The recent High Court decision dated 11 December 2012 in Dominion Finance Group & ors v Body Corporate 382902 & ors [2012] NZHC 3325 considered issues with the division of earthquake insurance policy proceeds for the Gallery Apartments on Gloucester Street.

Under s136 of the Unit Titles Act 2010 money received under the body corporate’s insurance policy must be applied to reinstate the unit title development unless the body corporate decides otherwise by special resolution.  Owners of units at Gallery Apartments decided by resolution to accept a cash settlement from their insurance company, divide the money between the unit owners based on then unit entitlement, cancel the unit title and sell the land to the Christchurch City Council.

The owners received the insurance proceeds and divided it among the owners based on the then unit entitlement.  Later when they were about to complete the sale of the land they and their legal advisers became aware that s177(7) of the Unit Titles Act required the reassessment of ownership interests before cancellation of the unit plan.  A valuer engaged to perform this exercise produced values for units that differed significantly from earlier unit entitlement calculations.  There was then a dispute among unit owners as to whether the newly calculated unit values should be used to divide the money and whether money previously paid out ought to be refunded/reallocated.

The Court declined to interfere with the allocation being based on original unit entitlements and ordered the cancellation of the unit plan.  The Court said that the parties were mistaken about the applicable law and it would now be unfair to alter the previous agreement/understanding.  The Court was also not persuaded that the revaluation done was on an appropriate basis.

This judgment is a victory for common sense and also highlights the need be aware of legal provisions before a body corporate makes decisions about insurance policy proceeds.