Body Corporate 348047 v Strata Title Administration HC Auckland CIV-2011-404-003581

[2011] NZHC 660

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2011-404-003581

BETWEEN  BODY CORPORATE 348047

First Plaintiff

ANDRACHEL MURRAY, MICHAEL TERRANCE BUTLER, JAMES STEWART, NADEDZA PASTUSHENKO, LI-YU (PHILLIP) WEI AND CARLA JOYCE BRADLEY

Second Plaintiffs

ANDSTRATA TITLE ADMINISTRATION LIMITED

Defendant

Hearing:         29 June 2011

Appearances: Mr T J P Bowler for plaintiffs

Mr B Rooney for defendant

Judgment:      29 June 2011

(ORAL) JUDGMENT OF LANG J [on application for interim relief]

BODY CORPORATE 348047 V STRATA TITLE ADMINISTRATION LTD HC AK CIV-2011-404-003581 29

June 2011

[1]      This proceeding concerns an apartment complex known as Imperial Gardens. It contains 278 residential units, and is situated in Hobson Street, Central Auckland. In common with virtually every similar development, the owners of the complex administer it by means of a body corporate established under the provisions of the Unit Titles Act 1972 (“the Act”).   In conducting its affairs the body corporate is bound by its rules.  These are similar, but in some respects not identical, to the so- called “default rules” set out in the Second Schedule to the Act.

[2]      The proceeding comes before the Court because a dispute has arisen between different factions within the apartment complex in respect of its Secretary, Strata Title Administration Limited (“Strata”).  The dispute resulted in an attempt by one faction to call an Extraordinary General Meeting (“EGM”) on 24 May 2011, at which  those  present  passed  a  resolution  terminating  Strata’s  appointment  as Secretary.   They also purported to  elect  a  Committee that was thereafter to be responsible for the functions formerly undertaken by Strata.

[3]      Three days earlier, on 21 May 2011, Strata had held an Annual General Meeting (“AGM”) of unit owners.  Those present at this meeting purported to pass a resolution adjourning the meeting to a later date, and declaring that the forthcoming EGM was cancelled.  Both factions now contend that the resolutions passed at the two meetings were, for various reasons, invalid and of no effect.

[4]      The Committee allegedly elected at the EGM on 24 May 2011 has issued this proceeding in the name of the body corporate to obtain injunctive relief.  It seeks to prevent Strata from taking steps to call any further general meeting of the proprietors of the Body Corporate.

[5]      Previous attempts to resolve the issue on an interim basis by consent have been unsuccessful.  As a result, I have been required to formally consider the issue of interim relief today.

The issues

[6]      When  considering  interim  relief,  it  is  necessary  to  have  regard  to  what occurred at the AGM and the EGM on 21 and 24 May 2011 respectively.  It is also necessary to consider the events that followed the AGM.

The AGM held on 21 May 2011

[7]      Several issues arise in relation to the AGM.

[8]      First, the plaintiffs allege that Strata gave unit owners insufficient notice of this meeting.  The rules required Strata to give the proprietors not less than seven days notice of the meeting.  One of the plaintiffs, Mr Butler, deposes that he did not receive notice of the meeting until 16 May 2011.  He has exhibited the envelope in which he received his notice, and this is clearly postmarked 16 May 2011.

[9]      This argument needs to be considered in the context of the body corporate’s rules.  The body corporate’s rules relating to notice are identical to those contained in the default rules in the Second Schedule.  Rules 16 and 17 provide:

16     At least 7 days' notice of every general meeting of the body corporate specifying the place, the date, and the hour of the meeting, and the proposed agenda shall be given to all persons entitled to exercise a vote in accordance with the provisions of section 41 of the Unit Titles Act 1972 and of clause 23 of these rules:

Provided that accidental omission to give such notice to anyone so entitled shall not invalidate any proceedings at any such meeting.

17     Any notice required to be given under clause 16 of these rules shall be sufficiently given if delivered personally to the person concerned or if left, or sent by letter posted to the person concerned, at the last address of that person notified to the body corporate, or if no such address has been so notified at that person's last known place of residence:

Provided that, if a proprietor advises the body corporate in writing that he requires notices sent to him by post to be sent by registered post, a notice thereafter sent to him by post shall not be sufficiently given unless it is sent by registered post.

[10]     Rule 17 does not require unit owners to receive any notice given under Rule

16 at least seven days prior to the proposed meeting.  Rather, notice is sufficiently

given if sent by letter to the unit owner concerned, or to the address of that person as most recently notified to the body corporate.

[11]     Strata’s marketing manager, Mr Lockyer, deposes that he personally posted the notice advising unit owners of the forthcoming AGM on 13 May 2011.  There is no evidence, other than the postmarked envelope, to dispute his assertion on this point.   For present purposes, it is therefore arguable that notice was sent to unit owners not less than seven days prior to the proposed meeting.

[12]     Next, there is an issue as to whether those who attended the meeting on 21

May constituted a quorum in terms of the body corporate’s rules.  If they did not, any

resolutions passed at the meeting would be ineffectual.

[13]     The body corporate’s rules relating to what constitutes a quorum are identical

to rules 18, 19 and 20 of the default rules, which provide as follows:

18     At a general meeting of the body corporate, the persons entitled, on an ordinary resolution, to exercise the voting power in respect of not less than one-third of the units shall constitute a quorum.

19     Save  as  otherwise  provided  in  these  rules,  no  business  shall  be transacted at any general meeting of the body corporate unless a quorum is present at the time.

20     If within half an hour from the time appointed for a general meeting of the body corporate a quorum is not present, the meeting shall stand adjourned to the same day in the next week at the same place and time, and if at the adjourned meeting a quorum is not present within half an hour from the time appointed for the meeting the number of persons present and entitled to vote at the expiration of that half hour shall constitute a quorum.

[14]     Mr Lockyer deposes that as at the date of the AGM, three of the 278 unit owners had not paid their levies.  This disqualified them from voting at any general meeting.  As a result, 275 units in the complex had the right to vote at the meeting. In order to constitute a valid quorum, 92 unit owners needed to be represented at the meeting.

[15]     The issue then arises as to whether proxies held on behalf of absent unit owners  are  to  be  taken  into  account  for  the  purpose  of  determining  whether  a quorum existed.   In Body Corporate 199883 v Clarke Family Associates Limited,

Ronald Young J held that proxies could not count towards a quorum.[1]    Rather, the individual unit owners needed to be personally present.  He reasoned:

[1] Body Corporate 199883 v Clarke Family Associates Limited (2005) 5 NZ ConvC 194087.

[29]   I am satisfied that although  not specifically a requirement of r 18 it is clear by the surrounding Rules that a quorum is here counted on the basis of those actually present and their votes as registered proprietors and not how many proxy votes a member present has.  Rule 19 and 20 are instructive.  Rule 19 is set out in para [27] of this judgment.  Rule

20 provides as follows:

20     If within half an hour from the time appointed for a general meeting of the body corporate a quorum is not  present, the meeting shall stand adjourned to the same day in the next week at the same place and time, and if at the adjourned meeting a quorum is not present within half an hour from the time appointed for the meeting the number of persons present and entitled to vote at the expiration of that half hour shall constitute a quorum.

[Emphasis added]

[30]   Both Rules specifically mention the presence of persons entitled to vote as constituting the quorum.   The context clearly shows actual presence.  Although no argument from counsel was addressed to the issue I am satisfied that the “voting power” referred to in r 18 is the voting power held by virtue of the persons status as a registered proprietor and not as a proxy holder.   The purpose of the quorum provisions is to ensure a minimum number of registered proprietors are personally present at any such meeting.  If “voting power” in this context included proxy votes then all such meetings would require only one person, not necessarily a registered proprietor, holding seven proxy votes to constitute a quorum.  This seems to fly in the face of r 19 and 20 which clearly anticipate actual presence of a number of persons.

[16]     I respectfully differ from Ronald Young J on this point.  I consider that it is at least arguable that proxy votes do count towards a quorum.  Unit owners are entitled to vote either personally or by providing a valid proxy.  The holder of a proxy must obviously be personally present at any meeting at which the voting right to which the proxy attaches is to be exercised.   For the purpose of Rule 18, however, I see no logical distinction between unit owners who are personally present and those who have decided to exercise their voting rights through the valid appointment of a proxy.

Each is entitled to exercise the voting rights attaching to a particular unit.   The

importance of Rule 18 lies in the requirement that one-third of those who propose to vote, either personally or by proxy, are present at the meeting.

[17]     Significant difficulty will arise if unit owners are required to be personally present in order to count towards a quorum.  In Auckland, for example, many unit owners live overseas.  They are likely to find it very difficult, or at least uneconomic, to  attend  general  meetings  personally  even  when  important  issues  are  to  be discussed.  The only realistic means that many such owners have of exercising their voting rights is by appointing a proxy to attend the meeting on their behalf.  Any requirement that unit holders must attend meetings personally, even for a limited purpose, largely defeats the point of permitting unit owners to vote by proxy.  For present  purposes,  therefore,  I proceed  on  the  basis  that  proxy holders  arguably counted towards a quorum at both the AGM and the EGM.

[18]     Mr Lockyer deposes that 35 unit owners were present  at the AGM.    In addition, those present held 60 proxies.   If his evidence is correct, and there is nothing to say that it is not, 95 unit owners holding voting rights were present at the meeting.  This means that the meeting achieved the necessary quorum. As a result, it is arguable that the resolutions passed at the meeting were valid.  In saying that, I acknowledge that the plaintiffs have not had an opportunity to consider whether the proxies for the AGM on 21 May 2011 were validly given.

[19]     The only resolution of any consequence passed at the AGM was that the meeting should be adjourned so that the same agenda items could be discussed at another AGM together with those on the agenda to be discussed at the forthcoming EGM.  As a result, there appears to be no impediment to the AGM validly resuming at a later date.

The EGM held on 24 May 2011

[20]     Several issues also arise in relation to the EGM.

[21]     The relevant rules in relation to an EGM are as follows:

12.     The Committee shall –

…

(f)      Upon a requisition in writing by proprietors entitled to not less than  50  percent  of  the  total  unit  entitlement  of  the  units, convene   an   extraordinary   general   meeting   of   the   body corporate.

…

30.If there is no committee, the responsibility for the matters set out in rule 12 except paragraph (a), and the powers given to the committee by rule 11 except paragraph (a), shall be those of the body corporate; and, unless the context otherwise requires, every reference in these rules to the committee shall be read as a reference to the body corporate.

…

32.     …   The secretary shall have the right to convene an Extraordinary

General Meeting of the body corporate.

[22]     In the present case, no committee existed prior to the EGM.  As a result, it fell to the Secretary to call any EGM once 50 per cent of the body corporate required that to be done.

[23]     Those promoting the EGM did not go through the Secretary.   Rather, they appear to have obtained signed requisitions from unit owners directly.   They then called the EGM of their own accord and not through the Secretary.   There may therefore be an issue as to whether or not the manner in which the EGM was called complied with the rules.

[24]     Of more importance is the issue of the quorum at the EGM.  The records of the EGM show that 23 unit owners were present, and that 92 proxies had been entrusted to persons attending the meeting.  This means that 115 unit owners having voting rights were represented at the meeting.

[25]     Mr Lockyer has analysed the proxies delivered to the independent chairman who presided at the meeting.   Of these, he deposes that 13 were invalidly signed because the proxy form was only signed by one person notwithstanding the fact that more than one person owned the unit to which the proxy related.   A further 15 proxies were counted twice, principally because the proxy was taken into account when the owner was also present and cast a vote. As a result, it is arguable that only

87 unit owners were represented and able to validly vote, either in person or by proxy.   This is below the number required for a quorum to be established.   It is therefore arguable that the resolutions passed at the EGM were invalid.   Again, I accept that the plaintiffs have not had an opportunity to consider whether Mr Lockyer’s evidence on this point is correct.

The events that took place following the AGM

[26]     Following the AGM Strata sent out a notice to all unit owners stating that the EGM scheduled for 24 May 2011 had been cancelled, and that the issues that would have been discussed at that meeting would be discussed at the AGM on 25 June

2011.  The plaintiffs contend that Strata should not have taken this step because they had validly requisitioned the EGM, and Strata’s notice may have deterred many unit owners from attending it.  They also point to the fact that, of those who attended the EGM, only one unit owner voted against the resolution terminating Strata’s appointment and appointing a committee.

[27]     This issue stands or falls on the validity of the EGM.  It may be affected by the manner in which those who promoted the EGM obtained the necessary requisitions and then called the meeting.

Should interim relief be granted?

[28]     It is obviously extremely important that all outstanding issues are resolved as quickly as possible.  As matters currently stand, unit owners have been notified that an AGM will now be held on 16 July 2011.  The agenda for that meeting has not yet been sent out.  Counsel have, however, reached agreement regarding the wording of an agenda that is acceptable to all parties.  There is therefore no impediment to the agenda now being sent out so that all of the issues that both factions wish to raise can be discussed by all unit owners.

[29]     There is still sufficient time to comply with the rules regarding notice.   I

therefore consider that the interests of all parties will be properly protected if the

proposed AGM on 16 July 2011 proceeds as planned.  I make a direction, therefore, that all parties are to co-operate to ensure that that occurs.

[30]     There is a dispute as to whether the proxies that were used at the AGM and the EGM can also be used at the forthcoming AGM.   All parties agree that it is important to achieve a level playing field in relation to this issue.   They seek a direction from the Court to deal with it.

[31]     A unit owner can only provide another person with a valid proxy for any general meeting if the unit owner does so with full knowledge of the issues to be discussed at the meeting.   The proxy holder cannot be expected to vote in the interests  of  the  unit  owner  when  the  unit  owner  does  not  know  what  is  to  be discussed at the meeting.

[32]     For present purposes, I therefore propose to determine the issue on the basis of the items listed for discussion in the agendas circulated to unit owners for the previous meetings.  If those agendas contained all of the items on the agenda for the forthcoming meeting, the proxies will be able to be used at that meeting.  If they did not, the proxies will not be able to be used on 16 July 2011.

[33]     The agenda for the AGM on 21 May 2011 did not mention the proposal to terminate Strata’s appointment or to establish a committee.  Similarly, the agenda for the EGM on 24 May 2011 did not contain several items that are now on the proposed agenda for the AGM on 16 July 2011.  This means that agendas circulated for the earlier meetings did not include all of the items on the latest agenda.  It follows that the proxies given for the earlier meetings cannot be used at the AGM to be held on

16 July 2011.  New proxies will need to be obtained once Strata circulates the new agenda to unit owners.

[34]     Although Strata may enclose a proxy form with the agenda, it shall be up to the parties to gather proxies as they see fit.  I am conscious, however, that there have been allegations in the past of intimidatory behaviour by persons connected with this proceeding.  The fact that the parties are entitled to gather proxies from unit owners

should not be seen as any form of licence to engage in threatening or intimidatory conduct towards unit holders in doing so.

Directions

[35]     I now make the following directions by way of interim relief:

(a)     The AGM on 16 July 2011 is to proceed as planned, and the parties are to co-operate to ensure that that occurs;

(b)Strata is to send out the agenda for the proposed AGM to all unit owners forthwith.  The agenda is to be in the form agreed during the hearing today;

(c)     New proxies will need to be obtained for use at the meeting;

(d)Strata is to comply with any request by a current unit owner for the names of other unit owners, their unit numbers and their up to date postal and/or email addresses.

(e)     I reserve leave to all parties to ask the Registrar to arrange a telephone conference before me at any stage prior to 16 July 2011 should the further assistance or intervention of the Court be required.

Costs

[36]     At this stage I reserve the issue of costs.

Next event

[37]     The proceeding is to be listed for review before the Duty Judge on 21 July

2011 at 10 am.

Lang J

Solicitors:

Grove Darlow & Partners, Auckland