Body Corporate S90876 v Palmer Trading Limited
[2021] NZHC 192
•17 February 2021
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2020-404-941
[2021] NZHC 192
BETWEEN BODY CORPORATE S90876
Plaintiff/Respondent
AND
PALMER TRADING LIMITED
Defendant/Applicant
Hearing: 9 February 2021 Counsel:
D Hayes and D Horton for Plaintiff/Respondent T Rainey for Defendant/Applicant
Judgment:
17 February 2021
JUDGMENT OF WHATA J
This judgment was delivered by me on 17 February 2021 at 4.30 pm, pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar Date: ………………………….
Solicitors: Hunwick Law Limited, Hamilton
Pidgeon Law, Auckland
BODY CORPORATE S90876 v PALMER TRADING LIMITED [2021] NZHC 192 [17 February 2021]
[1] Palmer Trading Limited (PTL), along with four other owners in the Taupo Aspen Villas Body Corporate S90876 (the Body Corporate),1 filed proceedings with the Tenancy Tribunal (the Tribunal) seeking orders in respect of various alleged breaches of the Unit Titles Act 2010 by the Body Corporate in respect of resolutions purporting to remove and replace Body Corporate Committee members and relating to executive actions by the new Committee. Those proceedings were transferred to this Court in June 2020 to join declaratory judgment proceedings initiated by the Body Corporate challenging the validity of existing management agreements. Since then the Body Corporate also purported to ratify the impugned resolutions by postal vote in October 2020.
[2] PTL accepts that the resolutions relating to future executive actions were properly ratified by the Body Corporate and relief is no longer sought in respect of those executive actions. However, the resolutions purporting to remove, replace and elect new Committee members remain in issue, as do resolutions purporting to affect pre-existing contractual arrangements. PTL contends those resolutions are inherently invalid and incapable of retrospective ratification because they relied on the votes registered by the TSB bank as mortgagee of an owner (Colleen Warin) with unpaid levies. The Body Corporate accepts that Ms Warin could not vote but maintains that TSB as her mortgagee, could validly vote. It concedes however that, if the mortgagee’s votes were invalid, the resolutions purporting to remove or elect a Committee were invalid and could not be ratified.
[3] Other issues concerning representation and procedural defects are also claimed, but because of the way argument unfolded before me, I am satisfied it serves no purpose to address them other than briefly, as I do below at [20]-[21].
[4] So, the primary issue for me to resolve is whether the resolutions purporting to remove, replace and/or elect Body Corporate Committee members and affect prior existing contractual arrangements were invalid because the TSB votes were taken into account. If the answer is yes, then the parties agree that a declaration to that effect in respect of the resolutions purporting to remove and replace the Committee members
1 For ease of reference I will refer to the Tribunal applicants as PTL.
should be made. Any other consequential relief is not considered necessary because the issue of membership of the Committee is about to be resolved at the next Annual General Meeting (AGM), which must take place no later than within 15 months of 18 March 2020, being 17 June 2021.
[5] This judgment does not address PTL’s claim that the resolutions relating to existing contractual arrangements were also invalid. As I will explain, that claim is better addressed in the context of the Body Corporates declaratory judgment proceedings.
Background
[6] The background can be set out briefly. The Body Corporate is comprised of 17 owners. In 2019, some of the Unit Owners became dissatisfied with the management of the Body Corporate. Those concerns appear to have precipitated Emergency General Meetings (EGM) on 6 December 2019, 6 January 2020 and on 30 January 2020. It is the resolutions made at the 30 January 2020 meeting to remove and replace the then existing Body Corporate Committee members that primarily are in dispute, together with a resolution at the subsequent AGM on 18 March 2020 purporting to appoint the new Committee members.
[7] Nine voted in favour of removal and replacement of the Committee members, seven against, with one abstention. A majority at the AGM meeting also voted in favour of the new Committee. Ms Warin was in the affirmative camp. She owns three Units, and ordinarily would be entitled to register three votes, but as she had unpaid levies at the time of the votes, she could not vote. Instead, her mortgagee, TSB bank, purported to register her votes, and those votes were accepted. In the result the Body Corporate Committee members supportive of existing management arrangements were removed and new members who wanted to change those arrangements were appointed.
[8] The resolutions at the 30 January 2020 meeting triggered the commencement of proceedings by PTL in the Tenancy Tribunal seeking to challenge those resolutions
in March 2020.2 The Body Corporate, at the instigation of the new Committee, also later commenced proceedings in this Court seeking declarations challenging the validity of a management agreement between the Body Corporate and PTL. As noted above, the Tribunal proceedings were transferred to this Court in June 2020 and the Body Corporate has since purported to ratify the earlier resolutions by postal vote in October 2020.
[9] A procedural challenge was raised to the filing of the proceedings by the Body Corporate, having regard to the voting issues raised in the transferred Tribunal proceedings and Woolford J set down the voting issues for a hearing in advance of the declaratory proceedings.3 These are the issues now before me, though it is now conceded by PTL that the decision to commence declaratory proceedings was properly ratified.
The ratified resolutions
[10] The ratified resolutions were helpfully summarised by Mr Rainey, counsel for the applicants, in a memorandum filed after hearing as follows:
(a)Resolution 1 which purported to remove Neil Calvert, Ian Calvert and Mark Calvert from the body corporate committee from 30 January 2020;
(b)Resolution 2 which purported to appoint Colleen wherein, David Hayes, Terrance Hart and Margaret Simmons the committee with retrospective effect from 30 January 2020;
(c)Resolution 3 which purported to terminate payments under the caretaking and management agreement dated 15 April 2008;
(d)Resolution 4 which purported to declare the variation to the caretaking and management agreement dated 15 March 2017 void and of no effect;
(e)Resolution 5 which adopted actions of the “committee” between 30 January 2020 and 18 March 2020 including:
(i)The striking of a levy of $4,548.00 to pay an adverse costs award against the body Corporate;
2 The application was subsequently updated to include a challenge to the March AGM resolutions.
3 Body Corporate S90876 v Palmer Trading Company HC Auckland CIV-2020-404-000941, 22 October 2020 (Minute of Woolford J).
(ii)The striking of a levy of $30,000 to meet unspecified costs of the Body Corporate;
(f)Resolution 6 which purported to appoint Colleen wherein, David Hayes, Terrance Hart and Margaret Simmons as the committee with retrospective effect from 18 March 2020;
(g)Resolution 7 which adopted “resolutions” of the “committee” between 18 March 2020 and 10 October 2020 including:
(i)The appointment of GK Audit Services Ltd to carry out an audit approved by the Body Corporate by resolution at the EGM on 30 January 3030;
(ii)The striking of a levy of $20,000 to meet the costs of the audit;
(ii) Replacing the appointed Body Corporate Secretary (Body Corporate Administration Ltd) with Crocker’s Body Corporate Management Ltd from 18 June 2020;
Opposing the Tenancy Tribunal application 9021081;
(v)Filing proceedings in the High Court seeking a declaration as to the status of the caretaking and Management agreement;
(vi)The appointment of Hunwick Law Ltd as solicitors for the Body Corporate in the High Court proceedings;
(vii)The commencement of legal proceedings against Body Corporate Administration Ltd and Paula Beaton in relation to the failure to transfer files and funds to Crocker’s.
[11] In the same memorandum, Mr Rainey noted that PTL accepts that Resolutions 5 and 7 are valid but it does not accept that Resolutions 1-4 or 6 or the resolutions they purport to ratify are valid.
Were TSB’s votes invalid?
[12]Section 96 of the Unit Titles Act provides for the right to vote in the following
terms:
96 Voting: eligibility
(1)A person eligible to vote at a general meeting of the body corporate (eligible voter) is a person who is of or over the age of 16 years and—
(a)whose name is entered on the register of owners of principal units as—
(i)the owner of a principal unit; or
(ii)the representative of that owner; or
(b)who is the nominee of a company the name of which is entered on the register of owners of principal units as the representative of the owner; or
(c)who is a subsidiary body corporate representative.
(2)For subsection (1)(a)(ii), a person is a representative of the owner of a principal unit if—
(a)the person is a guardian, trustee, receiver, or other representative of the owner, and is authorised to act on the owner’s behalf; or
(b)the person is authorised by law to administer, manage, or control the property of the owner.
(3)An eligible voter may not vote unless all body corporate levies and other amounts that are from time to time payable to the body corporate in respect of his or her unit have been paid.
(4)In the case of an eligible voter who is a subsidiary body corporate representative, the eligible voter may not vote unless all body corporate levies and other amounts that are from time to time payable to the body corporate by the subsidiary body corporate have been paid.
(5)An eligible voter whose interest in his or her unit is subject to a registered mortgage must, if required by that mortgage, obtain the consent of the mortgagee before exercising a vote.
(6)The payment of any body corporate levies and other amounts that are from time to time payable to the body corporate by the owner of a principal unit and that are disputed by the owner does not affect the right of that owner to dispute the payment if the sole purpose of making the payment was to exercise that owner’s entitlement to vote.
(7)Nothing in this section prevents a mortgagee of a principal unit from—
(a)directing the owner to vote in a particular manner; or
(b)exercising a vote on behalf of the owner in accordance with the Property Law Act 2007 or in accordance with any provision to that effect in the mortgage.
(8)A mortgagee must give written notice to the body corporate if it intends to exercise a vote on behalf of the owner under subsection (7)(b).
[13] As section 96(3) expressly stipulates, an owner with unpaid levies cannot vote. It reflects a policy of the Act that levies will be paid with argument about those levies to be resolved later.4 Section 96(6) also reflects this policy by making clear that payment of levies does not affect the right to dispute them “if the sole purpose of making the payment was exercise that owner’s entitlement to vote.”
[14] Section 96(7) provides that “Nothing in this section” prevents a mortgagee from directing the owner to vote in a particular manner or exercising a vote on behalf of the owner in accordance with the Property Law Act 2007. Ms Horton, counsel for the Body Corporate, contends that “Nothing means nothing”, thus bypassing the statutory direction at s 96(3). I disagree. Section 96(1) confers a statutory right to vote on Unit Owners, subject to the procedural and substantive requirements specified at subsections (1)-(6). Section 96(7) then makes plain that this statutory right to vote does not derogate from the mortgagee’s rights and powers in respect of the Unit title. But that section does not expressly or by necessary implication confer on the mortgagee a right to vote that is not already conferred on the owner of the Unit.
[15] On the contrary, as Mr Rainey submitted, when s 96(7) is read in its full statutory context, a mortgagee’s power to vote derives from the mortgagor’s right to vote. More specifically, the obligations of a mortgagor and the powers of a mortgagee in respect of the Unit title are governed by sch 2, pt 1, cl 15 of the Property Law Act, which provides:
15 Unit titles
(1)If the mortgage is of, or includes, any stratum estate under the Unit Titles Act 2010, the mortgagor will—
(a)comply with all obligations of the mortgagor under the Unit Titles Act 2010 and the rules of the body corporate; and
(b)duly and punctually pay to the body corporate all amounts payable by the mortgagor under the Unit Titles Act 2010 and the rules of the body corporate; and
(c)arrange and maintain a mortgage redemption policy under section 137(1)(b) of the Unit Titles Act 2010 for an
4 Butcher v Body Corporate 342525 [2018] NZCA 19 at [67]-[72].
amount not less than all of the amounts from time to time secured by the mortgage; and
(d)do all things reasonably necessary to enforce the obligations of the body corporate under the Unit Titles Act 2010 and the rules of the body corporate; and
(e)give the mortgagee any information relating to the affairs of the body corporate that the mortgagee reasonably requires.
(2)The mortgagee may call up as payable all of the principal amount, interest, and other amounts for the time being secured by the mortgage (even if the time or times appointed for payment may not have arrived), in the same manner and subject to the same conditions as if the power to do so were conferred by clause 11, if either—
(a)the principal unit is damaged or destroyed so that it is no longer habitable or usable; or
(b)an administrator is appointed by the High Court under section 141 of the Unit Titles Act 2010.
(3)The mortgagor’s voting rights under the Unit Titles Act 2010 and the rules of the body corporate (whether at a meeting or by entry in the minute book) may be exercised by the mortgagee, at the expense of the mortgagor.
(4)For the purposes of subclause (3), the mortgagor irrevocably appoints the mortgagee as the attorney of the mortgagor.
(5)If any resolution put at a meeting of the body corporate requires a special resolution for its passing,—
(a)the mortgagor will not vote on it without the prior consent of the mortgagee; and
(b)the mortgagor must vote on it only as directed by the mortgagee.
(6)The mortgagee, as attorney of the mortgagor, has power from time to time to appoint and remove 1 or more substitute attorneys.
(7)The mortgagor agrees to ratify and confirm anything that the mortgagee or a substitute attorney lawfully does or causes to be done under this clause.
[16] Relevantly, cls 15(1)(a)-(d) impose a suite of obligations on the mortgagor directed to compliance with the Unit Titles Act and the rules of the body corporate, including the punctual payments of levies. The mortgagor must also give the mortgagee information relating to the affairs of the body corporate. Most relevantly, cl 15(3) provides that the “mortgagor’s voting rights” may be exercised by the mortgagee. The power to direct is also referred to at cl 15(5). There is nothing in s
15 which purports to confer voting rights on a mortgagee that are not already reposed in the mortgagor.
[17] I have considered whether broader policy considerations might justify conferring on mortgagees a power to vote that is not dependent on the mortgagors’ powers to vote. But counsel could not point to, and I could not find, any legislative or other commentary that might support that outcome. Indeed, it would cut across the evident “pay now, argue later” policy mentioned above.
[18] Given this, I am unable to accept that TSB bank could exercise voting rights not otherwise exercisable by Ms Warin. As a consequence of this, I declare that the 30 January 2020 EGM resolutions purporting to remove and replace the Committee members and the 18 March 2020 AGM resolutions purporting to appoint a new Committee are invalid. These are referred to in Resolutions 1, 2 and 6 in Mr Rainey’s memorandum. I make no further orders relating to these resolutions because, as noted above, it is unnecessary to do so, given the impending AGM where the appointment of new Committee members will be addressed.
Other resolutions
[19] PTL no longer seeks to impugn Resolutions 5 and 7 noted above because it is accepted they relate to future executive action and therefore do not depend for their validity on Mr Warin’s (or TSB’s) ineligible votes. That is, PTL accepts that the Body Corporate may adopt a course of action which the Body Corporate can, at the point of ratification, lawfully undertake. However, the Resolutions 3 and 4 are said to be invalid because they relate to existing contractual obligations. But, applying the logic applied to Resolutions 5 and 7; it appears arguable that Resolutions 3 and 4, while relating to existing contracts, do not rely on Ms Warin’s or TSB’s invalid votes because they relate to future actions: that is, whether the Body Corporate should adhere to those contracts going forward. Given this, and because this aspect was not fully argued before me, I propose simply to reserve the position in relation to these resolutions. As noted by Mr Hayes, counsel for the Body Corporate, the validity of these resolutions is a matter that can more properly be addressed at the declaratory judgment proceedings.
Other issues
[20]PTL also raised issues about:
(a)whether persons who voted on behalf of some of the Unit Owners at the EGM and AGM were valid “representatives” for the purpose of s 96(1) of the Act; and
(b)whether the ratification of the resolution appointing new Committee members was valid given the requirement in regs 7, 24 and 25 of the Unit Title Regulations 2011 that appointment of Committee members must occur at an AGM or an EGM.
[21] I note, however, that the issue of valid “representatives” was fraught on the facts, as it appears that literally construed, the operation of s 96(1) could arguably mean only five valid votes were cast with a majority in favour of the resolutions. As to the second issue, the significance of the non-compliance (if any) with regs 7, 24 and 25 is difficult to gauge, particularly as the original appointment did occur at an AGM. I therefore prefer to leave the operation of s 96(1) and regs 7, 24 and 25 to the substantive declaratory proceedings as well.
Result
[22] I declare that the resolutions purporting to remove and replace the Committee members at the 20 January 2020 meeting and to appoint a new Committee at the 18 March 2020 meeting are invalid. I make no other substantive orders. While Mr Rainey sought costs, he quite properly acknowledged that success has been shared. Costs will therefore lie where they fall.
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