Mangawhai Developments Limited v Lake View Estate Residents Society Incorporated
[2023] NZHC 1628
•28 June 2023
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2022-404-1890
[2023] NZHC 1628
BETWEEN MANGAWHAI DEVELOPMENTS LIMITED
PlaintiffAND
LAKE VIEW ESTATE RESIDENTS SOCIETY INCORPORATED
First Defendant
KAREN and CHRIS RUITERMAN
Second DefendantsVERMONT STREET PARTNERS LIMITED
Third Defendant
Hearing: 3 April 2023 Appearances:
D Bigio KC and A Grant for Plaintiff
No appearance by or on behalf of First Defendant
M Heard and D Maier-Gant for Second Defendants and Third DefendantJudgment:
28 June 2023
JUDGMENT OF WOOLFORD J
This judgment was delivered by me on Wednesday, 28 June 2023 at 4:00 pm pursuant to r 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Solicitors:LeeSalmonLong (M Heard and D Maier-Gant), Auckland Gaze Burt (M Hockly), Auckland
Counsel:D R Bigio KC, Auckland A T Grant, Auckland
MANGAWHAI DEVELOPMENTS LIMITED v LAKE VIEW ESTATE RESIDENTS SOCIETY INCORPORATED [2023] NZHC 1628 [28 June 2023]
[1] By way of statement of claim dated 22 September 2022, Mangawhai Developments Limited (MDL) as plaintiff seeks declaratory relief against Lake View Estate Residents Society Incorporated (the Society) as first defendant and Karen Lee and Chris Ruiterman (Mr and Mrs Ruiterman) as second defendants. Declarations are sought as to the status of MDL under the Society’s constitution (the constitution) and the invalidity of amendments to the constitution passed in 2017 (2017 amendments) and 2019 (2019 amendments).
[2] On 16 November 2022, Mr and Mrs Ruiterman and Vermont Street Partners Limited (VSPL) applied to join VSPL as a defendant in this proceeding and to strike out MDL’s claim or to enter summary judgment for the defendants. In the alternative, Mr and Mrs Ruiterman and VSPL apply for an order requiring MDL to give security for costs and to confirm whether it has litigation funding for this proceeding and, if so, requiring it to disclose its key terms.
[3] On 24 January 2023, in response to the applications made by Mr and Mrs Ruiterman and VSPL, MDL sought leave to apply for summary judgment1 and made a separate application for summary judgment contingent on leave being granted.
[4] I heard argument on the five applications at a one day hearing on 3 April 2023 from counsel for the plaintiff and counsel for the second defendants and proposed third defendant. The first defendant abides the decision of the Court.
[5] It seems logical to deal with the joinder of VSPL and then the parties’ respective summary judgment/strike out applications first before considering the security for costs or the disclosure of funding arrangements. As a preliminary matter, however, MDL seeks leave to apply for summary judgment.
Leave to apply for summary judgment
[6] I have reached the view that MDL should be granted leave to apply for summary judgment. First, granting leave would aid the just, speedy and inexpensive determination of the proceeding. This objective has already been recognised by the
1 Pursuant to High Court Rule 12.4(2), as an application for summary judgment was not filed with the statement of claim.
Court which earlier ordered that this hearing deal with all applications by both parties including the merits of MDL’s summary judgment application.2
[7] Secondly, the interests of all parties including third parties’ interests are also best served by leave being granted. All involved want a just and speedy resolution of the dispute.
[8] Third, MDL also has a satisfactory explanation for its delay in bringing the application. At the point of filing its statement of claim, MDL had received a number of representations from Mr and Mrs Ruiterman that they considered the matter sufficiently complex as to require discovery and cross-examination, in which case an application for summary judgment was likely to be refused. When Mr and Mrs Ruiterman subsequently filed a summary judgment application, it became clear to MDL that a summary judgment application of its own would be viable and not merely a source of further delay.
Joinder of VSPL
[9] The second defendants submit that VSPL ought to have been joined. Its presence before the Court is said to be necessary to adjudicate on and settle all questions involved in the proceeding. VSPL is the purchaser under a sale and purchase agreement for Lot 47 from the second defendants. As such, VSPL has a particular interest in the question whether MDL is the controlling member in terms of the constitution of the Society.
[10] The plaintiff acknowledges that VSPL’s purchase of Lot 47 confers on it the status of a member of the Society. As such, the plaintiff submits that VSPL’s interests and the interests of all other owners who are also members of the Society are adequately represented by the Society itself, which is named as first defendant.
[11] I am of the view, however, that VSPL’s interests are not adequately represented by the Society. The Society is not developing Lot 47 and has taken a neutral stance in the proceeding. VSPL is defending a resource consent for development of Lot 47
2 Minute of Hinton J dated 23 February 2023 at [4] and [9].
against MDL in an Environment Court appeal. There is no prejudice identified to MDL, procedural or otherwise, from joinder. VSPL is, accordingly, joined as the third defendant in these proceedings.
Factual background
[12] On or about 28 February 2006, the Kaipara District Council granted resource consent under number RM05020 to MDL to sub-divide a rural property of approximately 198.39 hectares in Devich Road, Mangawhai, named Lake View Estate (the Estate) into 44 rural residential lots, two lifestyle lots, a road to vest in Council,3 one farm park lot and one balance rural lot. Under the original consent, the Kaipara District Council required MDL to have an entity set up to manage matters associated with the sub-division, more particularly in respect of maintenance of the lake on the property, maintenance of revegetation and restorative planting, control of pests, etcetera.
[13] MDL had earlier created and registered an incorporated society, named Lake View Estate Residents Society Inc. (the Society) on 10 August 2005. In an initial constitution filed at the time of registration, the objects of the society were said to include the ownership and maintenance of communal facilities for the benefit of members. Following the grant of resource consent, a revised constitution was filed with the Registrar of Incorporated Societies on 29 November 2006. It contained an expanded number of objects.
[14] MDL intended to develop the Estate in several stages. It created scheme plans, survey plans and environment impact reports for Stages 1, 2 and 3 of the development.
[15] MDL began developing Stage 1 in 2006. It obtained the necessary capital and consents. It constructed roads, a lake, a jetty, walking tracks, a tennis court and playground. It entered into 34 sale and purchase agreements with purchasers. It arranged for approval under s 224(c) of the Resource Management Act 1991 to be granted in September 2007 and for titles to be issued for the new Stage 1 lots in October 2007.
3 On appeal to the Environment Court, the road was not required to be vested in Council.
[16] Stage 2 was intended to develop several hitherto undeveloped areas of the Estate, including one large lot known as Lot 47. It was envisaged that Lot 47 would be divided into several smaller lots and sold to new residents on individual titles.
[17] MDL was, however, placed in receivership on 12 February 2009 during the Global Financial Crisis. The plans created for Stage 2 of the development did not proceed. All but two purchasers of lots in Stage 1 had also defaulted shortly before receivership because of the global economic outlook.
[18] MDL’s initial receiver was Mr Kevin Gillespie, who was appointed by MDL’s largest secured creditor. Mr Gillespie resigned in December 2012 and Mr Doug Somers-Edgar became mortgagee in possession. Following a settlement with Mr Somers-Edger in January 2016, Mr Digby Noyce was appointed as receiver. Mr Noyce acted as receiver until MDL’s exit from receivership in February 2022.
[19] As developer, MDL initially owned all the land in the Estate. It sold some of the land prior to being placed in receivership. The remainder of the land in the Estate owned by MDL was sold while it was in receivership. The last lot was sold in January 2015.
[20] MDL owned Lot 47 until 25 January 2008, when it was transferred to King Farms Limited – a company controlled by MDL’s director, Mr Phillip Cotton. On 24 April 2009, King Farms was also placed into receivership. Lot 47 was then sold to Windmill Farms Limited, a company owned by Chris Ruiterman’s father, on 27 July 2009. The second defendants, Mr and Mrs Ruiterman, became the registered owners of Lot 47 when they purchased it from Windmill Farms Limited on 2 December 2013.
[21] In July 2017 the second defendants sought to develop a part of Lot 47 into four smaller lots. Following completion of their four-lot development, the second defendants entered into a conditional sale and purchase agreement with the proposed third defendant for Lot 47 on 24 November 2020 as part of an overall agreement to work together to sub-divide and sell the remainder of Lot 47.
[22] VSPL applied to the Kaipara District Council for resource consent in relation to Lot 47 in March 2019. The proposed sub-division for which consent was sought is for 67 additional lots, which the second defendants and/or the third proposed defendant intend to sub-divide and sell. This would more than double the number of lots in the Estate.
[23]There were many other factual issues canvassed. These included:
(a)the role, if any, taken by MDL in the operation of the Society;
(b)the differences that arose between the first and second defendants relating to the development of Lot 47;
(c)the arbitration which settled matters in dispute between the first and second defendants;
(d)the claims made by the second defendants that they had succeeded MDL as the developer (and controlling member); and
(e)the threats and/or demands made by interested persons.
[24] I have, however, taken the view that it is unnecessary to refer to these disputes as the key issue for determination is whether MDL remains the controlling member of the Society. A secondary issue which only arises if MDL is still the controlling member is what constraints, if any, there are on actions undertaken by MDL as the controlling member.
Society’s constitution
[25] The relevant provisions of the Society’s constitution for the purposes of the respective summary judgment applications are as follows:
[26] “Developer” is defined as meaning Mangawhai Developments Limited. The definition does not include MDL’s successors or assigns carrying out the development.
[27] “Lake View Estate” means the residential development of at least 45 lots in various stages together with reserves, vehicle access ways, pathways, golf course, golf course facilities, stormwater system and facilities at Devich Road, Mangawhai as delineated on the plan annexed as Schedule 2.
[28] “Communal Facilities” is defined as meaning all the land, buildings, plant, equipment, facilities and amenities owned, leased, licensed or otherwise held or operated by the Society (as the Society may determine) from time to time including but not limited to gates, vehicle access ways, walkways and lakes within the Estate, being initially those facilities transferred to the Society by the developer pursuant to the deed of transfer attached as Schedule 3 to the constitution.
[29] “Owner” is defined as meaning each person regarded as a proprietor (whether individually or with others) of a residential property.
[30] “Residential property” is in turn defined as meaning a residential property within Lake View Estate for which a Certificate of Title have [sic] been issued.
[31] The first members of the Society were named as 14 partners and staff of Glaister Ennor, the solicitors who drafted the constitution, together with MDL. Clause 4.1 provided that first members “shall resign” from the Society as soon as there are more than 15 owners (excluding the developer) as members. The first members are deemed to have resigned as there are more than 15 owners as members.
[32] Clause 4.2 provides that each owner shall be a member and only owners shall be members. A member is deemed to have resigned from the Society immediately that member is no longer an owner.
[33]Clause 4.3 is the crucial clause. It provides:
Developer as controlling member
4.3 Until the development of Lake View Estate (including any adjoining land owned by the Developer) is fully completed, the Developer shall be the controlling member (“Controlling Member”) of the Society, 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 development of Lake View Estate (including any adjoining land owned by the Developer) being completed, the Developer shall be deemed to have resigned as Controlling Member, and thereafter, there shall be no Controlling Member in respect of the Society.
[34] Clauses 6.6 and 7.1 acknowledge that the Estate was to be developed in stages with new owners becoming members as each stage was completed. Members also acknowledged that the Society was required to allow the developer such access to and interests in the communal facilities as were necessary or desirable for the development to proceed.
[35] Clause 11.5 provides that the controlling member (if there is one) shall be a general committee member. Clause 11.10 provides that a majority of the members of the committee from time to time shall form a quorum for a committee meeting provided that such majority includes the controlling member (if there is one). Similarly, resolutions of the committee are to be passed by majority. Each committee member shall be entitled to exercise one vote provided that the controlling member (if there is one) shall be entitled to exercise a number of votes equal to one more than the number of other committee members present at any committee meeting. There are similar provisions giving the controlling member powers at general meetings. Again, a quorum for general meetings of the Society must include the controlling member (if there is one).
[36] Clause 14.2 provides that the controlling member (if there is one) shall be entitled (other than where a special resolution is required by the Constitution) to exercise a number of votes equal to one more than the number of members present at any general meeting.
[37] Finally, alteration of the Constitution is dealt with in clauses 17.2 – 17.6. Clause 17.3 provides that, subject to clause 17.5, no rule including clause 17.3 shall be amended, added to or rescinded except by special resolution and with the written consent of the controlling member (if there is one).
[38] Clause 17.5 provides that in no circumstances may clause 17.4 be amended or rescinded so as to remove the requirement to obtain the consent of the Kaipara District Council.
Controlling member
[39] The constitution creates a controlling member of the Society. It empowers the controlling member to:
(a)sit as a general member of the Society’s committee;4
(b)have the controlling member’s presence required for a quorum of any meeting of the committee, with the result that no quorum may be attained without the presence of the controlling member;5
(c)exercise a number of votes equal to one more than the number of other committee members present at any committee meeting on any vote undertaken by the committee;6
(d)have the controlling member’s presence required for a quorum of any general meeting of the society, with the result that no quorum may be achieved without the presence of the controlling member;7 and
(e)exercise a number of votes equal to one more than the number of members present at any general meeting of the society.8
[40] As its name clearly specifies, the above provisions give the controlling member effective control of the society. The developer, MDL, is clearly initially specified to be the controlling member, but its role as controlling member is also clearly limited in time and only exists until the development of the Estate is fully completed.
4 Clause 11.5.
5 Clause 11.10.
6 Clause 11.14.
7 Clause 13.4
8 Clause 14.2.
Amendments to Constitution
[41] As MDL was in receivership and no longer owned any land in the Estate, members of the Society took action to remove references to and powers of the controlling member from the constitution. At the annual general meeting of the Society held in July 2017, resolutions were passed that, inter alia, deleted cl 11.8, which reads:
Notwithstanding any other rule in the Constitution, the Manager shall remain as treasurer/secretary and Controlling Member shall remain as a general Committee member for as long as they remain Manager and Controlling Member respectively, and the Society shall not be entitled to remove either from those positions for any reason whatsoever.
[42]MDL’s receiver was not present at the annual general meeting.
[43] Then, at the annual general meeting of the Society in 2019 at which MDL’s receiver was again not present, resolutions were passed which purported to:
(a)remove the requirement in clause 11.10 that the controlling member’s presence be required for a quorum at committee meetings; and
(b)remove the controlling member’s power to cast a number of votes equal to one more than all other members of the committee present at committee meeting.
Legal principles: Interpretation of contractual powers
[44] There is no dispute about the relevant general interpretative principles and the following description is taken from the second defendants’ submissions. The relevant principles are found in the cases of Vector Gas Ltd v Bay of Plenty Energy Ltd9 and Bathurst Resources Ltd v L & M Coal Holdings Ltd:10 The interpretive task is to ascertain the meaning a document would convey to a reasonable person having all of the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract.
[45] If the language has an ordinary and natural meaning, that will be a powerful, albeit not conclusive, indicator of what the parties meant. The wider contest may point
9 Vector Gas Ltd v Bay of Plenty Energy Ltd [2010] NZSC 5, [2010] 2 NZLR 444.
10 Bathurst Resources Ltd v L & M Coal Holdings Ltd [2021] NZSC 85, [2021] 1 NZLR 696.
to some interpretation other than the most obvious one and may also assist in determining intended meaning instances of uncertainty or ambiguity.
[46]In terms of the overall task:11
Giving primacy to the written words of the agreement accords with the policy of providing commercial certainty. It also recognises that since the written contract contains the words the parties chose to record their agreement, the language used to do so has to be important. But by allowing a contextual reading of those words, the Firm P1 approach recognises both that words have to be read in context and that the promotion of commercial certainty should not be allowed to defeat what the parties actually meant by the words in which they recorded their agreement. The objective approach to this contextual assessment is a legal construct designed as the best way of reliably determining the true agreement as recorded in the words of the contract. It rejects the parties’ subjective evidence of intent as irrelevant to what both parties meant and as generally unreliable. Rather, the court (embodying the reasonable person) assesses the evidence reasonably available to both (or all) of the parties at the point of contract which could bear upon the meaning of those words.
[47] If a particular interpretation produces a commercially absurd result that may be a reason to read the contract in a different way than the language suggests. There is also no blanket exclusionary value on the admissibility of extrinsic evidence, subject to that evidence being relevant. The constitution of an incorporated society falls to be interpreted under the same principles.
Discussion
[48] This dispute has developed into a range of different contentious issues, but I see it in quite simple terms.
Is MDL still a controlling member of the Society?
[49] Both the original and revised constitution define Lake View Estate as meaning the residential development of at least 45 lots in various stages together with reserves, roads, pathways, golf course, golf course facilities, stormwater system and facilities at Devich Road, Mangawhai, as defined on the plan annexed as Schedule 2.
11 Bathurst Resources Ltd v L & M Coal Holdings Ltd, above n 10, at [46].
[50] The plan annexed as Schedule 2 in the original constitution showed 46 lots and a farm park. There were two plans filed with the revised constitution, but neither was specifically identified as Schedule 2. However, they were similar to Schedule 2 of the original constitution. Both were dated February 2006 and showed 46 lots, a farm park and a balance area of 139.3 hectares (Lot 47), which under the original resource consent granted in March 2006 was to be retained for farming purposes.
[51] Clause 7.1 of the original and revised constitution both provided for an acknowledgement by members that the development of Lake View Estate was on- going and the Society was required to allow the developer such access to and interests in the communal facilities as were necessary or desirable for the development to proceed.
[52] The original and revised constitution provided for the transfer of communal facilities from MDL to the Society and a deed of transfer of communal facilities was annexed as Schedule 3 to the original constitution. In that deed, development was defined as meaning the construction of Lake View Estate as a complete residential development. The deed also provided that the developer shall as each stage of the development was completed, transfer to the Society any communal facilities constructed which were intended to be used by residents of properties within that stage.
[53] I accept that MDL intended to further develop the Estate after completion of the initial development authorised by Resource Consent Number RM05020, but the fact of the matter is that no further development was undertaken or able to be undertaken by MDL. MDL’s receivers sold the last of the subdivided lots authorised by the original resource consent in January 2015. MDL had earlier sold the balance area of 139.3 hectares (Lot 47) in January 2008 to an associated company and then in July 2009 it was bought by a third party. Having sold all the land to third parties, no further development by MDL was possible. Any successor in title to MDL cannot be seen as a successor to MDL’s rights as developer and controlling member because the definition of developer in the constitution does not include MDL’s successors or assigns.
[54] In terms of clause 4.3, the development of Lake View Estate (including any adjoining land owned by the developer) is fully completed. MDL is therefore no longer the controlling member of the Society. The purpose for which MDL was the controlling member has been exhausted. It has come to an end. The underlying premise is gone. It makes no sense for MDL to remain as the controlling member of the Society when any further development is to be undertaken by others.
Were the amendments to the Constitution invalid?
[55] Rule 17.3 of the revised constitution provides that, subject to clause 17.5, no rule, including r 17.3 itself shall be amended, added to, or rescinded except by special resolution and with the written consent of the controlling member12 (if there is one). MDL lost its status as controlling member when its development of the Estate came to an end after it disposed of all its land holdings in the Estate. MDL was therefore not the controlling member at the time of either the 2017 or 2019 annual general meetings and therefore the amendments to the constitution are not invalid for the lack of written consent by MDL.
[56] Similarly, any assertion that there was no quorum at the Society’s 2019 annual general meeting, in terms of r 13.4, because MDL was not present is without merit as MDL was not the controlling member at the time.
Is MDL in any event estopped from acting as, or claiming to be, a controlling member?
[57] Apart from denying MDL’s claim to continue to hold the role of controlling member in terms of the Society’s constitution, the second defendants raise an alternative defence of estoppel. They submit that in the circumstances outlined it is inequitable for MDL to claim or exercise any rights and powers as developer or controlling member. It is estopped from doing so and MDL is not entitled to the relief claimed or any relief.
[58] The second defendants say that the Society has proceeded on the basis that MDL was no longer the controlling member since its sale of Lot 47 in 2008. Members
12 The constitution in fact refers to the controlling “manager”. The parties agree that this is a typographical error and should read “member”.
have purchased lots within the Estate on the understanding that at the relevant times MDL was not the controlling member and that the constitution as amended when they purchased land was valid. They also allege that MDL’s receiver advised a former committee member that MDL had no interest in the Estate.
[59] This defence is, however, not suitable for resolution by way of the summary judgment procedure. Oral evidence would be required to establish the facts underpinning such a defence.
Security for costs and disclosure of funding arrangements
[60] The primary claim sought by the second defendants is to strike out MDL’s claim or enter summary judgment for the second defendants. As an alternative they seek an order:
(a)requiring MDL to give security for costs;
(b)staying the proceeding unless the required security is given within the specified timeframe; and
(c)requiring MDL to confirm whether it has litigation funding for this matter and if so requiring it to disclose the key terms of the funding arrangement.
[61] As an alternative claim, it is unnecessary for me to make any order as I have found that MDL’s claim is without merit and should be struck out.
Result
[62]The plaintiff is granted leave to apply for summary judgment.
[63]VSPL is joined as third defendant in these proceedings.
[64] The plaintiff’s application for summary judgment is dismissed. MDL has no reasonably arguable claim to be entitled to exercise controlling member rights.
[65] The first defendant’s application for summary judgment is granted. There will be a declaration that:
(a)MDL is no longer the controlling member as defined in the Society’s constitution; and
(b)Amendments to the Society’s constitution in 2017 and 2019 are not invalid by reason of either a lack of a quorum because MDL was not present or a lack of written consent by MDL.
[66] Costs are to follow the event. If they cannot be agreed the parties are to file short memoranda (no more than five pages) within six weeks of the date of this judgment. A decision on costs will then be made on the papers.
Woolford J
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