Inert Holdings Limited v Gulf Harbour Marine Village Residents' Association Incorporated
[2022] NZCA 379
•15 August 2022 at 3 pm
| IN THE COURT OF APPEAL OF NEW ZEALAND I TE KŌTI PĪRA O AOTEAROA |
| CA374/2021 [2022] NZCA 379 |
| BETWEEN | INERT HOLDINGS LIMITED |
| AND | GULF HARBOUR MARINE VILLAGE RESIDENTS’ ASSOCIATION INCORPORATED |
| Hearing: | 9 February 2022 |
Court: | Clifford, Gilbert and Collins JJ |
Counsel: | D W Grove for Appellants |
Judgment: | 15 August 2022 at 3 pm |
JUDGMENT OF THE COURT
AThe application to adduce further evidence is declined.
BThe appeal is dismissed.
CThe appellants must pay costs to the respondent for a standard appeal on a band A basis and usual disbursements.
____________________________________________________________________
REASONS OF THE COURT
(Given by Gilbert J)
Table of Contents
Para No
Introduction [1]
The pleaded claims [14]
Development of the Marine Village [17]
GHDL sells Town Centre land which is then developed by [20]
other developers
GHDL sells blocks of undeveloped residential land to other [24]
developers
Lakeline Holdings Ltd [25]
Golden Prospects Ltd [27]
Sherrod Properties Ltd [28]
Cornerstone Oyster Cove Ltd [29]
GHDL assigns/transfers its remaining interests to [30]
GCL/Gulf Corporate No 1 Ltd
GCL 1 on-sells [34]
Jireh [34]
CDAL [35]
McNicoll [36]
Development of Jireh Land [37]
Development of CDAL Land [38]
Development of Marinport Land [44]
Development of the Waterway [47]
The Berth agreement [51]
Assignments of Controlling Member rights [59]
GCL [59]
Marlin [60]
2012 amendment to the Constitution [66]
High Court judgment [73]
Did the High Court err in exercising its discretion [78]
not to declare the 2012 amendment void?
Did the High Court err in finding that neither appellant [85]
would be the Developer and Controlling Member in any
event?
Conclusion [97]
Result [98]
Introduction
This is an appeal against a judgment of the High Court declining to grant declarations sought by the appellants in support of their claimed entitlement to the status of “Developer” and “Controlling Member” under the Constitution of the respondent, Gulf Harbour Marine Village Residents’ Association Inc (the Association).[1] As the title suggests, the Controlling Member has power to out‑vote all other members and pass ordinary resolutions. The Developer and Controlling Member are also entitled to other important commercial benefits under the Constitution.
[1]Inert Holdings Ltd v Gulf Harbour Maine Village Residents Assoc [2021] NZHC 1262 [High Court judgment].
The Gulf Harbour Marine Village (the Marine Village), located at Whangaparāoa Peninsula, north of Auckland, is an integrated residential and commercial subdivision built around a waterway. The Association was incorporated in December 1994 to manage the operation of the Marine Village and the common facilities. All owners of property in the Marine Village are required to be members of the Association and each has one vote.
The Constitution originally defined “Controlling Member” and “Developer” as follows:
“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 Marine Village].
Another important provision informs the definition of these terms:[2]
4.4 Developer as Controlling Member
Until the development of [the 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 Marine Village] being fully completed, the Developer shall be deemed to have resigned as Controlling Member, and thereafter there shall be no Controlling Member.
[2]The remainder of these provisions are drawn from the most recent version of the Constitution, re‑registered in November 2019. For present purposes, there are no material changes.
Earlier defined terms also provide important context:
“Commercial Unit” means a property within [the Marine Village] authorised by the Association to be used for commercial purposes and owned in freehold (including stratum estate in freehold) by a Member.
…
“Developed Property” means a property within [the 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.
…
“Dwelling” means a residential property within [the Marine Village] owned in freehold (including stratum estate in freehold) by a Member.
Members of the Association are not entitled to object to any application for consent or other approval required by the Developer to facilitate its development plans in relation to the Marine Village or any other of the developments forming part of Gulf Harbour (including the marina, golf course and other residential developments):
5.3 No objections to development
Each Member acknowledges and confirms, as an independent acknowledgement and confirmation intended to be enforceable by the Developer, that the Member shall not object or take steps to object to any of the Developer’s applications for consents and approvals required by the Developer, or necessary to facilitate the Developer’s development plans, whether in relation to [the Marine Village], or any other part of the developments forming part of Gulf Harbour, at the Whangapar[ā]oa Peninsula, nor shall any Member permit anyone claiming an interest through or on behalf of … the instruction of such Member [to] object or take any such steps to object.
It was contemplated that the Marine Village would be developed in stages:
9.14 Staged development
The Members acknowledge that [the Marine Village] is to be developed in stages, with new Owners becoming Members as each stage is completed.
The Controlling Member can out-vote all other members in respect of ordinary resolutions but is not entitled to vote on any special resolution. A special resolution is required to make any amendment to the Constitution and the Controlling Member must consent:
17.2 Controlling Member
The Controlling Member (if there is one) shall be entitled (other than where a Special Resolution is required by this Constitution) to exercise a number of votes equal to one more than the number of Members present at any general meeting. The Controlling Member shall not be entitled to vote on any Special Resolution.
18.2 Alteration of Constitution
…
18.2.2 No Rule, including this one, shall be amended, added to or rescinded except by Special Resolution, and with the written consent of the Controlling Member (if there is one), provided that this Constitution may be amended by the incorporation of new Waterway Plans, which:
(a) identify the layout and allocation of new Berths, which relate to new Dwellings developed in [the Marine Village]; and/or
…
such amendments to be made by a resolution signed by the Controlling Member, or, if there is no Controlling Member, by a resolution signed by the majority of the Committee pursuant to Rule 14.13.
Gulf Harbour Development Ltd (GHDL) commenced the development in the mid-1990s. However, GHDL encountered financial difficulties in 1999 and ceased its involvement in 2001. The appellants claim that they are successors and assigns of GHDL and are carrying out development of the Marine Village. This is the basis of their claims to have status as Developer and Controlling Member.
The development comprises approximately 10.4 ha of land (lot 1 in the original scheme plan of subdivision) and 5.3 ha of waterway (lot 2) (the Waterway). Titles to these lots were issued to GHDL in September 1995. GHDL immediately transferred the Waterway to the Association which subsequently, in February 1996, granted an occupation licence to GHDL (the Waterspace Licence). The Waterspace Licence has been assigned twice, first by GHDL to Gulf Corporation Ltd (GCL) in May 2001 and then by GCL to the second appellant, Western Arm Marina Ltd (WAM), in December 2013.
In mid-2014, WAM’s parent, Inert Holdings Ltd (Inert), acquired five adjoining lots of bare land together comprising 3,766 m2 fronting onto the western arm of the waterway (the Western Arm). To put this in perspective, Inert’s land amounts to only 3.6 per cent of the total land in the Marine Village excluding the Waterway. Attached to this judgment, as schedule 1, is a satellite image of the Marine Village produced in evidence by the appellants and showing Inert’s land bordering the Western Arm to the middle left.
Some of the residential lots in the Marine Village have the benefit of an associated marina berth in the Waterway. There are 180 such berths and most have long since been allocated. WAM has constructed 23 berths in the Western Arm, nine of which have been allocated to residential units on adjacent land developed by Inert, and three berths outside of the Western Arm all of which have been allocated. The genesis of the present dispute concerns the right to allocate the remaining berths.
As noted, the appellants claim to be the successors and assigns of GHDL. However, that is not sufficient for them to succeed. That is because an amended Constitution was registered in November 2012 which, amongst other changes, substituted Gulf Harbour Marlin Ltd (Marlin) in place of GHDL as Controlling Member and Developer. It is common ground that this amendment was made in error and the change was never put to the vote at any meeting of the Association. The appellants do not claim to be successors or assigns of Marlin, so they need to overcome this amendment to the Constitution as a first step.
The pleaded claims
The two steps required for the appellants to succeed are reflected in the two causes of action they advanced in the High Court.
In their first cause of action, they sought a declaration that the 2012 amendment to the Constitution is void. Reliance was placed on s 21(3A) of the Incorporated Societies Act 1908 (the Act), which empowers the High Court, in the exercise of its discretion, to declare an alteration to the rules of an incorporated society void in certain circumstances. It is helpful to set out s 21 in full at this stage:
21 Alteration of rules
(1)A society may from time to time alter its rules in [the] 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 [High] 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.
…
The second cause of action assumes success on the first, which would have the effect of removing reference to Marlin in the relevant definitions and reinstating GHDL. The appellants plead in this cause of action that they are the successors and assigns of GHDL carrying out development of the Marine Village. They sought a declaration that one or other (or both) of them is the Developer and Controlling Member.
Development of the Marine Village
Before turning to the High Court judgment, it is helpful to summarise the history of the development and the events leading to the 2012 amendment to the Constitution. It will be seen that from early 1999 GHDL commenced selling off large blocks of land in the Marine Village for further subdivision and development by other developers. Some of these developers in turn on-sold to other developers who carried out further subdivision and development. In some cases, this process repeated several times before the land was eventually built on. Small parcels of land still remain vacant today. In the result, instead of GHDL completing the entire development, many others have participated in what became a piecemeal and fragmented process.
As will become apparent from this review, if Inert’s thesis is correct — that it is the Developer and Controlling Member by virtue of it: 1) being a successor in title to GHDL in respect of its comparatively small landholding; and 2) carrying out the development of the Marine Village by developing this small part of it — then many others would similarly have qualified as the Developer and Controlling Member. At various times, there would have been multiple Developers and Controlling Members, including GHDL.
As noted, GHDL became the owner of the land, lot 1 in the original scheme plan of subdivision, in September 1995. We now briefly summarise how the development has progressed since then.
GHDL sells Town Centre land which is then developed by other developers
In November 1997, GHDL transferred 2.1252 ha of bare land to Gulf Harbour Town Centre Ltd (GHTCL), being the land on which the town centre was to be built. GHTCL subdivided this land into three lots. Lots 1 and 3 included the town centre land.
In 2003, GHTCL sold part of the town centre land to Gabrielle’s Trustee Company Ltd (Gabrielle), Keen People Ltd and Gulf Harbour Sword Fish Lodge Ltd. Gabrielle and others subdivided lot 2 in April 2003 and eventually sold these units to numerous purchasers. GHTCL sold a further part, lot 3, of the town centre land to Marlin in March 2004. Gabrielle and Marlin are related companies.
In 2005, Marlin further subdivided lot 3 into two lots, lot 1 being the town centre land. We note that as at September 2009, the date of the arbitrator’s award referred to below, lot 1 was still vacant and owned by Marlin. Gabrielle owned the other lot, which was a car park.
In December 2005, Marlin subdivided lot 1, the town centre land, into three lots. These three lots have since been transferred to successive owners — AUNZ Investment Group Ltd in December 2013, Zhong Rong International Investments Ltd in March 2014, First Investment Group Ltd in December 2017 and Harbourside Group Ltd in December 2017.
GHDL sells blocks of undeveloped residential land to other developers
By March 1999, GHDL had completed 111 residential units on the Waterway that were sold to purchasers who became members of the Association. A further 131 units remained to be completed on the Waterway at that stage. GHDL decided to sell 49 of these units to other developers for completion in accordance with detailed requirements set by GHDL in a Standards, Operations & Procedures Manual.
Lakeline Holdings Ltd
In furtherance of this plan, in October 1999, GHDL transferred 2,069 m2 of bare land on the northern side of the Western Arm to Lakeline Holdings Ltd (Lakeline). Lakeline carried out a unit title development on this land creating eight principal units which were on-sold to purchasers who became members of the Association.
In April 2000, GHDL transferred the adjoining block comprising 3,113 m2 to Lakeline. Lakeline carried out a unit title development on this land creating 12 principal units which were on-sold to purchasers who became members of the Association.
Golden Prospects Ltd
GHDL transferred 4,140 m2 of bare land to Golden Prospects Ltd (Golden Prospects) in December 1999. Golden Prospects carried out a unit title development on this land creating 12 principal units. These were sold to purchasers who then became members of the Association.
Sherrod Properties Ltd
In March 2000, GHDL transferred 1,294 m2 of bare land to Sherrod Properties Ltd (Sherrod). Sherrod carried out a unit title development on this land creating six principal units which were sold to purchasers who became members of the Association.
Cornerstone Oyster Cove Ltd
In May 2001, GHDL transferred 5,478 m2 of bare land on the southern side of Inert’s land to Cornerstone Oyster Cove Ltd (Cornerstone). Cornerstone carried out a unit title development on this land creating 41 principal units which were on-sold to purchasers who became members of the Association.
GHDL assigns/transfers its remaining interests to GCL/Gulf Corporate No 1 Ltd
In May 2001, GHDL ceased its involvement with the development of the Marine Village. This was effected as follows:
(a)GHDL assigned the Waterspace Licence to GCL.
(b)GHDL executed a deed of nomination, assigning to GCL its “rights, duties and obligations” as Controlling Member of the Association.[3]
(c)GHDL sold its remaining bare land in the Marine Village to Gulf Corporate No 1 Ltd (GCL 1), comprising:
(i)a 2.5104 ha block of land on the southern side of the Western Arm (subsequently transferred to Cap d’Amarres Ltd (CDAL) in January 2003) (the CDAL Land);
(ii)an adjoining block comprising 2,543 m2 to the north of the CDAL Land at the head of the Western Arm (subsequently transferred to Marinport Ltd (Marinport) in August 2005) (the Marinport Land); and
(iii)a triangular block of land comprising 4,499 m2 to the north of the Lakeline land and to the east of the Golden Prospects land (subsequently transferred to Jireh Holdings Ltd (Jireh) in July 2002) (the Jireh Land).
Attached as schedule 2 is a plan showing the location of these blocks of land.
(d)GHDL and GCL 1 contemporaneously entered into a memorandum of encumbrance for a term of 100 years requiring GCL 1 to comply with various restrictive covenants and procure the registration of a similar encumbrance against any new title to issue on the completion of any development of the land or any further subdivision of the land (the Memorandum of Encumbrance).
[3]This deed was not produced in evidence because no copy of it could be found. However, it is referred to in the arbitration award discussed at [61] below.
The background and purpose of the Memorandum of Encumbrance is set out in the recitals:
A. The Encumbrancee [GHDL] is developing a high quality fully integrated residential and commercial subdivision known as the Marine Village at Gulf Harbour, Whangapar[ā]oa, Auckland.
B. The Encumbrancee [GHDL] has agreed to sell that part of the land on which the ongoing development of the Marine Village is to be undertaken to the Encumbrancer [GCL 1] … [the] land is more particularly described in the First Schedule to this Encumbrance (“Land”).
C. The Encumbrancer [GCL 1] has undertaken to develop the Land in accordance with certain plans and to subdivide the Land.
D. The Land is to be transferred to the Encumbrancer [GCL 1] subject to certain restrictive covenants which, together with a further encumbrance in favour of [the Association] are also to be registered against the titles to issue in respect of the development and subdivision to be undertaken by the Encumbrancer [GCL 1] on the Land.
E. The Encumbrancer [GCL 1] has agreed to encumber the Land to secure to the Encumbrancee [GHDL] the due performance by the Encumbrancer [GCL 1] of its obligations to register the restrictive covenants and encumbrance against the titles.
F. The form of restrictive covenant transfer and the encumbrance are attached as the Second and Third Schedules to this encumbrance.
The form of restrictive covenant in the Second Schedule defines “Controlling Member” as “[GCL] and its successors and assigns being the Controlling Member of the Association as that term is defined in the Constitution”. One of the restrictive covenants prohibited the building of any structure on any of the covenanting lots without first obtaining the approval of the Controlling Member of the Association.
GHDL was placed in liquidation in March 2005 and removed from the Companies Register in February 2009.
GCL 1 on-sells
Jireh
In July 2002, GCL 1 transferred title to the Jireh Land to Gulf Corporation No 3 Ltd which contemporaneously on-sold it to Jireh.
CDAL
In January 2003, GCL 1 sold the CDAL Land to CDAL.
McNicoll
In September 2003 GCL 1 sold the Marinport Land to Robyn and Neil McNicoll.
Development of Jireh Land
Jireh carried out a staged unit title development leading to the issue of titles for 17 principal units in August 2003.
Development of CDAL Land
CDAL progressively subdivided and developed the CDAL Land from January 2003 to October 2012.
In December 2003, CDAL subdivided the land into 20 lots. Titles to five of these lots were transferred to other purchasers from February 2004 to April 2005.
CDAL subdivided one of the remaining lots into four lots in March 2004. One lot was transferred to each of Stone d’Amarres Ltd (Stone d’Amarres) (in April 2004), Stone d’Amarres 3 Ltd (in June 2004) and Marinport (in June 2005). CDAL subdivided the remaining lot into four lots in February 2005. CDAL transferred one of these four lots to Stone d’Amarres in March 2005.
Stone d’Amarres subsequently subdivided two of their lots into eight lots in September 2005.
CDAL subdivided two other lots in April 2005. These were then sold by CDAL’s mortgagee to purchasers in April and May 2009.
CDAL subdivided another lot into four lots in October 2006. Three were purchased and on-sold as a block a number of times before being transferred to Tony Devco Ltd in October 2012 following a mortgagee sale. The remaining lot was also transferred to Tony Devco Ltd at this time. These four lots were then re‑subdivided into four new lots in January 2013.
Development of Marinport Land
As noted, the McNicolls acquired the Marinport land from GCL 1 in September 2003. The McNicolls transferred it to Wahanga Ltd in May 2005.
Marinport acquired part of the CDAL Land from CDAL in June 2005 and part of Wahanga Ltd’s land in August 2005. Marinport subdivided these lots in December 2007, creating seven lots. Title to these lots was transmitted from Marinport to Wahanga (2011) Ltd in January 2013 by amalgamation under pt 13 of the Companies Act 1993.
Title to two lots was transferred to Fengxia Qin in February 2013. A resource consent for subdivision and construction of buildings on this land was granted in February 2015. These lots have since been sold to new owners. The other five lots were transferred by Wahanga (2011) Ltd to Inert in July 2014.
Development of the Waterway
The Association granted the Waterspace Licence to GHDL in February 1996. GHDL assigned it to GCL in May 2001.
CDAL acquired a sublicence from GCL in May 2004 to enable it to develop marina berths in the Western Arm.
GCL assigned the Waterspace Licence to WAM in December 2013.
CDAL surrendered its sublicence in March 2016. At the same time, the Association, WAM and Bellingham Marine New Zealand Ltd (Bellingham) entered into an agreement relating to the construction of berths in the Western Arm (the Berth agreement).
The Berth agreement
The background and purpose of the Berth agreement is set out in the recitals:
Background:
A. The Association owns the Waterway.
B. Prior to the execution of this agreement [CDAL] surrendered its sublicence granting it the right to develop marina berths in the [Western Arm]. The surrendered sublicence was granted by [GCL], the then licensee under the [Waterspace Licence], with the consent of the Association on 25 February 2005.
C. As a consequence of that surrender [WAM] has the right to develop marina berths in the [Western Arm] pursuant to the [Waterspace Licence].
D. The parties wish to record their agreement relating to the construction, licensing and allocation of berths and the construction of the Walkway on the Residential Fringe.
The Berth agreement required WAM to engage Bellingham to construct 23 berths on the southern side of the Western Arm and WAM was also required to straighten six existing berths that had been constructed on an angle.
WAM was obliged to complete the construction of the walkway from the southern side of the Western Arm to the footpath on its northern side. The walkway is constructed on the “Residential Fringe” (part of the Waterway above the level of mean high water abutting the land in lot 1 of the original scheme plan of subdivision). The new section of walkway was to be built at the same height and to a similar quality as the existing residential fringe.
WAM was obliged to complete all these works by 1 January 2018.
Upon satisfactory completion, the Berth agreement required the Association to allocate the completed berths as directed by WAM as follows:
5.2Upon the issue of the PS4 and Certificate of Acceptance for the completed Berths as provided for by Bellingham, and the Walkway, as provided for by [WAM] or their approved agents the Association will, within the boundaries of the Constitution, use its best endeavours to:
a)Allocate one Berth to each of the Dwellings with street numbers 5-29 Rue d’Amarres, up to a total of 10 Berths with one Berth per Dwelling, as directed by [WAM];
b)Allocate any of the remaining Berths, or any of the 13 Berths that are not allocated under clause 5.2(a), to any other Dwellings as directed by [WAM] to a maximum of one Berth per Dwelling.
Pending allocation, the Berth agreement provided for the Association to licence berths to persons nominated by WAM, but only after all the berths had been satisfactorily completed.
Disputes have arisen between WAM and the Association under the Berth agreement. WAM purported to cancel the agreement in March 2019.
As noted, this is the genesis of the present dispute. These proceedings were commenced around this time and appear to be an attempt to overcome the difficulties encountered by WAM under the Berth agreement regarding berth allocation and licensing by asserting the right to control the Association. We observe that the allocation and licensing provisions in the Berth agreement, requiring the Association to act on WAM’s direction, would not have been necessary if WAM (or Inert) controlled the Association’s decision-making on this matter, in any event, as the Developer and Controlling Member as they now claim to be.
Assignments of Controlling Member rights
GCL
In May 2001, GHDL entered into a deed of nomination and assignment assigning to GCL its rights, duties and obligations as the Controlling Member of the Association.
Marlin
In September 2008, GCL entered into a deed of assignment, assigning these same rights, duties and obligations to Marlin. Written notice of this assignment was given to the Association on 17 September 2008 and Marlin thereafter acted as the Controlling Member.
A dispute arose between Marlin and the Association as to whether Marlin held the status of Controlling Member. This was in the context of the Association’s objection to Marlin’s application for resource consent for a two-stage mixed-use residential and commercial development on its land (the undeveloped portion of the land intended for the town centre). The applications were declined by Rodney District Council, but this decision was reversed by the Environment Court. The Association then appealed to the High Court. Marlin contended that this was a breach of the “no objections” provision in the Constitution quoted at [6] above. The dispute was determined at arbitration before the Hon Barry Patterson QC. In his award dated 18 September 2009, the learned arbitrator found that Marlin was the Developer and Controlling Member and the Association was accordingly in breach of the Constitution in maintaining its action in the High Court against the Environment Court’s decision.
The arbitrator accepted Marlin’s submission that the assignment of Controlling Member status by GHDL to GCL was ineffective because the assignment could only be to a party carrying out the development of the Marine Village. (Marlin’s position was that it took an assignment of this status from GCL in 2008 as a precaution.) The arbitrator reasoned that because GCL did not purchase the town centre land, only the undeveloped land on the Western Arm, it could not be the Controlling Member in respect of the undeveloped town centre land that it did not acquire:
[GCL] was purchasing undeveloped land on the [Western Arm], and the purpose of the assignment appears to have been to give that land the benefit of land covenants registered against other land. As [GCL] was not purchasing all the undeveloped land, it could not be the Developer of the undeveloped land which it did not purchase. I therefore accept that this assignment was ineffectual to transfer rights, duties and obligations of the Controlling Member in respect of land which [GCL] was not buying.
The arbitrator also found that the phrase in the definition of Developed Property (referred to at [5] above) — “fully developed by the Developer” — did not require the Developer to build a house on residential land:
The Developer has done all it intends to do when it has completed the subdivision, built the necessary amenities (roading etc) so as to create titles that a developer could sell as retail stock.
The arbitrator was satisfied that the town centre land was not developed in the sense that the residential sections on the Western Arm had been developed. He concluded that the only remaining undeveloped land in the Marine Village was the town centre land owned by Marlin:
I am satisfied that the Town Centre land is not Developed but the residential sections on the [Western Arm] are Developed. Therefore, the Town Centre land is today the remaining undeveloped land in the [Marine Village].
… Marlin owns the only land in the [Marine Village] which is not Developed Property.
Marlin was placed in liquidation in November 2011 and in receivership in February 2012. It was removed from the Companies Register in September 2016.
2012 amendment to the Constitution
The Constitution provides for the election of members to a committee to manage the affairs of the Association. Marlin purported to exercise its power as Controlling Member to remove the committee elected by members at an annual general meeting of the Association and substitute its own committee. After Marlin was placed in liquidation, the Association obtained legal advice that there was no longer any Controlling Member. The Association then reinstated the previously elected committee at an annual general meeting held in around February 2012. Mr Rod Klarwill was elected chair of this committee.
The committee set about addressing a number of issues with the existing Constitution, working from a draft prepared by a previous committee. This earlier draft proposed amending the definition of Controlling Member and Developer by substituting “Gulf Harbour Development Marlin Ltd[4] (1494198) or its successors or assigns” in place of “Gulf Harbour Development Ltd or its successors and assigns”. In view of the legal advice that there was no remaining Developer or Controlling Member following the liquidation of Marlin, the new committee proposed to delete these definitions and all other such references in the redrafted Constitution. Numerous other amendments were also proposed.
[4]The inclusion of the word “Development” in Marlin’s name was an inconsequential error.
In the first draft of the amended Constitution all proposed changes were shown in different coloured text — blue denoted words to be deleted, red to be included and green to be considered by the committee for inclusion or deletion. The references to “Marlin” and “(1494198)” in both the Developer and Controlling Member definitions were red. The words “Development” and “or its successors or assigns” in Controlling Member were blue. In the definition of Developer, “Development” and “and its successors and assigns carrying out the development of the Gulf Harbour Marine Village” were in blue. However, following receipt of the legal advice, the words Developer and Controlling Member in the definitions were changed to green and struck through, as were all references to these terms throughout the draft Constitution. A notice of meeting with explanatory notes on all the proposed changes and draft resolutions were then circulated for consideration at a special general meeting to be held on 6 August 2012.
On the day of the proposed meeting, lawyers acting for the receivers of Marlin asserted that Marlin remained the Controlling Member and they threatened to seek an interim injunction unless an undertaking was immediately given not to proceed with any amendments to the detriment of Marlin. In view of this threat, the meeting was adjourned until 29 October 2012.
The minutes of the October meeting record that the parties had agreed to refer to arbitration the issue of whether Marlin remained the Controlling Member. In the meantime, it was agreed that the proposed resolution to delete all reference to the Controlling Member in the Constitution would not be put to the meeting.
Following the meeting, an amended version of the Constitution was prepared to reflect the changes that had been agreed. In this version, all the intended changes were inputted as track changes. The definitions of Developer and Controlling Member were marked-up with “Development” struck through, and “Marlin” to be included. When this process was completed all proposed changes were simply accepted. The unintended effect was to record Marlin or its successors or assigns as the Developer and Controlling Member whereas it ought to have been GHDL or its successors or assigns (as shown in the existing Constitution). The change to Marlin was never put to the vote by members at any meeting, but this is how it found its way into the amended Constitution registered on 23 November 2012.
Further amendments to the Constitution were registered on 24 April 2014, 2 June 2015, 17 June 2015, 27 March 2018, 6 July 2018 and 20 November 2019. No change was made to the Developer and Controlling Member provisions on any of these occasions.
High Court judgment
The Judge found that a condition precedent in s 21 of the Act to the amendment of the definitions in issue was not fulfilled. The Judge was satisfied this was the result of an innocent mistake.[5]
[5]High Court judgment, above n 1, at [52].
The Judge considered that the appropriate course in the exercise of the Court’s discretion pursuant to s 21(3A) was not to declare the alteration void. She gave four reasons. First, although the 2012 alteration was a mistake, it was an innocent one which reflected the arbitrator’s award.[6] Secondly, the alteration was made prior to Inert agreeing to acquire its land. If Inert’s director, Mr Ian McKay, had read the Constitution prior to purchasing, he would have understood that Marlin or its successors or assigns was the Developer and Controlling Member. However, the Judge stated that the essence of Mr McKay’s evidence was that he took no interest in the rules at that time.[7] Further, Inert had only recently obtained standing to apply under s 21(3A) by repurchasing a lot and becoming a member of the Association. Its purpose in making the application was not to correct an error affecting it as a residential member, but rather to secure for itself or its subsidiary, WAM, an advantage within the Association.[8] Thirdly, the Judge took into account that the Association had altered its rules on several subsequent occasions without changing the Developer and Controlling Member provisions. Any person who had taken an interest in the rules since 2012 would have understood that the Developer and Controlling Member would have to be successors or assigns of Marlin.[9] Fourthly, the Judge considered that so much time had now passed since the 2012 alterations were made that it may not be possible to restore the GHDL definitions without causing an injustice to one or more members of the Association.[10]
[6]At [56].
[7]At [57].
[8]At [58].
[9]At [59]–[60].
[10]At [61].
The Judge’s finding that the appellants failed on their first cause of action was fatal to their overall claim because the argument underpinning the second cause of action was contingent on success on the first. However, in case she was wrong in relation to the first cause of action, the Judge considered whether the appellants or either of them would otherwise be the Developer and Controlling Member as successors or assigns of GHDL.
The Judge considered that neither of the appellants could qualify as Developer and Controlling Member in any event. Her primary reason for reaching this conclusion was as follows:
[69] … I consider the Developer is a party undertaking the development of the [Marine 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 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.
The Judge considered that there was never to be more than one Developer and Controlling Member at any given time.[11]
Did the High Court err in exercising its discretion not to declare the 2012 amendment void?
[11]At [74].
As Mr Grove, for the appellants, submits, the onus was on the Association to demonstrate why the discretion ought to be exercised against the making of a declaration of invalidity. Relevant considerations are likely to include the gravity of the error, the nature and effect of the alteration and any effect on the Association, individual members or others.[12]
[12]Strand v Bays Music Centre Inc [2013] NZHC 1870, [2013] NZAR 1068 at [75] applying Ngāti Kikopiri Marae Māori Komiti Inc Society v Te Rūnanga O Raukawa Inc HC Palmerston North CIV-2005-454-409, 22 August 2006 at [29].
In their amended statement of claim, the appellants pleaded that they “should not be denied their rights due to an illegal and invalid amendment to the Constitution”. The Association responded in its statement of defence that neither appellant was the Developer or Controlling Member and accordingly neither was denied any rights by the unauthorised amendment to the Constitution. The Association added that the appellants acquired their interests in the Marine Village with actual or constructive notice of the provisions as amended.
In terms of the pleadings therefore, the critical issue is whether the appellants are correct in respect of their second cause of action. We consider this is a very important factor bearing on the exercise of the discretion, if not a pivotal one in the present case. The error in this case was fundamental; an amendment ordinarily requiring a special resolution was made in error, without the proposed change ever being put to the vote. The amendment was to key provisions in the Constitution. Had we been persuaded that the amendment had the effect of depriving Inert or WAM (or anyone else for that matter) of the very significant benefits they otherwise would have enjoyed as Developer and Controlling Member, we would have been inclined to allow the appeal in respect of this cause of action and declare the amendment void. In our assessment, the actual detriment to the party entitled to such status (assuming there was one) would more than outweigh any potential prejudice to other members of the Association who may have relied on the correctness of the amendment as disclosed by the public register. We note there was no evidence of any actual reliance on the amended provisions and consequent prejudice if they were now declared void.
However, for the reasons given in the next section of the judgment, we are satisfied, in agreement with the Judge, that neither of the appellants would be entitled to Developer and Controlling Member status even if the original provisions in the Constitution were restored by replacing Marlin with GHDL. We have concluded that there is no longer a Developer and Controlling Member. The amendment is therefore now immaterial. It correctly reflects the historical position as determined by the arbitrator, namely that Marlin was the Developer and Controlling Member in 2009. That position remained, at least until Marlin was placed in liquidation in November 2011 and possibly beyond. Marlin was removed from the Companies Register on 9 September 2016 and there is no suggestion that any other party has acquired the status as a successor or assign of Marlin. Certainly, the appellants did not do so.
It seems to us relevant that the appellants did not assert any claim to this status for more than four years after they acquired their respective interests in the Marine Village in December 2013 and July 2014. They acted inconsistently with any right to the presently claimed status until they issued these proceedings in 2019. It was only after a dispute arose under the Berth agreement that this claim was made in an apparent effort to step around it.
Ten years have now passed since the innocent error was made. A further six amendments and re-registrations have left the erroneous provisions intact. We agree with the Judge that the possibility of prejudice to other parties cannot be ruled out if the position disclosed by the public register is now wound back 10 years.
In all the circumstances, we are not persuaded that the Judge wrongly exercised her discretion by declining to declare the amendments void. This is sufficient to dispose of the appeal, but we will go on to consider the second cause of action in case we are wrong.
Did the High Court err in finding that neither appellant would be the Developer and Controlling Member in any event?
We agree with the Judge that the parties must be taken to have intended that only one entity could hold these positions at any given time. The concept of there being more than one Controlling Member would be a contradiction in terms. Each could negate the voting power otherwise exercisable by the other, leaving neither with control. Similarly, we do not consider the parties can be taken to have intended that there could be multiple Developers at a given time, each protected from objection to its proposals for the development which could reflect their quite differing visions. Although the Constitution contains a standard boilerplate provision to the effect that the singular includes the plural and vice versa, we are satisfied that this cannot be applied to the Developer and Controlling Member definitions. This would defeat the centrally important commercial objectives of these provisions, which were plainly designed to protect the Developer’s investment and enable it to sell its rights and interests as a package if it wished to do so.
The word “successor” means one who succeeds to or takes the place or position of another.[13] In the context of a corporate entity, it would include a corporation which assumes its rights and liabilities through amalgamation, consolidation or some other form of legal succession.[14]
[13]Kestrel Coal Pty Ltd v Construction, Forestry, Mining and Energy Union [1999] QSC 338 at [16].
[14]At [10].
An assignment, in the words of Lord Millet:[15]
… denotes any conveyance, transfer, assurance or other disposition of property from one party to another. The essence of an assignment is that it operates to transfer its subject matter from the ownership of assignor to that of the assignee.
[15]Burton v Camden London Borough Council [2000] 2 AC 399 (HL) at 408.
The right(s) being assigned must be separate, distinct and pre-existing.[16] As a result of the assignment, the assignee “becomes either the legal or beneficial owner of the thing in action and its benefits”.[17] Absent some contrary indication, reference to a party’s assign in a legal document would ordinarily mean an assignee of that party’s rights under that document, not under some other legal document.[18]
[16]At 408.
[17]Bexhill UK Ltd v Razzaq [2012] EWCA Civ 1376 at [44].
[18]Oquirrh Associates v First Nat Leasing Co Inc 888 P 2d 659 (Utah Ct App 1994) at 663–664.
Mr Grove submits that a successor of GHDL is any entity holding undeveloped land in the Marine Village from GHDL as a successor in title and undertaking development on that land. While he acknowledges that every member of the Association is a successor in title to GHDL, he submits that no other member is the Developer and Controlling Member because all other property is “Developed Property” in terms of the Constitution. Inert acquired bare land on which it is building eight townhouses and an apartment block. Mr Grove claims that Inert is the only party undertaking development on undeveloped land in the Marine Village and it must therefore be the Developer and Controlling Member.
We do not accept this submission. If it were correct, as is demonstrated by our summary of the fragmented development of the Marine Village set out above, it would mean that numerous other parties would equally, often simultaneously, have been the Developer and Controlling Member. This would include parties such as GHTCL, Lakeline, Golden Prospects and Sherrod, all of which acquired and were developing substantial blocks of bare land while GHDL remained involved in developing other land in the Marine Village. On the appellants’ interpretation, GHDL would have been required to face off with all these other parties with an equal claim to Developer and Controlling Member status. This cannot be right. We note that none of these parties made any claim to this status.
For the reasons already given, we are satisfied that the appellants’ interpretation cannot have been intended by the parties at the time the Constitution was drafted. We consider that a successor to GHDL in this context means an entity standing in its shoes and assuming its rights and liabilities such as would occur on an amalgamation or merger. Similarly, an assign of GHDL would be one acquiring by assignment its rights and liabilities as Developer and Controlling Member under the Constitution. We accept Mr Niven’s submission, for the Association, that the Constitution contemplates a single chain of transmission, such that there can be only one successor or assignee at any one time, with each tracing their rights to the last successor or assignee in the chain. This interpretation gives these provisions business efficacy and serves their evident purpose.
GCL 1, which acquired all of GHDL’s remaining land in the development in May 2001, was not GHDL’s successor in this sense. Nor did it claim to be. This is no doubt why the mechanism of assignment was chosen. Further, the assignment of Controlling Member status was to GCL, not GCL 1 which was the successor in title to the land.
We conclude that although Inert is a successor in title, it is not a successor to GHDL in the required sense. Nor did it acquire by way of assignment any rights under the Constitution previously vested in GHDL as Developer or Controlling Member. The only purported assignments were by GHDL to GCL in May 2001, and then by GCL to Marlin in September 2008. These parties all having now been removed from the Companies Register, without having ever assigned the rights to another, there is no scope for anyone to claim Controlling Member status.
We also accept the Association’s submission that, in terms of the Constitution, Inert’s land had been “fully developed by the Developer” prior to Inert acquiring it and therefore Inert is not the Developer “carrying out the development of [the Marine Village]”. We agree with the arbitrator that the phrase “fully developed by the Developer” in the definition of Developed Property means that the Developer has obtained a separate freehold title and has done all it intends to do by way of development on that land. This does not require the construction of an actual Dwelling or Commercial Unit.
We accept Mr Niven’s submission that the Constitution contemplates that only the Developer could create a “Developed Property”. Once a Developed Property has been created, the owner is required to be a member of the Association. Any subsequent development by an owner of this Developed Property does not constitute “carrying out the development of [the Marine Village]” in the required sense. Such development is constrained by the Owner’s Scheme and Village Rules provided for in the Constitution. These provisions do not apply to land that has not yet become Developed Property. Until then, the Developer and Controlling Member has a free hand (subject only to any regulatory constraints). In summary, we agree with Mr Niven that Inert is carrying out a development in the Marine Village, but it is not carrying out the development of the Marine Village.
The same reasoning applies to WAM. It does not qualify as a successor to GHDL, nor does it claim to. It took an assignment of the Waterspace Licence but not the rights and obligations of Developer and Controlling Member.
Conclusion
For these reasons, the appeal must be dismissed. Given our analysis and conclusions, it has not been necessary for us to consider the further evidence the Association sought to adduce on appeal. This evidence does not assist the interpretative exercise and is therefore not cogent. We are not prepared to receive it.
Result
The application to adduce further evidence is declined.
The appeal is dismissed.
The appellants must pay costs to the respondent for a standard appeal on a band A basis and usual disbursements.
Solicitors:
Foy & Halse, Auckland for Appellants
Buddle Findlay, Wellington for Respondent
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