leased, the words from “and to keep ...” were a mystery of meaning. This is because they were only there by reason of a mistake in drafting.

[61] Lord Justice Clarke, as he then was, cited Lord Bingham in BCCI (SA) v Ali

in paragraph 8, stating that: 4

In construing this provision, as any other contractual provision, the object of the court is to give effect to what the contracting parties intended.

[62] Lord Bingham cited Lord Hoffmann in Investors Compensation Scheme Ltd v

West Bromwich Building Society.5 There, Lord Hoffman said, at pages 912H-913E:

The result has been, subject to one important exception, to assimilate the way in which such documents are interpreted by Judges to the common sense principles by which any serious utterance would be interpreted in ordinary life. Almost all the old intellectual baggage of “legal” interpretation has been discarded. The principles may be summarised as follows:

4 _{BCCI (SA) v Ali [2001] 2 WLR 735 at
[8].}

5 Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896, 912-

913.

(1) Interpretation is the ascertainment of the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at at the time of the contract.

...

(4) The meaning which a document (or any other utterance) would convey to a reasonable man is not the same thing as the meaning of its words. The meaning of words is a matter of dictionaries and grammars; the meaning of the document is what the parties using those words against the relevant background would reasonably have been understood to mean. The background may not merely enable the reasonable man to choose between possible meanings of words which are ambiguous but even (as occasionally happens in ordinary life) to conclude that the parties must, for whatever reason, have used the wrong words or syntax: see Mannai Investments Co. Ltd v. Eagle Star Life Assurance Co. Ltd [1997] UKHL 19; [1997] A.C. 749.

[63] Coming back to the facts of Holding and Barnes Plc v Hill House Hammond

Limited, the Court held that:

29. ... In short, this is a case in which it is obvious to a reasonable man that there has been a mistake. As already stated, such a mistake can be corrected by a process of construction.

30. The question is what meaning the reasonable man would give to the clause having regard to all the relevant circumstances. I do not think that a reasonable man would conclude that the parties intend to nullify the whole of the second part of the clause by the words in brackets; such a conclusion would to my mind be contrary to common sense. If the parties had intended such a result, as I have already said, the clause would simply have said:

“TO keep the foundations and the roof in good and tenantable condition”.

[64] This is revolutionary stuff to a lawyer educated in “the old intellectual baggage of ‘legal’ interpretation” in the 1960-70s. It has an appeal to reality and to practical intent. No one in argument before me contended, nor could they possibly have contended, that the expanded version of a special resolution, with a full understanding of the ramifications of s 185(2)(b) is what the parties knew they were voting on when they voted for the resolution. For the respondents to succeed on this point, in this case, they have to argue for a meaning which was completely at odds with the meaning the unit holders thought the resolution had when they voted upon it. It is sufficient to make this the finding of fact for the “just and equitable” analysis, which now follows.

Just and equitable relief

[65] At [40] and [41] above, I have set out the two provisions of the Act providing

the tests of “unjust or inequitable”, s 210, and “just and equitable”, s 188.

[66] The phrase “just and equitable” is well-known to the Court. The phrase derives from the law of equity. Equity does not give the Judge a power to substitute his or her own opinion. Rather, when the usual legal rules would produce unjust outcomes, sometimes equity enables the Court to invoke settled principles, established for hundreds of years, by numerous cases, for ensuring just and equitable relief.

[67] In the originating application the unit holders in the south tower, adversely affected by the reassessment of value, apply firstly for relief utilising the sections enabling application to the High Court (ss 187 and 188), and, secondly, in the alternative, for the High Court to set aside the resolution of reassessment of value and start the process again, s 210.

[68] Either way, the applications rely on two broad arguments:

(a) Large sums, almost all the value, have been paid out under a common mistake of law so that it is now unjust to require the recipients of that money to pay it back;

(b) That the reassessment was not in accordance with valuation principles and methods that a registered valuer should apply when exercising a reassessment and that there are no good reasons for a registered valuer to alter the assessment as originally made in 2007.

[69] Before I deal with each argument, I deal with a preliminary argument: that it is too late now for the Court to entertain an application for order of cancellation of the unit plan and that the only option available is the process where minorities can seek relief from resolutions which would be unjust or inequitable for the minority, see s 210(1) cited above.

[70] The threshold requirements of an application to the High Court for order of cancellation of unit plans are contained in s 187, which provides:

187 Application to High Court for order of cancellation of unit plan

(1) Any 1 or more of the following persons may apply to the High Court for the cancellation of the unit plan:

(a) the body corporate for the unit title development to which the unit plan relates, after a special resolution to do so; or

(b) an administrator; or

(2) The applicant must serve a notice of any application made under subsection (1) on—

(a) every unit owner; and

(b) if a principal unit in the unit title development is a subsidiary unit title development, the body corporate of that subsidiary unit title development; and

(c) if the unit title development is a subsidiary unit title development, the body corporate of its parent unit title development; and

(d) any person having an interest in any easement or covenant of a kind referred to in section 60 or 62; and

(e) every other person who has a registered interest in, or caveat or notice of claim entered on the register over, any unit, the common property, or the base land; and

(f) any insurer who has effected insurance on the buildings or other improvements comprised in any unit or on the base land or any part of the base land; and

(g) the Registrar.

(3) The Registrar must enter on the supplementary record sheet a notification that the application has been made.

(4) Any notification entered under subsection (3) must be cancelled by the Registrar if the applicant lodges a notice in the prescribed form with the Registrar that—

(a) the application to the High Court is not proceeding; or

(b) the High Court has refused to make the declaration sought.

[71] There is nothing in section 187 which precludes an application after there has been a reassessment under s 177(7). Subparagraph (a) of subs (1) reinforces the lack of constraint. As there is a constraint on when the Body Corporate can make an application, the Body Corporate can only do so after a special resolution to do so. But that restriction does not apply to any one or more unit owners.

[72] As I have already noted, equitable remedies deal with situations where the common law (and here the normal statutory rules) do not produce a just result. It would be contrary to the spirit and principles of the law of equity to read down s 187 by imposing, by way of judicial gloss, pre-conditions not expressed in that section, when Parliament intended in the next section, s 188(2), that the High Court act upon what it was satisfied was a just and equitable result. See s 188(2)(a). Flexibility is further enhanced by s 188(4) which provides:

188 Cancellation of unit plan by High Court

...

(4) The High Court may, at any time before the unit plan is cancelled under section 189, vary or modify the terms of any declaration or order made by it under this section.

[73] Plainly, the goal of Parliament in the Unit Titles Act was that every cancellation of the unit plan should produce a just outcome.

[74] I conclude that it is open to this Court to entertain either of the two applications.

[75] I deal with a second preliminary question as to whether or not the plaintiff’s argument of estoppel by convention needs to be approached separately from simply applying the just and equitable standard in s 188(2).

[76] It is a core characteristic of the law of equity that it is animated by principles and not by rules. It is focussed on just outcomes. Therefore, I have no difficulty reading into the wording of Parliament, in s 188(2)(a), “If the High Court is satisfied that it is just and equitable”, all the principles of equity, including the principles of estoppel by convention. Secondly, it is preferable, where statutory remedies are

provided, to stay with the scheme of the statute. The equitable maxim is “follow the law” and then within that context apply the criteria of just and equitable.

[77] The core concept of estoppel is illustrated by this example. Party A makes a representation or promise which party A is not obliged by law to make to party B. Party B then relies on that promise or representation. Party A then wants to withdraw the representation. But because party B has made decisions relying on the representation, it is now unconscionable for party A to rely on its rights. So party A is stopped by a Court order from doing so. So analysis of estoppel is normally divided into three parts:

(1) Was there a representation?

(2) Was it relied upon so that the person relying has conducted their affairs and altered their course of conduct in reliance on the representation?

(3) Is it unjust to disturb that altered conduct of party B?

[78] Estoppel by convention is a slightly different situation where party A and party B are under a common mistake, and are behaving in accordance with that common but false state of mind. In National Westminster Finance NZ Ltd v National Bank of NZ Ltd,6 Tipping J for the Court of Appeal summarised the principles as follows:

(1) The parties have proceeded on the basis of an underlying assumption of fact, law, or both, of sufficient certainty to be enforceable (the assumption).

(2) Each party has, to the knowledge of the other, expressly or by implication accepted the assumption as being true for the purposes of the transaction.

(3) Such acceptance was intended to affect their legal relations in the sense it was intended to govern the legal position between them.

(4) The proponent [of the estoppel] was entitled to act and has, as the other party knew or intended, acted in reliance on the assumption being regarded as true and binding.

(5) The proponent would suffer detriment if the other party were allowed to resile or depart from the assumption.

6 National Westminster Finance NZ Ltd v National Bank of NZ Ltd [1996] 1 NZLR 548, 550.

(6) In all the circumstances it would be unconscionable to allow the other party to resile or depart from the assumption.

[79] Equity’s analysis looks to substance not to form. There can be a distinction between the substance of the parties intention and the form and legal meaning of the special resolutions. There is here.

[80] There is no doubt as a matter of fact that the first insurance resolution was executed by the parties on the basis of an underlying assumption that the insurance monies were going to be distributed finally, without any claw back, according to the split in ownership entitlements established in 2007 and prevailing at the time the resolution was voted on. Neither party knew of the error in their legal understanding of the consequences of resolving at some time in the future to cancel the unit plan. The disbursal of the insurance monies was intended to affect their legal positions, their legal relations. As between each other, it was intended to be the just allocation. Furthermore, it was intended to be spent where appropriate, against their further obligations to their mortgagees.

[81] As was recognised in oral argument, the question of the application of equitable principles comes down to whether or not the detriment of the applicants as a result of having to adapt to the reassessed figures is sufficient to make it unconscionable to redistribute according to the reassessment.7

[82] Applicants’ counsel prepared a schedule “A”, being a calculation of

distributions with and without an ownership interests reassessment. They calculated:

A total gain/loss assuming reassessments of EQC and insurance distribution of $917,389.14.

A total gain/loss assuming reassessments of sale proceeds of $124,004.18.

A total gain/loss assuming reassessments of sale proceeds and EQC and insurance monies of $1,041,393.31.

7 See principle 5 in National Westminster Finance NZ Ltd v National Bank of NZ Ltd.

[83] The applicants stand to lose significant sums of money. Assuming a full adjustment on the whole, the first applicant would lose $221,611.38, the second applicant $156,749.51, the third $171,163.26, the fourth $160.352.95, the fifth

$151,344.36, and the sixth $180,171.85. To illustrate this, I take the particulars in respect of the sixth applicants in detail. Their entitlement to the EQC and insurance distribution under the original ownership interest is $907,866.07. Under the reassessed interest it falls to $749,148.23. That is a drop of -$158,715.84. If the sale proceeds are distributed according to the original ownership interests, they would get

$122,716.94. Under the reassessed interest that drops to $101,262.93. That is less

$21,454.01.8

[84] Counsel for the respondents argue there is no substantial detriment to the applicants. If the sale proceeds are distributed according to the reassessment, most of the unit owners will share in the proceeds. This proposition is correct, provided one assumes that the respondents do not seek to recover the ultimate shortfall to capture the reassessment. Taking the example of the sixth applicants above, on the sale proceeds of the reassessed ownership interests, the sixth applicants get

$101,262.93. But on the respondents’ analysis they were overpaid $158,717.84, therefore they ought not to be getting the $101,262.93 at all, and on top of that be obliged to pay a further $21,454.01.

[85] I do not consider that detriment has to be confined to the risk of having to pay any amount back in, as distinct from the lesser sums received because of the reassessment. The degree of detriment to the applicants varies depending on the degree of adjustment. Taking again the particular figures of the sixth applicants as an example, if the EQC and insurance distribution is left as it is and there is an order only that the sale proceeds be distributed according to the reassessed ownership interests, the sixth applicants’ loss reduces to $21,454.01. If a fuller reconciliation is appropriate, then the sixth applicants’ entitlements to the sale proceeds under the reassessed ownership of $101,262.93 would be put towards adjusting the overpayment to them of $158,717.84. This would leave a further balance which

_{might be pursued by the respondents of $57,454.91. Mr Whiteside has
pointed out}

As a caveat on these figures, these may be gross figures and not allowing for net cost. That does not matter for the purposes of this exercise.

that, while his clients are opposing the applications for relief, they are not seeking to recover the overpayments. If the latter analysis that I have taken in respect of the sixth applicants, at about $57,000.00, is done to the first, second, third, fourth, fifth and sixth applicants (the first applicant only in respect of unit 12), the total sum not being sought by the respondents in these proceedings is approximately $260,000.00.

[86] Were financial detriment the only consideration, I would hesitate about granting a remedy here. I would be looking more carefully at the extent to which the detriment issues should be mollified. I would be looking at whether or not the existing distribution should be left in place and the directions reapply only to the distribution of the sale proceeds.

[87] Mr Bayley also relied, as a detriment, upon the argument that had the parties not proceeded on the erroneous basis of the underlying assumption that distribution according to the original split of shares was final, then the applicants might have acted in other ways. He instances, as an example, that the applicants might have declined to vote in favour of the cancellation resolution without first sighting and approving the reassessment certificate (the applicants carry 39% of the 18 votes), or insisted the Council purchase the units rather than the fee simple title, thereby avoiding the need for reassessment of the ownership interests, vis-a-vis the current owners. These considerations do not appeal to me as definitive on the unconscionability point.

[88] I am satisfied that there is some detriment, and I carry that finding of fact forward. Again, equity looks at all the facts. It is necessary to go on and examine the contest between the parties as to the merit of the valuation reassessment.

Evaluation of the merit of the reassessment of the ownership interests

[89] The Court had the benefit of evidence from two expert valuers. Mr Graham defended his reassessment. He is a qualified registered valuer with nine years experience. He has been engaged in the valuation and consultancy for commercial, industrial and residential property for the purpose of market, mortgage, rental, insurance and development feasibility, including the assessment of ownership

interests under the Unit Titles Act. He has had considerable experience in the valuation of inner city residential apartments, having been fully involved with both the Victoria Apartments and the Gallery Apartments from their conception through to sales by the developers. He has also been involved in various proposed and existing residential developments in the Christchurch CBD. He conducted the reassessment of the ownership entitlements in August 2012, having previously, in March of 2007, peer reviewed the original assessment prepared by Mr David Harris, another registered valuer, who were both employed by Fright Aubrey, the predecessor of Colliers.

[90] The second valuer was called by the applicants. He is Mr William Blake. He is a registered valuer, an Associate of the New Zealand Institute of Valuers and a senior member of the Property Institute of New Zealand. He has 35 years experience in the valuation profession, having worked in the public sector in Dunedin, Wellington and Auckland. He has been in practice as a registered valuer in Christchurch since 1987 and has been continuously employed by Simes Ltd, now trading as Knight Frank since that time. He holds the position of Director of Valuation and Consultancy, Knight Frank. He has been primarily engaged in the valuation of commercial and industrial property in and around Christchurch and providing consultancy services to the company’s corporate clients.

[91] This examination goes to an assessment of the unconscionability of departing from the common assumption, which led to the disposal of about $18 million of money, in accordance with the original shares. But it is also relevant to whether or not the applicants as a minority are justified in applying to have the special resolution to cancel the plan set aside in order to enable there to be a new application to cancel the plan based on a different reassessment.

The reassessment

[92] Here follows a schedule adapted from the submissions of the respondents showing the relative valuations between the original assessment and the reassessment:

Unit No. March 2007 value

%age of total value at March
2007

February
2011 value

%age of total February
2011
value

-$ Change

Unit 100 843,750 3.71 828,000 4.60 15,750

Unit 1 850,000 3.74 700,000 3.89 150,000

Unit 2 900,000 3.96 750,000 4.17 150,000

Unit 3 950,000 4.18 800,000 4.44 150,000

Unit 4 1,000,000 4.40 850,000 4.72 150,000

Unit 5 1,100,000 4.84 900,000 5.00 200,000

Unit 6 1,200,000 5.27 1,000,000 5.55 200,000

Unit 7 1,250,000 5.49 1,050,000 5.83 200,000

Unit 8 1,300,000 5.71 1,100,000 6.11 200,000

Unit 9 1,350,000.00 5.93 1,150,000 6.39 200,000

Unit 10 1,400,000 6.15 1,200,000 6.66 200,000

Unit 11 2,750,000 12.09 2,500,000 13.89 250,000

Unit 12 2,050,000 9.01 1,400,000 7.78 650,000

Unit 14 1,050,000 4.62 675,000 3.75 375,000

Unit 15 1,100,000 4.84 700,000 3.89 400,000

Unit 16 1,150,000 5.06 750,000 4.17 400,000

Unit 17 1,200,000 5.28 800,000 4.44 400,000

Unit 18 1,300,000 5.72 850,000 4.72 450,000

Total 22,743,750 100 18,003,000 100 4,740,750

[93] We have seen from the start that the 2011 values all reduce from the 2007 values, whether they are in the north building or the south building. However, the level of adjustments are much higher in the south building, which starts from unit 12 on. The adjustments in value fall into bands of less than $150,000 (four), less

$200,000 (seven), then in the south block, less than $650,375, $400,000 (three) and

$450,000 (one), with units 12 and 14 treated separately.

[94] Mr Graham gave his reassessment on 15 August 2012, and explained it in a covering letter on 15 August 2012 and in a letter of 10 September 2012. I draw his reasons from those two letters. He advised:

We confirm that we have not reinspected the property as it has been demolished following the damage sustained from the Canterbury Earthquakes. We have however previously inspected the property and did externally inspect the property on 11 August 2011. Our valuation assumes that the building is unchanged from our previous internal inspection and in

its non damaged state prior to the Canterbury earthquake of 22 February

2011. Our effective date of assessment is therefore 21 February 2011.

...

We note the ownership interests have altered from the original assessment completed in March 2007. The sales that have occurred over the intervening period have indicated a stronger preference for the front units relative to the rear units and this was reflected in the sale prices achieved over the intervening period. The ground floor commercial unit has also held its value relative to the residential apartments which had reduced in value over this period.

[95] The letter of 10 September 2012 was written in response to a request to provide evidence in support of the certificate. That letter refers to the certificate (re-adjusting the proportions) and to the letter of 15 August which I have just quoted from. It goes on:

We noted that the sales that had occurred in the intervening period had indicated a stronger preference for the front units relative to the rear units and this was reflected in the sale prices achieved over the intervening period. The ground floor commercial unit had also held its value relative to the residential apartments which had reduced in value over this period.

The unit entitlement, or ownership interests are based on the market value of the interest, or unit within the total development, as at the date of the assessment.

In determining the market value of the units we have had regard to sales from both within the subject apartment development and from further afield.

We attach as Appendix 1 of this letter a summary of Apartment Sales

Evidence we have considered.

[96] That letter then went on to restate the assessment of the subject apartment values. The appendix is headed Apartment Sales Evidence. It is introduced with this sentence:

The following provides a summary of residential apartment sales from comparable high quality apartment complexes within the inner city.

[97] Then follow four sets of data, being sales from: (1) the Gallery Apartments,

62 Gloucester Street (the subject property); (2) Victoria Apartments, 100 Armagh Street; (3) The Establishment, 52 Peterborough Street; (4) The Oxford, 66 Oxford Terrace.

[98] Under the heading Gallery Apartments, 62 Gloucester Street (the subject property) is a paragraph:

We have included all the sales from within the subject property from its conception in 2005. We note a number of the earlier sales were off plans and a number of the more recent sales were influenced by forced sale conditions...

[99] Then follows a summary of all the sales. The summary does not distinguish between sales off plans, and sales influenced by forced sale conditions. I will be returning to this in more detail but, in brief, all sales are recorded, being both the original purchase and subsequent sales, but with their sale date set alongside them. In respect of sales not off the plans, that is after construction, there were 13. Of those 13, two were mortgagee sales and six were sales by the developer after receipt of property law notices and one was at an inflated value. That leaves only four sales likely to produce reliable values.

[100] Under Victoria Apartments, all sales are again listed. There are four. One of the four is asterisked as under mortgagee sale conditions. The Establishment contains four sales with a comment that two of the four units included 112 square metres of balcony. The Oxford contains three sales as a sample.

[101] The discussion then goes on as follows:

The above sales range between $3,687 per square metre for some relatively large units, up to $9,325 per square metre for the Penthouse within the subject development. The subject units and sales of apartments have differing size decks which are incorporated into the floor areas for analysis purposes. The large and varied deck areas do however distort the analysis to some degree. Significantly smaller apartments also tend to achieve a higher rate per square metre compared to larger apartments. Other influencing factors are quality, height, aspect and configuration. We consider that the sales from within the subject development are the best comparison, however a number of the more recent sales have been influenced by forced sale conditions.

The sales which have occurred within the subject development indicate a preference for the north building compared to the south building. We consider the market perceives the north facing units to be more desirable.

A limitation in the subject development is the carparks being accessed by car lift. We understand this provided some resistance to a number of potential purchasers.

Notwithstanding the limitation with the carpark access, the units do enjoy excellent aspect to the sun with most units having 180 degree views including both an east and west outlook, with the exception of the north units below the level of the Art Gallery. The close proximity to the Arts Centre, Hagley Park, Cranmer Square and the CBD are a significant benefit. The building is also modern and provides good quality accommodation.

[102] The sequence of the evidence is that that assessment was first critiqued in the first of two affidavits filed by Mr Blake. He agreed that the issue was the market value of each unit.

[103] Mr Blake perused the material provided by Mr Graham. He noted there is no indication that the value of the apartments had changed due to a change in the physical attributes of the apartments. He turned to the sales evidence, and this is his opinion:

The sales evidence available to the valuer is limited and not particularly conclusive. I make these observations:

(a) Of the comparative sales evidence relied upon by Mr Graham, only the Gallery Apartments themselves involve a two tower complex. Mr Graham states that “the sales from within the subject development are the best comparison” [15].

(b) The other sales evidence [14], whilst potentially indicative of general movements in the market, obviously does not provide any support for an increased preference for the northern apartments over the southern apartments since the original assessment of the unit entitlements in March 2007. I note that, as a general rule of thumb, general movements in the market are likely to have a roughly proportional impact upon each unit and are therefore unlikely to lead to any change in the ownership interests ascribed to each unit.

Mr Graham [13], 7 pre-date the original assessment in March

2007. I would expect that those sales would have been taken into account by Mr Harris in the original determination of the unit entitlements.

(d) The Gallery Apartments sales evidence quoted by Mr Graham indicated a general decline in the market. For example, in the north tower:

(i) The price received for unit 1 in May 2009 (mortgagee sale) was 22.95% lower than that realised in April 2005.

(ii) The price realised for unit 8 in January 2009 (mortgagee sale) was 30.91% lower than that realised in July 2005.

(iii) The price realised for unit 11 in October 2010 was 3.85%

lower than that realised in August 2005.

(e) In the south tower, the price realised for unit 14 in September

2008 was 4.4% lower than that realised in August 2005.

(f) The figures specified above do not support a conclusion that the north units have held their value better than the south units or have been preferred over the southern units.

(g) Mr Graham has observed that a number of the more recent Gallery Apartments sales were influenced by forced sale conditions [13]. I concur with this. The historical title searches show that Southern Apartments Limited (SAL) was the original owner of the units. I am advised that the first applicant, as first mortgagee, served on SAL a s 119 Property Law Act 2007 notice dated 29 January 2009 [89-90] which expired unremedied and which pertained to units 3, 4, 9, 12, 15, 16, 17 and 18. I am further advised that the amount specified in the notice has not yet been fully satisfied. The mortgage to the first applicant still remains registered over units 4 and 12.

(h) All of the sales evidence pertaining to the south tower quoted by Mr Graham (save for the unit 14 transactions) were sales by SAL post-dating the PLA notice and were likely to have been influenced by forced sale conditions. The sales may therefore have occurred at a discounted price to that which might otherwise have been achieved in a normal market sale.

22 Accepting that there was a preference for the northern apartments, I still doubt, in light of the matters I have identified above, whether the sales information is sufficiently voluminous and robust to indicate a manifest difference from the unit entitlements originally assessed in March 2007.

The Effective Date of Assessment

23 As noted above, the Reassessment Certificate adopts an effective date of assessment of 21 February 2011. No reason is advanced as to why a pre-February earthquake date is considered to be appropriate.

24 The effective date of assessment adopted by Mr Graham is well over a year earlier than the date of the Reassessment Certificate itself and also the date upon which the resolution to cancel the unit plan was circulated.

25 In the ordinary course, and unless instructed otherwise, in preparing a reassessment certificate I would adopt an effective date of reassessment as close as possible to the date of the reassessment certificate itself (or perhaps the date the resolution to cancel the unit plan was passed in the case of a certificate required under s 177(7) of the Act).

26 I note that s 41(4) of the Act provides that a reassessment certificate takes effect on the date of reassessment unless determined otherwise by special resolution. I therefore understand that a reassessment certificate does not ordinarily apply retrospectively and it would therefore seem logical for a reassessment certificate to reflect the market values at the time it takes effect rather than historical values which may have ceased to be relevant.

27 The historical effective date of assessment adopted by Mr Graham has the effect of ignoring subsequent market factors resulting from the earthquakes. For example, perceived earthquake risk may result in a greater demand for units lower down than higher up in an apartment complex. Again, it is unclear to me why Mr Graham should rely upon pre-earthquake market forces in making an assessment.

[104] Mr Graham replied, first making the point that Mr Blake did not assign values to the units in order to compare the relativity of the reassessment certificate prepared by himself. He did not consider that Mr Blake could reach a conclusion that he would leave the original ownership interests unaltered without Mr Blake completing a valuation of all the apartments including the ground floor commercial unit. He confirmed that six of the seven off plans pre-sales that occurred prior to the development were within the northern tower. This he saw as an indication the southern tower had less appeal compared to the northern tower. But that the amount of the value difference was not clearly evidenced, given only one sale had occurred in the southern tower. He also considered the off plan pre-sale within the southern tower was at a discount, part of the context being a requirement of the bank to have sales before a development could be considered. He says following the completion of the development the unit was put back on the market in an attempt to re-sell it at a profit. This did not eventuate and a 4.4% loss resulted.

[105] Turning to the criticism that the sales evidence was not particularly conclusive, Mr Graham disagreed. He said:

In my view, the sales evidence within the development was far more conclusive than when the original assessment was conducted in March 2007.

[106] He criticised Mr Blake for saying that general market movements are likely to be roughly proportional, saying the assumption was unwarranted. He then went on to challenge Mr Blake’s proposition that the figures specified do not support a conclusion that the north units have held their value better than the south units or have been preferred over the south units. He says:

I note the sales of Units 15, 16, 17 and 18 all within the southern tower were between $688,000 and $800,000. I note my ascribed values for the Reassessment of the ownership interests for (these units) range between

$700,000 and $850,000, all above the sale prices achieved. My assessments of the front units are all in line with the purchase prices, with the exception

of some outliers.

On the same point, he says:

I reiterate that of the total of twenty unit sales, thirteen were on completion of the development and provide a much clearer indication as to value as opposed to seven sales available in 2007 which occurred off plans, only one of which was within the southern tower.

[107] He then turns to Mr Blake’s criticism that a lot of the sales were forced sales.

He says:

26. Mr Blake states that 11 the sales pertaining to the southern tower with the exception of Unit 14 were sales by SAL which post-date the Dominion Finance Limited Property Law Act notice dated 29 January

2009. The subsequent sales were therefore likely to be influenced by forced/mortgagee sale conditions. It is interesting that other than Unit

14 no sales occurred within the southern tower between 2005 and

2009. This compares to the northern tower where there were nine sales over the same period, clearly indicating a preference for the

northern tower over the southern tower, and indicating a larger price differential was required in order to sell the units within the southern

tower.

27. Having been involved with the Original Assessment I can confirm that my perception of the market based on the limited sales that had occurred off plans differs from the Reassessment based on the sales that had occurred for the completed units over the intervening period, albeit a number of these sales were under forced sale conditions.

[108] On the subject of the effective date of assessment, he defended taking the day before the earthquake as the most recent date at which prior to the cancellation of the unit plan the apartments had any value. He turned to an alternative date suggested by Mr Blake, which was the date of assessment coinciding with the cancellation of the unit plan but assuming that the apartments are undamaged. For Mr Blake had suggested by this stage the perceived earthquake risk may result in a greater demand for units lower down than higher up in the apartment complex. Mr Graham criticised this date as hypothetical. The third option was a date of assessment coinciding with the cancellation of the unit plan, assuming the apartments had been

demolished. Mr Graham said this methodology would essentially involve valuing spaces in the air. He agreed with Mr Blake that there was unlikely to be any directly comparable sales evidence. Another hypothetical valuation.

[109] In his affidavit in reply to Mr Graham, Mr Blake discussed sales off plans and noting that he assumed that Messrs Harris and Graham would recognise circumstances where they consider the sales to be at a discount. Then moving on to the more substantive part of his criticism, he said:

5 Ultimately, the original unit entitlements were assessed by experts apparently with an understanding of the likely market preference for the various units. The unit entitlements were accepted by the purchasers of the units and they have structured their affairs around them. The market is entitled to rely upon the original assessments as being reflective of market value at that time and there is certainly no conclusive evidence to show that the original assessment was manifestly wrong.

[110] He moved on to the comparative sales evidence and renewed his criticism of reliance by Mr Graham on forced sales.

8 I disagree with Mr Graham’s statement at paragraph 25 of his affidavit that “of the total of twenty unit sales, thirteen were on completion of the development and provide a much clearer indication as to value as opposed to the seven sales available in 2007 which occurred off the plans”. I would be concerned if Mr Graham has been overly influenced by those later sales because, of the thirteen, two appear to have been mortgagee sales (units 1 and 8), six were sold by the developer after being served with a Property Law Act notice (units 3, 9, 15, 16, 17 and

18) and one sale (unit 11 in 2008) Mr Graham recognises may have

been “inflated above market value”. Nine of the thirteen sales may not therefore reflect prices that would be achieved in a normal market sale. This is too significant to ignore.

9 I note that Mr Graham has valued the south tower units 15, 16, 17 and

18 above the sale prices achieved for the units post 2007. This may suggest that he considers that the actual prices achieved were at a discounted level to that which might be expected under normal market conditions. If that is so, and these sales are dismissed from consideration, there is less weight to the hypothesis that the market has demonstrated a shift in preference for the north units relative to the south units.

[111] He concluded:

13 A significant feature however in this case is that there was no physical change to the buildings as at 21 February 2011 to support a reassessment and nor does the comparative sales evidence present a compelling case to indicate a substantial change in relativities from those assessed in 2007. In these circumstances, I consider that an opinion as to market perception does not provide the necessary impetus to justify altering the ownership interests.

[112] Mr Blake renewed his doubts about taking the day before the earthquake as the date of assessment, saying:

Again, it is unclear to me why a date other than that coinciding with the cancellation of the unit plan should be selected.

[113] This led to his conclusion:

16 Ultimately however, I am of the view that there is insufficient evidence either pre-earthquake or post-earthquake to warrant altering the original ownership interests. My conclusion is the same regardless of which effective date of assessment is adopted (and disregarding a methodology based upon an assessment of “space in the air”). I also formed this view in the case of the Poplars apartments.

[114] I have not taken into account his evidence as to reassessment precedents in other properties, they are at best a comparison of conclusions.

[115] Mr Whiteside invited me to dismiss Mr Blake’s criticisms entirely. This is because he had not done a reassessment himself. Rather, he had simply critiqued the work of Mr Graham. Secondly, Mr Whiteside argued that Mr Blake had used the wrong standard in maintaining that the original assessment should stay the same until there was “conclusive” evidence or signs that the original assessment was “manifestly wrong” or that there was evidence to present “a compelling case to indicate a substantial change in relativities”. Mr Whiteside’s submission essentially said that the requirement of s 177(7) is for a registered valuer to do a reassessment.

[116] Cross-examination did not disturb the valuer’s reasoning. I turn first to the issue of the date of reassessment.

[117] Section 177(7) requires an application for cancellation to be accompanied by a certificate from a registered valuer reassessing the ownership interests, but does not impose a date on that valuation. However, a Body Corporate is dissolved when the unit plan is cancelled.9 Distribution, unless earlier determined by the Body Corporate by special resolution, follows to the unit holders “according to their ownership interests immediately before the cancellation”.10

[118] There is no doubt then that in normal circumstances a registered valuer would reassess the ownership interests at the time of cancellation. At the time of the cancellation in August 2012 the buildings had gone. There were no longer any units. There is a significant argument therefore that there were no units for which the ownership interests were to be reassessed.

[119] The text of s 177(7) presumes the continued existence of the units, that they are there to be valued. But in this case they were not. It follows that there is a significant argument that the method of cancellation of unit plans by the Registrar- General of Land was an option that was simply not available. Rather, the Body Corporate should have applied to the High Court for a cancellation of the unit plan. In that regard, the High Court is given wide powers. The High Court can direct that

s 177(7) does not apply.11 There is no evidence that that option was considered.

Certainly, it was not put to the owners of the units.

[120] Faced with no building, Mr Graham selected the day before the February earthquake (the second large one) as the last date in which as a valuer he could apply usual valuation methods to assess ownership of the units.

[121] As I have canvassed in a summary of the competing arguments, Mr Blake identified two other options. All the options are clearly unsatisfactory. By August

2012 a large number of high rise apartment buildings in Christchurch had either been

_{already demolished or were written off for demolition. It
would be a brave}

9 _{Section 185(1).}

10 Section 185(2)(b).

assumption to assume that the market for high rise apartments in Christchurch remained the same as it was before the earthquake in September 2011, let alone in February 2012. Neither valuer suggested that.

[122] It is my reading of Mr Graham’s decision that his election of the date before the second earthquake was a selection of the date closest to the cancellation of the plan upon which he could justify a functioning market.

[123] The only way that this can be justified under s 177(7) is to add a gloss to that section. A possible gloss is to say that because the application is to be accompanied by a certificate from a registered valuer, Parliament has left judgment to the registered valuer as to when to reassess the ownership interests. Provided the registered valuer exercises his or her judgment in a professional manner, that judgment will legally justify a certificate.

[124] Current legal philosophy trends against applying glosses to the tests set by Parliament, because of the danger of altering the test. Glosses sometimes can be justified. However, before they are to be justified, one should look at the whole scheme and purpose of the Act. One can ask rhetorically why Parliament provided for reassessment of ownership upon plans. It was not considered by Parliament to be always necessary.

[125] Parliament gave to the High Court the ability to direct that s 177(7) not apply.12 In that regard, Parliament was anticipating situations where, for one reason or other, a cancellation by the High Court would be preferable to cancellation of unit plans by the Registrar-General of Land and without any reassessment. Cancellation by the Registrar-General of Land was intended by Parliament to be an administrative process guided by the judgment of a registered valuer. Absent an earthquake and

given a buoyant market in the neighbourhood for apartments, it ought to be a relatively straightforward exercise. One thing we can be sure of however is that s 177(7) was not designed to apply in the aftermath of an earthquake.

[126] I turn to the second problem with the valuation, and that is the fact that after putting aside the sales off the plan, of the 13 sales of the units, two were mortgagee sales, six were sold by the developer after being served with a property law notice, and one was a sale at clear over-value, leaving four regular sales.

[127] Both valuers were agreed that market value was the value to be identified when reassessing the ownership interests. Mr Blake added a qualification, that where units in a development were identical in all respects, then it would be safe to treat them as having a common market value for the purposes of assessing the relative ownership interests of all the units. But the core agreement by both valuers was that the ownership interests should be allocated based upon an appreciation of the market value of each unit.

[128] Since 1 January 2012, registered valuers in New Zealand are required to meet the International Valuation Standards. Prior to this they were guided by the Australian and New Zealand Valuation and Property Standards. Both sets of Standards have the same concept of market value. I set out the International Valuation Standards Committee’s definition of market value:

The estimated amount for which an asset would exchange on the date of valuation between a willing buyer and a willing seller in an arm’s length transaction after proper marketing wherein the parties have acted knowledgably, prudently and without compulsion.13

[129] The current International Valuation Standards 1, 2 and 3 have a much more expanded discussion on price, costs and value and on bases of value. These are all consistent with the standard concept of market value. It has long been settled law in Australia and in New Zealand, and so far as I can see overseas, that forced sales are not a good guide to the market value. An objective and reliable value can be obtained for a good or a service in a competitive market where there are buyers and sellers who are not being compelled or forced into the transaction. Where there is a

_{paucity of data of such sales, valuers will often have to take market
valuations which}

13 Australian Property Institute Valuation Principles and Practice (2nd ed, Australian Property

Institute, Deakin, ACT, 2007) page 137.

are not directly comparable and then do adjustments, or move to other valuation methods. Forced sales are inherently difficult to adjust to market value in the absence of comparable market value transactions. There is no reliable objective adjustment factor. Mr Whiteside submitted that forced sale prices can be adjusted by reference to the prices achieved on regular market transactions of comparable properties. To my mind, this is not an adjustment but simply following the standard method of applying to the subject property the market value of a comparable sale. The presence of a large number of forced sales in Mr Graham’s workings, without any adjustment, is one of two reasons for Mr Blake’s difference of opinion. He would set them aside or place very little weight on them. Mr Blake concluded that there was not sufficient market value data available which would warrant disturbing the status quo. It is supported too by his second reason, his reservations about taking the valuation date back from August 2012 to February 2011, before the second devastating earthquake.

[130] I have already noted Mr Whiteside’s legal submission that Mr Blake was applying the wrong test and, indeed, that his evidence should be disregarded because what should have happened if he wanted to disagree with Mr Graham is that he should have done his own reassessment of value. He did not. As I read and heard him, he simply does not think on these facts that there is a rational basis for disturbing the existing spread of ownership interests. He was entitled to reach that view, after reviewing Mr Graham’s analysis. It justifies not attempting a reassessment of ownership interests. It follows his evidence cannot be dismissed because he did not reassess the ownership interests.

[131] Both the common law and equity are built around the recognition and protection of property rights. I think a distinction should be drawn between the language Mr Blake used to describe his judgment that the 2007 assessment not change, and his judgment. I think his judgment is wholly consistent with the starting perspective of a common law and equity Judge. We will not lightly take away property interests. Any loss of property rights has to be justified. I see nothing in the scheme and content of the Unit Titles Act to the contrary. When entrusting reassessment of property rights to a registered valuer, Parliament is expressing confidence and trust in the skills of registered valuers to identify objectively the

market value of parcels of property. But equally, where that cannot be done, I do not read Parliament inviting registered valuers to work with unrealistic hypotheses and inadequate data.

[132] Registered valuers are given many tasks in their professional lives, only some of which require identification of market value. For example, banks before lending on property may ask a registered valuer to forecast a “mortgagee value”; an estimate of the discount likely to have to be taken in a forced sale of the property, as distinct from the market value that would be obtained in an orderly well-informed disposal of the property, at a time selected to obtain the best value. Valuers can be asked to advise developers considering future developments to forecast, against the economic cycle and trends et cetera, as to market values in the future.

[133] The task set by Parliament to registered valuers in s 177(7) is to reassess the ownership interests against the current market value of the units in the development, at the time of cancellation. It calls for judgment, but it was never intended to be a hypothetical exercise.

[134] Mr Whiteside for the respondents helpfully took the Court to the genesis of s 177(7). He, and his junior Mr Holderness, had traced it to a preliminary paper by the Law Commission and a report entitled “Shared Ownership of Land” dated 1999. Examining the then law, the Commission noted:

Another flaw is that relative values may change during the life of the building. A view from a particular unit, for example, may be built out. There may be zoning changes which allow ground floor units to be used as shops or upper levels to be used as serviced residential apartments or a hotel. A building that is only part of the polyhedron that comprises a principal unit, may be extended horizontally or vertically.14

[135] Where it is clear that the ownership interests need to be re-adjusted relative to each other, for reasons such as these, one can appreciate that the adjustment is really

_{reflecting a loss or gain of market value that has occurred.}

14 Law Commission Shared Ownership of Land (NZLC R59, 1999) at [39].

[136] I have no doubt at all that Mr Graham had come to a very clear view that the adjustment of values favouring the north units rather than the south units put in place in the original 2007 assessment needed further adjustment in 2011 in favour of the north units. That was his informed opinion. He pursued that view knowing it would not be welcomed. That is a measure of his integrity. But as a matter of law, I think that he was required to take a more cautious approach. A reassessment is quite a different exercise than the original assessment.

[137] The original assessment fixes values against units which will be sold and resold. Subsequent market sales may show that original assessment to be wrong and in need of reassessment. But until that is clear, there should be no change. It follows a valuer charged with reassessment should rely on good quality market value evidence. Where that does not exist, then reliance on experience and use of methods which might well be appropriate in other more hypothetical valuation questions will not be appropriate here.

[138] For these reasons, I favour the judgment of Mr Blake in this instance over that of Mr Graham. I agree with Mr Blake that one should be cautious and careful before disturbing existing ownership interests. The practical difficulty of reassessment, more than a year after the property was destroyed, and against a paucity of relevant sales, and at a time when market conditions were likely different to those at the date of cancellation, justify Mr Blake’s conclusion.

Conclusion on detriment

[139] There is significant detriment here because reassessment of the ownership interests was not justified in the circumstances of the cancellation of this plan. It was not justified on valuation principles. The provision calling for reassessment was never intended by Parliament to apply in the extreme situation post-earthquake, such as we have here. Financially, it re-allocates nearly one million dollars to the detriment of the applicants. For these reasons, I think there is a sound basis, to apply the estoppel by convention jurisprudence to the application of the standard of “just and equitable” and thereby to make orders to maintain the status quo.

General conclusion

[140] There are two ways in which the High Court can intervene to maintain the status quo of ownership interests. One is to accede to the application in the originating motion for a cancellation by the High Court. The alternative is to cancel the special resolution and redirect the Body Corporate to reconsider its options. Because of my findings in regard to the difficulties of applying s 177(7), there is no way in which this Court can rescue reassessment by giving appropriate directions to registered valuers. This is because of the inability to reassess the demolished units on today’s market, post earthquake, and because of the paucity of market sales of the units, free of pressure, before the earthquakes.

[141] Having had the benefit of hindsight, assisted by full argument and a consideration of these issues, it is clear to me that the better option for the Body Corporate should have been to apply to the High Court for cancellation of the plan. Such an application to the High Court would have been by consent or contested. For example, if the owners had agreed that there was no basis for reassessment, or alternatively that reassessment was impossible in the circumstances, they could have simply applied to the High Court for cancellation of the plan. If the application had the unanimous support of all the owners the application would likely have been approved on the papers, without the need for a hearing. Alternatively, had there been dissenters, as there are now, such an application would have been given priority on the earthquake list, as this case has been.

[142] I conclude that it is appropriate for this Court to use its jurisdiction to cancel the plan and, for the reasons I have given, to do so without disturbing the ownership interests established in 2007.

Orders

[143] It is not necessary, upon going down this route, to make a declaration as to the effect of the insurance resolution. The Registrar-General of Land has not made a decision on the cancellation of the unit plan. There is no need for this Court to give

any direction to him not to enter the cancellation.15 Rather, this Court accepts the application that has been made to it for an order for cancellation of the unit plan. It is, however, appropriate to set aside the special resolution of the Body Corporate made in May 2012 to apply to the Registrar-General of Land to cancel the unit plan in accordance with s 177 Unit Titles Act. The Court has the jurisdiction to do that because an application has been made in the originating summons that the Court exercise its power to do so under s 215(1)(b) of the Act. Other orders follow consequentially.

[144] The following orders are made to dispose of this litigation:

(1) The Body Corporate resolution to cancel unit plan 382902 (Canterbury Registry) circulated in May 2012 and signed by the requisite majority is overturned (s 215(1)(b)).

(2) Unit plan 382902 (Canterbury Registry) is cancelled (s 188(2)), imposing the following conditions and directions (s 188(3)):

(a) The distribution of all the assets of the Body Corporate is to be in accordance with the ownership interests as fixed in 2007, being the same interests upon which the funds have been distributed to date.

(b) The contract for sale and purchase with the Christchurch City Council is to be performed and the proceeds are to be distributed, as per (a).

(c) The costs of these proceedings are reserved for further direction of the Court, either under s 188(3) or by order of party/party

_costs.

15 Section 179.

(d) Pursuant to s 189(5)(a) of the Act, no certificate certifying to the matters set out in paragraphs (a) and (b) of s 177(6) of the Act is required to be provided.

(e) Pursuant to s 189(5)(b) of the Act, that no reassessment certificate is required to be provided under s 177(7) of the Act

[145] Counsel will note I have not adopted the directions proposed by the applicants in respect of s 188(3)(c). I do not see the need for it. I was not directed to the need to exercise that power. Leave is reserved to the parties to apply for any amendment or addition to these orders; in order to perfect the judgment and to ensure its efficacious application by the Registrar-General of Land.

[146] As to the question of costs, I am minded to the view that there is a serious argument that all the costs of this litigation should be paid by the Body Corporate, rather than the usual outcome where the successful party is entitled to costs at the expense of the unsuccessful respondents. If that is agreed, a joint memorandum to that effect may be filed and an order will be made accordingly. If that is not agreed, then I will receive written submissions of no longer than five pages exchanged in advance between counsel for the applicants and counsel for the respondents.

Summary of Judgment

[147] The Gallery Apartments of 18 units were destroyed by the February 2011 earthquake. At that time, the unit shares of the whole property were divided according to a registered valuer’s assessment off the plans in 2007. That assessment reflected an opinion that the apartments in the north building fronting on to Gloucester Street would be more valuable than those in the south building. At the Annual General Meeting of the Body Corporate in October 2011, the owners unanimously decided to accept a cash settlement from their insurers. In context, that included a decision not to rebuild. While demolition was proceeding, in the first week of December the owners received an email from the Body Corporate’s solicitor, advising the settlement sum of nearly $16 million from the insurers and EQC. The same email advised that the entitlements to the money would be in

accordance with the entitlements fixed in 2007, and those were set out in a schedule to the email. The email advised that there would be a special resolution to have "formal voting" on, in order to distribute the money, and some legal paperwork later to cancel the plan. The special insurance resolution came by email a week later, and was adopted. The insurance money came in and was distributed as agreed according to the 2007 split. Some of it was paid to the owners’ banks, who held mortgages over the units. In April 2012 the City Council expressed interest in buying the land. In May the owners voted to cancel the unit plan, being a formal resolution to that end. In August 2012 the lawyers for the Body Corporate realised for the first time that the law now required a reassessment of the split of ownership interests. That was obtained and it changed the split of shares among the owners. The new shares favoured even more the owners of the north tower apartments.

[148] If the new split is adopted rigorously then nearly a million dollars has to be redistributed among the owners, those who got too much paying those who did not get enough, according to the 2012 figures. They ask for the resolution to cancel the plan by application to the Registrar-General of Land to be replaced by a High Court cancellation on "just and equitable" grounds, or to have the reassessment of value done again under directions by the High Court.

[149] The Court examined the meaning of the first special insurance resolution. It was argued by the respondents in opposition to the application that this resolution anticipated reassessment of the ownership interests, as it provided for the payment of the insurance monies to “be paid out to owners as provided by section 185(2)(b) of the Act”. A careful reading of s 185(2)(b) would lead one on to s 177(7), which provided for a reassessment of the ownership interests before cancellation of a plan. Therefore, it was argued that the distribution of the insurance monies should be fairly regarded as interim only, pending reassessment. The argument to the contrary was that such thinking was not the thinking of any of the unit holders at the time they voted on the resolution, such that the reference to s 185(2)(b) of the Act should be disregarded when examining the meaning of the resolution. The Court found that the resolution was either incoherent or, although it did not have to make a final decision, that the reference to s 185(2)(b) could be disregarded in the particular context. Consequent upon this interpretation and relevant to the “just and equitable” standard,

the Court found it a fact that there was a common mistake prevailing, shared by all the owners, that the distribution of the insurance monies would be final and in accordance with the split of ownership established in 2007.

[150] The Court examined the financial detriments consequent upon the reassessment of the values, and depending on whether they were given full or partial effect. Full effect was to adjust both the distribution of the insurance proceeds and apply the new formula to the distribution of the sale of land proceeds. A partial adjustment would be only the latter. The Court found detriment but did not think that on its own it would necessarily justify disregarding the reassessment. The Court then went on and examined the merit of the reassessment in 2012.

[151] The law intended the reassessment to reflect a fair split of the values at the date of cancellation, here in August 2012. But the valuer, Mr Graham, considered it was not possible to value at that time. He chose to value the apartments at the market values the day before the February 2011 quake. A significant number of the sales were forced sales, where the seller had to sell or was being sold up to repay debt. That fact, and the problems with a valuation date led to a difference of opinion by two valuers before the Court. Mr Graham defended his judgments. Mr Blake disagreed with the reassessment. He criticised the arbitrary character of any date of valuation different from the date of cancellation. He criticised reliance on the forced sales, which he said should be disregarded as evidence of market value or little weight be given to them. He said there was not enough evidence to disturb the 2007 values. The court adopted Mr Blake’s criticisms.

The court has found that on these facts it is just and equitable to leave the 2007 ownership split in place, and so to leave the distributions in place. The Court found that it is artificial to try to value the destroyed units at the value they had the day before the February quake, both because of the intent of the law that they be valued at August 2012, not February 2011, and because of a poor quality set of past sales of the units.

[152] The court has made orders to stop the current process, which would give effect to the reassessment, and to replace that with a High Court cancellation, leaving the 2007 ownership shares in place to govern both distribution of the insurance proceeds and of the sale of the land.

Solicitors:

J Ching – beadelching@xtra.co.nz

Buddle Findlay, Christchurch – kelly.paterson@buddlefindlay.com Wynn Williams, Christchurch – peter.whiteside@wynnwilliams.co.nz Rhodes & Co, Christchurch - jebayley@rhodes.co.nz

P Oakley – peter@bridgeclublive.com

G Mackinnon - grant.mackinnon@xtra.co.nz

Westpac New Zealand Ltd, Legal Services, Auckland – sarah_te’o@westpac.co.nz

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