Inert Holdings Limited v Gulf Harbour Marine Village Residents Association
[2021] NZHC 1262
•31 May 2021
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2019-404-957
[2021] NZHC 1262
UNDER Part 18 of the High Court Rules 2016 AND
UNDER
s 21(3A) Incorporated Societies Act 1908
BETWEEN
INERT HOLDINGS LIMITED
First Plaintiff
WESTERN ARM MARINA LIMITED
Second PlaintiffAND
GULF HARBOUR MARINE VILLAGE RESIDENTS ASSOCIATION
Defendant
Hearing: 22 – 26 June 2020
Further submissions received 29 June and 1 and 2 July 2020,
29 January and 3, 18 and 19 February 2021Appearances:
D W Grove for Plaintiffs
P L Niven and L M Edington for Defendant
Judgment:
31 May 2021
JUDGMENT OF PETERS J
This judgment was delivered by Justice Peters on 31 May 2021 at 5 pm pursuant to r 11.5 of the High Court Rules
Registrar/Deputy Registrar Date: ...................................
INERT HOLDINGS LTD v GULF HARBOUR MARINE VILLAGE RESIDENTS ASSOCIATION [2021] NZHC 1262 [31 May 2021]
Introduction
[1] The defendant (“Association”) is an incorporated society registered in 1994 under the Incorporated Societies Act 1908 (“Act”). The members of the Association are owners of property in Gulf Harbour Marine Village in Whangaparāoa (“village”).
[2] The plaintiffs (“Inert” and “WAM”) seek a declaration that one or both of them is the “Developer” and “Controlling Member” under the rules of the Association. Inert owns some bare land in the village, and WAM holds an “occupation” licence in respect of what is referred to as the waterway. WAM is a wholly owned subsidiary of Inert. Mr Ian McKay is the sole director of both companies, and he and his wife own all the shares in Inert.
[3] In their first cause of action, the plaintiffs seek an order under s 21(3A) of the Act cancelling part of an alteration to the rules (“2012 alteration” and “rules”) registered in 2012. If they obtain that order, in their second cause of action, the plaintiffs seek a declaration that they are, or that one of them is, the Developer and Controlling Member under the (restored) rules. The plaintiffs must succeed on their first cause of action if they are to succeed on their second.
[4] Under the rules, the Developer is the Controlling Member. The Developer, in its capacity as such and as Controlling Member, has significant rights under the rules. For instance, and this is not an exhaustive list, the Developer determines what category of membership attaches to any particular property and no member may object to any application by the Developer for consent, including resource consent. The powers given to the Controlling Member enable it to control the Association in general meeting and to control the committee to which management of the Association is delegated (“committee”). Hence the importance of the proceedings to the parties.
[5] For the reasons below, I decline to make the order sought under s 21(3A). In particular, I am not persuaded the order sought could be made without causing injustice. In addition, or if I am wrong in declining to exercise my discretion in the plaintiffs’ favour, I am not persuaded either plaintiff would be the Developer and Controlling Member under the rules they seek to have restored. In those
circumstances, there would be no advantage in returning the rules to their pre-2012 state.
Background
[6] The village comprises approximately 10 ha of land and a waterway of approximately 5 ha. Gulf Harbour Development Ltd (“GHDL”), the original registered proprietor of the land and waterway, commenced the development of the village in the mid-1990s. GHDL planned a residential and commercial development, and the construction of berths and other facilities in the waterway. An obvious attraction of the development for a resident was that his or her boat might be close at hand, giving ready access to the water.
[7] GHDL intended to undertake all the work required to bring the development to completion, including subdividing the land, providing required services to the various sites, and developing berths and other facilities in the waterway. As it turned out, financial difficulties meant GHDL was unable to proceed as it hoped. In 1999, it commenced subdividing the land and selling parcels to third parties. Some of those third parties themselves sold land to others, and numerous further subdivisions were effected.
[8] By 1999, GHDL had also transferred the waterway to the Association and, in return, the Association had granted GHDL an occupation licence of the waterway (“occupation licence”), permitting GHDL to occupy and use the waterway to undertake and complete development of the village.
[9] An aerial view shows the considerable development that has taken place since GHDL commenced development. Numerous dwellings have been built, roads and footpaths have been formed, and trees and gardens planted. There are also approximately 180 marina berths.
[10] The members of the Association are the “Owners”, and an Owner must be a member. An Owner is the registered proprietor(s) of a “Developed Property” within the village. There are three categories of members: “residential”, “residential berth”, and “commercial”.
Inert land
[11]Inert owns land in what is referred to as the “western arm” of the village.
[12] GHDL sold the land comprising the western arm to Gulf Corporation Ltd (“GCL”) in about 1999; GCL sold some or all of it to Cap d’Amarres Ltd (“CAP”); and CAP divided its holding into several “precincts”, one of which was “Marinport” comprising 3,766 m2 — clearly a very small portion of the village land.
[13] Inert agreed to purchase the Marinport lots in October 2013 and settled the purchase in July 2014. Since then Inert has subdivided, sold three lots, repurchased one in February 2019, and it now has seven lots. The land that Inert now owns comprises approximately 3,141 m2. Inert proposes to construct an apartment building comprising eight or nine units on one of its lots, and individual dwellings on the others.
[14] Inert became a residential member of the Association on re-acquiring the lot to which I have just referred. Inert’s membership, or lack thereof, has been a bone of contention between Mr McKay and the Association, although I need not address that particular dispute.
WAM – occupation of the waterway
[15]WAM has rights to occupy the waterway. It has derived those rights as follows.
[16] In May 2001, GHDL assigned the occupation licence to GCL, which GCL assigned to WAM in December 2013.
[17] In addition, in 2004, GCL had granted a sub-licence to CAP to occupy part of the waterway pending CAP’s (or its successors or assigns) completion of the development of its land. WAM is also the assignee of this sub-licence.
[18] WAM has constructed 26 berths, of which 12 have been allocated to residential units.
[19] WAM contends that the occupation licence confers on it very extensive rights to occupy and develop the waterway. The parties are in dispute about the nature and
extent of the rights WAM enjoys. Again, it is unnecessary for me to address the parties’ competing views, given the decision I have reached.
Definitions and other provisions in the rules
[20] The definitions of Controlling Member and Developer as they stood prior to registration (“GHDL definitions”) were:
“Controlling Member” means Gulf Harbour Development Limited or its successors or assigns
“Developer” means Gulf Harbour Development Limited and its successors and assigns carrying out the development of the Gulf Harbour Marine Village
[21]Post-registration, the definitions (“Marlin definitions”) were:
“Controlling Member” means Gulf Harbour Marlin Limited (1494198) or its successors or assigns
“Developer” means Gulf Harbour Marlin Limited (1494198) and its successors and assigns carrying out the development of the Gulf Harbour Marine Village
[22] The definition of Gulf Harbour Marine Village and other relevant terms in the rules are as follows:
“Developed Property” means a property within the Gulf Harbour Marine Village
(a)for which a separate freehold title (including a unit title) has issued, and
(b)which has been fully developed by the Developer as a Dwelling or a Commercial Unit or for any other permitted use.
...
“Gulf Harbour Marine Village” means the fully integrated residential and commercial subdivision and Waterway developed (or as progressively developed) on that land adjacent to Laurie Southwick Parade, Gulf Harbour Whangaparaoa, and comprising Lots 1 and 2 on the Scheme Plan.
...
“Member” means any person recognised in accordance with this Constitution as holding a Membership
...
“Membership” means a Membership of the Association, being a Residential Membership, a Residential Berth Membership, or a Commercial Membership
...
“Owner” means each person registered as a proprietor (whether individually or with others) of a Developed Property or, as the context requires, each group of persons collectively registered as proprietors of a Developed Property
...
“Scheme Plan” means DP 168032 being a plan of subdivision of part Lot 1 DP 57805 and part Lot 2 DP 111280 (North Auckland Registry)
...
“Waterway” means all of the land (including foreshore and seabed) comprised in Lot 2 on the Scheme Plan together with all plant equipment utilities, facilities and other structures to be formed and constructed on that land including
(a)all retaining walls, piles, moorings, fingers jetties, piers floating structures utilities installations and other Berth structures, and
(b)all paths walkways lighting, paved areas garden and landscaped areas and other installations and structures
[23] It is common ground that the definition of Controlling Member is superfluous (except to the extent it aids interpretation) because r 4.5 provides that whoever is the Developer at any point in time shall be the Controlling Member. Rule 4.5 provides:
Developer as Controlling Member
4.5 Until the development of the Gulf Harbour Marine Village is fully completed (as determined by the Developer), or the Developer chooses to resign, the Developer shall be the Controlling Member of the Association, regardless of whether the Developer is at any time a Member. The Controlling Member shall have only the rights specified in this Constitution, and shall have no other rights or obligations of a Member. No reference in this Constitution to a Member shall be taken as including a reference to the Controlling Member. Upon the development of the Gulf Harbour Marine Village being fully completed, the Developer shall be deemed to have resigned as Controlling Member, and thereafter there shall be no Controlling Member in respect of the Association.
[24] The drafting of r 4.5 might be improved but I think it contemplates that there may not be a Developer and Controlling Member, whether because the village is “fully completed”, or the Developer resigns, or is deemed to have resigned. In addition, the rules regulating the proceedings of the Association and the committee anticipate that there may not be a Controlling Member. These rules commonly refer to “... the
Controlling Member (if there is one)”. Accordingly, I do not consider the rules require that there be a Developer and Controlling Member.
Subsequent amendments
[25] The Association has amended its rules since the 2012 alteration — once in each of 2014 and 2019, and twice in each of 2015 and 2018. On each occasion, the Association has submitted a complete copy of the rules for registration, and in each the Marlin definitions have been included. No application under s 21(3A) has been made in respect of these subsequent alterations.
Plaintiffs’ case
[26] The plaintiffs accept that neither has a claim to be the Developer or Controlling Member under the Marlin definitions. The plaintiffs must reinstate the GHDL definitions if they are to succeed.
[27] Inert contends it is a “successor” to GHDL in that it is GHDL’s successor in title. Inert also submits it is carrying out a development (of its land) in the village, and indeed that it is the only party doing so at present, although it accepts there are other bare sites. Thus, Inert contends it is entitled to be recognised as the Developer within the GHDL definitions.
[28] WAM contends that it is an assignee of GHDL as it took an assignment of the occupation licence, and that pursuant to that licence it is entitled to development of or in the waterway.
[29] If there can only be one Developer/Controlling Member, then the plaintiffs propose it be WAM as having the stronger claim.
Prior arbitration
[30] There has previously been litigation as to who is the Developer and Controlling Member under the rules. This was an arbitration between Gulf Harbour Marlin Ltd (“Marlin”) — the same “Marlin” as in the post-2012 definitions — and the Association, before Mr B J Paterson QC, a former Judge of this Court.
[31] In his award of September 2009, Mr Paterson determined that Marlin was indeed the Developer and Controlling Member as it claimed. The dispute had arisen because the Association had objected to an application by Marlin for resource consent to undertake a development on the “Town Centre” land which it owned. Marlin claimed that the Association was not entitled to object because the rules precluded any objection to an application by the Developer for resource consent. Mr Paterson upheld Marlin in this respect. I should add that Mr Paterson was required to consider some of the same matters relevant to this present dispute and I shall refer to them as appropriate.
First cause of action
[32] In their first cause of action, the plaintiffs seek a declaration that the 2012 alteration is void, together with an order under s 21(3A) cancelling registration, so as to reinstate the GHDL definitions.
[33] Section 21 of the Act provides for registration of any alteration to the rules of an incorporated society. Any alteration is to be delivered to the Registrar, who must register the same if satisfied it was duly made. The relevant parts of s 21 provide:
21 Alteration of rules
(1)A society may from time to time alter its rules in manner provided by the said rules, but subject to the provisions of this Act.
(2)Every alteration of the rules must be—
(a)in writing; and
(b)signed by at least 3 members of the society; and
(c)delivered to the Registrar accompanied by a certificate by an officer of the society or a solicitor certifying that the alteration has been made in accordance with the rules.
(3)The Registrar, if satisfied that the alteration has been duly made, and that the rules as so altered conform in all respects to this Act, shall register the alteration in like manner as in the case of the original rules, and the said alteration shall thereupon take effect according to the tenor thereof. Such registration shall be conclusive evidence that all conditions precedent to the making of the alteration, or to the registration thereof, have been duly fulfilled.
(3A)Notwithstanding anything in subsection (3), the Supreme Court, on an application made to it by any member of the society, may in its
discretion, if it is satisfied that any such condition as aforesaid has not been duly fulfilled, declare the alteration to be void in whole or in part, and order that the registration be cancelled in whole or in part, and may by the order give such directions and make such provisions as seem just in the circumstances of the case. On the delivery to the Registrar of a sealed copy of the court’s order he or she shall forthwith amend the register accordingly.
[34] Section 21(3A), the important provision for present purposes, gives the Court discretion to declare an alteration void and to order that its registration be cancelled, in whole or in part. The Court may only grant this relief on the application of a “member of the society”, and if satisfied that a condition precedent to the making of the alteration or to registration has not been fulfilled.
Standing
[35] Standing to apply under s 21(3A) is confined to a “member of the society”. Although the Act does not expressly define who is a member of the society, it is common ground that, at the very least, it includes a member under the rules of the particular society.
[36] Inert is a member of the Association, although the Association’s case is that it is not a member of “good standing”. Regardless, the Association did not submit this precluded Inert making an application under s 21(3A), so I shall put that point to one side.
[37] WAM is not a member as defined in the rules. Despite this, Mr Grove submitted WAM had standing to seek relief under s 21(3A) because it is entitled to be recognised as the Controlling Member under the rules.
[38]I do not accept this submission.
[39] The obvious point is that the Marlin definitions prevail pending any order under s 21(3A), and WAM has no claim to be Controlling Member under those definitions. However, I accept it is possible that a person who claims he or she should or would be a member but for a wrongful change to the rules might have standing to apply under s 21(3A).
[40] Whatever the position may be, however, I consider the reference to “member of the society” in s 21(3A) is confined to a party which qualifies as a member (or perhaps who should qualify as a member) under the rules of the society concerned, and does not extend beyond that. Section 6 of the Act requires a society’s rules to provide for the manner in which a person becomes or ceases to be a member, thus giving certainty as to who is within that class and who is not. WAM is not such a member and, for what it is worth, r 4.5 indicates that the Controlling Member is a quite separate status to that of a member.
[41]Accordingly, I do not consider WAM has standing to apply under s 21(3A).
Condition precedent — s 21(3A)
[42] The next issue under s 21(3A) is whether a condition precedent to the making, and therefore registration, of the 2012 alteration was not satisfied. It is common ground that a condition precedent was not satisfied because the amendments to the definitions were not voted on.
[43] The evidence as to how the alteration to the definitions came about is as follows.
[44] A new committee was elected in February 2012. At that time, and as a result of the arbitration referred to above, it was understood that Marlin was the Developer and Controlling Member. However, by 2012, Marlin was in receivership and liquidation and had ceased to exercise its powers as Controlling Member.1 The Association received legal advice that in those circumstances there was no Controlling Member of the Association. The committee decided the provisions in the rules pertaining to the Controlling Member and, I assume, Developer could be deleted in their entirety.
[45] Members of the Association were to vote on alterations to the rules, including the deletions, at a special general meeting on 6 August 2012.
1 Harbourside Group Ltd, Marlin’s successor in title, was served with the proceedings but took no part in them.
[46] By 6 August 2012, Marlin was in receivership. By a solicitor’s letter to the Association that day, Marlin’s receivers asserted Marlin’s continued status as Controlling Member and threatened legal action if the Association persisted with the proposed deletions.
[47] The committee then adjourned the meeting until October 2012, at which time it abandoned the proposal to delete the definitions, although other alterations to the rules were passed.
[48] As it turned out, however, a mistake was made when the alterations were submitted to the Registrar, and the Marlin definitions were included in the rules submitted for registration.
[49] Mrs Karyn Klarwill, who was then assisting with some of the Association’s secretarial work, gave evidence. This long after the events in question, Mrs Klarwill was unable to say precisely how the mistake came to be made. However, to the best of Mrs Klarwill’s recollection several drafts of the rules were circulating. For instance, one had been sourced from the previous Chair of the committee, another had been discussed by the committee, another had followed the committee’s discussions and had been circulated to members with the original notice of meeting, and then at least one and possibly two were submitted for registration.
[50] The plaintiffs submitted the alteration to the GHDL definitions was a deliberate attempt to thwart any claim by another party, such as Inert, to be the Developer and Controlling Member as a result of a succession to or assignment deriving from GHDL as opposed to from Marlin.
[51] I do not accept this submission. I am satisfied from the evidence of Mr Alan Flitcroft, a Committee member at the relevant time, that the Committee accepted that its attempt to rid itself of the Developer/Controlling Member provisions had been stymied by the correspondence from Marlin’s receivers, and the proposal was abandoned. Then an innocent mistake was made when the rules were submitted for registration. The obvious explanation for the actual change was an attempt to reflect Mr Paterson’s award.
[52] To summarise, a condition precedent to the alteration of the definitions in issue was not fulfilled, but as a result of an innocent mistake.
Exercise of discretion
[53] This brings me to whether I should exercise the discretion granted by s 21(3A). In making this same decision in Ngati Kikopiri Marae Maori Komiti Incorporated Society v Te Runanga O Raukawa Inc, MacKenzie J considered the gravity of the error, the nature and effect of the alterations, and the effect on the society if, in this case, the GHDL definitions were reinstated.2
[54] To the extent that the present case lends itself to that analysis, I accept that the plaintiffs perceive the 2012 alteration as a critical one which should never have been made, and that one or both of them is entitle to exercise significant power and influence under the rules.
[55] Plainly, the failure to vote at all on the 2012 alteration was a very significant one. However, the Association has referred me to many factors which it submits count against the exercise of discretion.
[56] First, the 2012 alteration was a mistake but an innocent one which reflected Mr Paterson’s award.
[57] Secondly, the 2012 alteration occurred before Inert agreed to acquire its land. Had Mr McKay read the rules prior to Inert entering into its agreement to purchase the Marinport lots, he would have understood that Marlin, or its successors and assigns, was the Developer and Controlling Member. However, the essence of Mr McKay’s evidence was that he took no interest in the rules at that time.
[58] Moreover, Inert has only recently (in 2019) acquired standing to apply under s 21(3A), that is when it re-acquired the lot to which I have referred in [13] above. Also, the purpose of Inert’s proceeding is not to correct an error affecting it as a
2 Ngati Kikopiri Marae Maori Komiti Incorporated Society v Te Runanga O Raukawa Inc, HC Palmerston North CIV-2005-454-409, 22 August 2006.
(residential) member but rather to secure for itself or its subsidiary, WAM, an advantage within the Association.
[59] Thirdly, there is the fact that the Association has altered its rules since 2012 and included the Marlin definitions in each version submitted to the Registrar. It may be (as Mr Grove for the plaintiffs submitted) that any order I make in respect of the 2012 alteration would effect a change in those subsequent versions, although that is not the view Duffy J took on this issue in Strand v Bays Music Centre Inc.3
[60] Regardless, the fact of these subsequent alterations poses an additional difficulty for the plaintiffs. Any person who has taken an interest in the rules since 2012 will have understood that the Developer and Controlling Member is, or derives from, Marlin. This could be another member who has voted on subsequent changes to the rules or a purchaser of a site within the village after the 2012 alteration was registered. It is possible a purchaser will have taken an interest in this point, or made enquiry about the same.
[61] Ultimately, and leaving aside the merits of the plaintiffs’ claims under the GHDL definitions, so much time has now passed since the 2012 alteration was made, I am not persuaded that it is possible to restore the GHDL definitions without causing an injustice to a member or members of the Association.
Second cause of action
[62] If I am wrong in this, it is necessary to address Inert and WAM’s application for a declaration that either or both “have been and are Developers/Controlling Members”. This claim is to be assessed on the GHDL definitions, which I repeat for convenience:
“Controlling Member” means Gulf Harbour Development Limited or its successors or assigns
“Developer” means Gulf Harbour Development Limited and its successors and assigns carrying out the development of the Gulf Harbour Marine Village
33 Strand v Bays Music Centre Inc [2013] NZHC 1870, [2013] NZAR 1068.
[63] I have already set out the basis on which Inert and WAM contend they each meet these definitions in [27] and [28] above.
[64] The Association’s case is that Inert and WAM fall outside the definitions read as a whole.
[65] Taking the definition of Developer first, the Association contends the reference to “successors and assigns” means more than a successor in title or an assignee of, in this case, the occupation licence. Rather, a successor or assign for the purposes of the definition is a party who is carrying out the development of the village, as that is defined in the rules.
[66] Neither Inert nor WAM can claim to be doing more than minor development work on their land or part of the waterway as the case may be. On the other hand the Developer is a party carrying out the much larger enterprise of development of the village as a whole.
[67] The definition of Controlling Member adds little but that is of no consequence given r 4.5.
[68] In Strand Music, Duffy J discussed the principles applicable to the construction of the rules of an incorporated society. As she said, the rules constitute a contract between the society and its members. At [27] of Laws of New Zealand Incorporated Societies, it is said:4
The principles applicable to the construction of other legal documents should be applied to the rules: that is, they should be fairly construed as a whole and their intentions derived from a reasonable interpretation of the language used. They should be construed so as to give them reasonable efficacy and a workable construction.
[69] Applying those principles to this case, I am satisfied the Association’s construction is to be preferred. I consider the Developer is a party undertaking the development of the village — land and waterway — as a whole, or at the very least a substantial part of it. The provisions in the rules giving the Developer the rights to
4 Ian Millard QC Laws of New Zealand Incorporated Societies and Other Associations (online ed) at [27].
which I have referred, such as to prevent members objecting to any application, whether for resource consent or anything else, to allocate the class of membership attaching to specific sites, and as Controlling Member, to control the Association and committee make sense in the context of a large development of bare land and associated waterway, both of which were to be completed in stages. I do not accept, however, that it was ever intended a successor in title (and every registered proprietor in the village is a successor in title to GHDL) or an assignee that is carrying out much lesser development would enjoy those rights and powers.
[70] There is one other point I should mention, although little was made of it before me.
[71] In his award, Mr Paterson referred to an assignment by GHDL of its rights as Controlling Member to GCL in May 2001, and I note that in September 2008, Marlin advised the Association that GCL had recently assigned those same rights to Marlin. A copy of that assignment is in evidence before me.
[72] I think it relevant to the construction of the definitions in issue that GHDL appears to have considered it might assign its rights as Developer and Controlling Member per se. Mr Paterson accepted this would be possible in principle. However, the difficulty that existed before him was that GHDL’s assignment purported to assign the rights, duties and obligations of the Controlling Member only. Mr Paterson, and it appears the parties to the award, considered that for such an assignment to be effective, GHDL would have had to assign the rights, duties and obligations of the Developer at the same time, i.e. the two were inseparable.
[73] The reason I mention this point is that post-contractual conduct may be relevant to the construction of the terms of the contract.5 This was post-contractual conduct by the first Developer and Controlling Member and I consider it counts against Inert and WAM’s construction of the definitions.
[74] Another matter which counts against the plaintiffs’ construction of the definitions, and particularly in the case of Inert, was that it permits of more than one
5 Vector Gas Ltd v Bay of Plenty Energy Ltd [2010] NZSC 5, [2010] 2 NZLR 444 at [31].
Developer and Controlling Member at any time. Mr Paterson also addressed this issue and took the view that in those circumstances the Developer and Controlling Member provisions in the rules would be “suspended” while that situation persisted. For myself, I think the better view is that there is never to be more than one Developer and Controlling Member. The Association’s preferred construction is consistent with this view.
[75] It follows that I am not persuaded the plaintiffs or either of them would be the Developer and Controlling Member even if I were to grant the plaintiffs’ first cause of action.
Result
[76]I dismiss the plaintiffs’ claims.
[77] The parties may make submissions on costs and disbursements if they are unable to agree.
Peters J
Solicitors: Foy & Halse,
Buddle Findlay, Wellington
Counsel: D W Grove, Auckland
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