Singh v Auckland Co-Operative Taxi Society Limited

[2019] NZHC 1759

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2018-404-2497

[2019] NZHC 1759

IN THE MATTER OF

the High Court Rules 2016, Part 19, The Declaratory Judgments Act 1908 and Senior Courts Act 2016, Section 12 and herein
jurisdiction of the Court

BETWEEN

RAMANDEEP SINGH

First Applicant

TEJINDERJEET SINGH
Second Applicant

AND

AUCKLAND CO-OPERATIVE TAXI SOCIETY LIMITED

Respondent

Hearing:	14 March 2019
Appearances:	G J Kohler QC and R S Pidgeon for the Applicants G J Judd QC and S S Khan for the Respondent
Judgment:	25 July 2019

JUDGMENT OF PALMER J

This judgment was delivered by me on 25 July 2019 at 10am Pursuant to Rule 11.5 of the High Court Rules

…………………………

Registrar/Deputy Registrar

Counsel/Solicitors:

G J Kohler QC, Auckland G J Judd QC, Auckland

Richard Pigeon, Barrister, Auckland Integritas Law Firm, Auckland Fortune Manning, Auckland

SINGH v AUCKLAND CO-OPERATIVE TAXI SOCIETY LIMITED [2019] NZHC 1759 [25 July 2019]

Summary

[1]    There is passionate controversy within the Auckland Co-operative Taxi Society Ltd (the Society) about the meaning of its rules for the election of officers. Mr Ramandeep Singh and Mr Tejinderjeet Singh apply for three declarations about the meaning of the Society’s rules. The Society opposes the application. I hold that industrial and provident society rules are to be interpreted in their context and in light of their purpose. I declare that motions at general meetings, including those for the amendment of rules, must be decided by secret ballot and must be passed by a majority of at least two-thirds of the members of the Society who vote and are entitled to do so. The three-term restriction on serving on the Society’s board was effective, prospectively, from the time of registration of rule 37(c), on 25 March 2011. This means Mr Yacob Patel is eligible to stand for re-election in 2019.

The law of interpreting rules of an industrial and provident society

[2]    The Society is registered under the Industrial and Provident Societies Act 1908 (the Act). Central to this case is how to approach the interpretation of the rules of such a society. Counsel for both parties agree the rules constitute a contract or quasi- contract between an industrial or provident society and its members, like the rules of an incorporated society under the Incorporated Societies Act 1908. But they differ on what that means for their interpretation.

Interpretation of contracts

[3]    In 2014, a majority of the New Zealand Supreme Court, in Firm PI 1 Ltd v Zurich Australian Insurance Ltd, stated that the purposive or contextual approach to contractual interpretation requires the language used to be read in the context of the contract as a whole which informs meaning.1 It emphasised the text remains “centrally important”, and stated “[i]f the language at issue, construed in the context of the contract as a whole, has an ordinary and natural meaning, that will be a powerful, albeit not conclusive, indicator of what the parties meant”.2 But, it said, “the wider context may point to some interpretation other than the most obvious one and may

1      Firm PI 1 Ltd v Zurich Australian Insurance Ltd [2014] NZSC 147, [2015] 1 NZLR at [60].

2 At [63].

also assist in determining the meaning intended in cases of ambiguity or uncertainty.3 The Court stated the relevance of context reflects the fact that “contractual language, like all language, must be interpreted within its overall context, broadly viewed”, even when there is no ambiguity in the language.4 The Court noted “[t]he fact that parties are aware their contract might be relied upon by a third party may justify a more restrictive approach to the use of background in some instances, the parties’ awareness being itself part of the relevant background.”5 The Court confirmed that, if consideration of relevant background “forces” a court to conclude something has gone wrong with contractual language, it is not required to “attribute to the parties an intention which they plainly could not have had”.6

Interpretation of incorporated society rules

[4]    In Re New Zealand Thoroughbred Racing Inc, Wild J considered he was required to construe the constitution of that incorporated society as a whole and to “favour an interpretation which is reasonable and efficacious over one that is literal”.7 Duffy J followed that approach in Strand v Bays Music Centre Inc.8 But she also observed that general principles of contractual interpretation also applied, because the Court of Appeal has stated there is a contractual relationship between an incorporated society and its members.9 She said:

[35]   … It follows that general contractual principles of interpretation will be relevant to interpreting the rules of an incorporated society. However, regard must be paid to the particular circumstances of membership of incorporated societies. This differs from general contracts in that with the latter, the factual matrix of pre-contract and post-contract circumstances will generally relate to the same parties, whereas with membership of an incorporated society, the rules are a living document that gives rise to new contracts over the years as new members join the society. In principle, in such circumstances, to attempt to discern the factual context at the time the original rules were created for the purpose of interpreting the intended meaning of the rules will not be so helpful.

3 At [63].

4 At [61].

5      At [62] (footnotes omitted), quoting from Re Sigma Finance Corp (in admin rec) [2009] UKSC 2, [2010] 1 All ER 571 at [37].

6 At [89].

7      Re New Zealand Thoroughbred Racing Inc HC Wellington CIV-2009-485-1767, 3 November 2009 at [43].

8      Strand v Bays Music Centre Inc [2013] NZHC 1870, [2013] NZAR 1068.

9      At [35], citing Finnigan v New Zealand Rugby Football Union [1985] 2 NZLR 159 (CA) at 177.

[5]    In Malhi v Auckland Co-Operative Taxi Society, in interpreting the rules of this industrial and provident society, Moore J implicitly proceeded on a similar basis.10 It was common ground between the parties there that the rules formed the basis for membership and there was a contract between the member and the Society.11 He drew on principles of contractual interpretation, as well as statutory interpretation.12

Submissions on interpretative approach

[6]    Mr Kohler QC, for the applicants, submits the words of the rules should be interpreted in their natural and ordinary way and mean what they say. Compared with the approach to contractual interpretation, he submits the conceptual basis for departing from the literal meaning of words is nowhere near as strong, and is nearly absent, with an industrial and provident society. While the usual approach to contractual interpretation is all very well where there are two parties to a contract, who agreed it, here there are 700 different people, who may have joined the society after the rules were formulated and rely on them as drafted. He relies on Strand v Bays Music Centre Inc. The original factual context of the formulation of the rules will not be so helpful in this context because there is no common understanding of the purpose of the rules. Though he would not lay down an absolute prohibition, Mr Kohler submits the justification for departing from a literal meaning does not apply with any real force to societies under the Act or the Incorporated Society Act 1908. He submits a strained interpretation cannot, therefore, be adopted here. If the rules do not mean what they say, they should be changed through the democratic processes of the Society.

[7]    Mr Judd QC, for the Society, submits the rules should be construed purposively and even a strained interpretation is permissible when that is necessary, according to principles of contractual interpretation. He submits that general principle is applicable despite Duffy J’s point in Strand that the particular circumstances at the time rules were made for incorporated societies are not so helpful in their interpretation.13 In particular, he submits that, if something must have gone wrong with the language, the

10     Malhi v Auckland Co-Operative Taxi Society Ltd [2014] NZHC 2814.

11 At [49].

12     At [65] – [66].

13     Strand v Bays Music Centre Inc, above n 8, at [35].

law does not require judges to attribute to the parties an intention they plainly could not have had.

How to interpret industrial and provident society rules

[8]    Other things being equal, the value of coherence in the law suggests the same approach should be taken to the interpretation of different legal instruments. So, the purposive or contextual interpretation of contracts is similar to the purposive approach to the interpretation of statutes.14 The approach to interpreting trusts also followed the purposive turn in interpreting contracts.15 The text is centrally important, but the context of its formulation may cast additional light on the purpose of the drafters and, therefore, the meaning of the words under interpretation.

[9]    Differences in the nature of legal instruments may affect their interpretation. Clifford J observed, in Bulley v Attorney-General, that there may be a difference in context between a will or trust, which are usually unilateral documents, and a contract where a common intention must be sought.16 As Matthew Barber and Rod Thomas suggest, “the fact that the parties contemplate that a third party may rely upon or be materially affected by it will be relevant to the reasonable person ascertaining its meaning”.17 The Supreme Court cited Barber and Thomas in Firm PI 1 Ltd when it noted a more restrictive approach to the use of background context may be justified where parties are aware a contract may be relied upon by a third party.18

[10]   Ironically, this does not constitute ignoring context but relying on it, to reinforce the importance of text. The context may be that the formulators of the text know third parties will rely on the text and will not have access to the original context to understand the formulators’ purpose. In a puff of logic, the importance of context to interpretation can reduce the weight of context in interpretation. That is more likely

14   Jeremy Finn, Stephen Todd and Matthew Barber Burrows, Finn and Todd on the Law of Contract in New Zealand (6th ed, LexisNexis, Wellington, 2018) at 201–202.

15 Manukau City Council v Lawson [2001] 1 NZLR 599 (HC) at [13]; Congregational Christian Church of Samoa (Westmere) Trust Board v Tilaima (2010) 3 NZTR ¶20–047 (HC) at [25] citing Inglis v Dunedin Diocesan Trust [2011] NZAR 1 (HC) at [29]–[33].

16 Bulley v Attorney-General [2012] NZHC 615 at [51]–[52].

17 Matthew Barber and Rod Thomas “Contractual Interpretation, Registered Documents and Third Party Effects” (2014) 77 MLR 597 at 613.

18 Firm PI 1 Ltd v Zurich Australian Insurance Ltd, above n 1, at [62].

to apply to contracts, negotiated in private, than to statutes negotiated through public processes. As Barber and Thomas say, different sorts of public registers may entail different approaches to interpretation.19 So the weight accorded to context depends – on the context.

[11]   Under s 4(1) of the Act, an industrial and provident society carries on an “industry, business, or trade whether wholesale or retails, specified in or authorised by its rules”. Section 5(a) requires there must be at least seven members. Section 9(a) provides, on registration, a society is a body corporate with legal personality and limited liability. The rules of an industrial and provident society, like those of an incorporated society, are the result of agreement, and presumably negotiation, amongst its members. In relation to the rules:

(a)Section 7(1)(b) provides no amendment of a rule is valid until it is registered under the Act. Section 7(1)(d) requires the Registrar to acknowledge registration on being satisfied the amendment is not contrary to the Act.

(b)Section 7 and schedule 2 of the Act require the rules to contain provisions relating to 11 specified matters relating to the society’s: object, name, and place of office; terms of admission of members; meeting, voting and rule-making procedures; appointment and removal of a committee of management; determination of members’ interest shares and their nature; audit; withdrawal of members; application of profits; use of the seal; and investment of capital.

(c)Quaintly, s 7(e) requires a copy of the rules to be delivered by the society to any person, on demand, on payment of a sum not exceeding 10 cents.

(d)Section 9(b) provides the rules “shall bind the society and all members thereof, and all persons claiming through them respectively, to the same extent as if each member had subscribed his name and set his seal

19     Barber and Thomas, above n 17, at 615.

thereto, and there were contained in such rules a covenant on the part of himself, his executors and administrators, to conform thereto, subject to the provisions of the Act”.

[12]   I accept the rules of an industrial and provident society are quasi-contractual in nature, as the parties submit. It follows that contractual principles of interpretation are relevant to their interpretation. And I agree with Duffy J in Strand v Bays Music Centre Inc that the factual context at the time a rule was created may not be so helpful in its interpretation. But that will depend on the particular context.

The current context and the rules

The dispute

[13]   The Society was established in 1947 and has around 700 members, most of whom own and drive their own taxis. The Society is run by six directors. In recent years, there have been tensions in the Society about the election of directors. That has given rise to legal challenges to Society elections by way of judicial review, such as in Malhi v Auckland Co-operative Taxi Society Ltd in 2014 and Singh v Auckland Cooperative Taxi Society Ltd in 2016.20

[14]   In 2010, r 37(c) of the Society’s rules was amended to restrict a director to serving no more than two consecutive terms on the board. The motion was voted on at the Annual General Meeting (AGM), on 10 August 2010, and passed by a majority of more than two-thirds. It was registered by the Registrar, as part of a consolidated set of rules, on 25 March 2011. The meaning and effect of r 37(c) was considered by Moore J in Malhi v Auckland Co-operative Taxi Society Ltd. Since further amendments to the rules in 2011, motions for rule changes have not been voted on at the AGM but have been the subject of subsequent secret ballots.

[15]    In July 2018, a notice of a motion to further amend r 37(c) was given before the AGM held in July 2018.21 The amendment sought to increase the restriction on

20     Malhi v Auckland Co-operative Taxi Society Ltd, above n 10; and Singh v Auckland Co-operative Taxi Society Ltd [2016] NZHC 642.

21     Affidavit of Robert White, 18 December 2018, at [26](6.7(a)) and attachment G.

directors serving no more than three consecutive terms. On 9 October 2018, the motion was voted on by secret ballot, with 415 in favour and 225 against (a majority of just less than 65 per cent of those voting). The electoral officer recorded it lost.  On 1 November 2018, a recount was held and the motion was declared to be passed by 436 in favour to 204 against, a majority of 68 per cent of those voting.22 A further recount confirmed that.

[16]   Whether the 2018 amendment was validly passed may determine whether Mr Yakub Mohammed Patel can stand for election again. Mr Ramandeep Singh and Mr Tejinderjeet Singh seek declarations under the Declaratory Judgments Act 1908 regarding three issues in interpreting the Society’s rules:

(a)whether a secret ballot was required to amend to r 37(c);

(b)the nature of the majority required to amend r 37(c); and

(c)from when r 37(c) was effective.

The rules

[17]   The Society has rules and bylaws. As Mr Kohler says, the rules are a bit of a muddle in places, and could do with careful revision. Rule 3 provides the object of the Society is to “provide taxi communication facilities” to taxi operators, as an organiser and controller of taxi services and 23 associated objects. Relevantly, the 77 rules include provisions governing membership, meetings, voting, and the Board of Governance.

[18]   Rules 20 to 30 appear under the heading “General Meetings”. They set out rules for AGMs and special general meetings. Relevantly, r 27 provides:

(27)(a) Unless the contrary is specifically required by the provisions of the Industrial and Provident Societies Act 1908 each notice of motion submitted to a general meeting of the Society shall be validly passed if passed by a majority of not less than two thirds of such members of the Society as being entitled to do so vote in person by way of secret ballot.

22     At [26](6.9).

(b)     Every motion submitted to a general meeting shall be decided by secret ballot which notice specifying the intention to propose the resolution has been given such motion shall be passed if a majority of not less than two thirds of such members of the society as being entitled to do so vote in accordance with the secret ballot provisions set out in this rule 27(d) and comply with the By- laws of the Auckland Co-op Taxi Society Ltd. Schedule A which govern the conduct of secret ballots called for pursuant to rule 27.

(c)    Where a secret ballot has been called for and takes place in respect of any notice of motion proposed by way of resolution at any general meeting of the Society of which notice specifying the intention to propose the resolution has been duly given such motion shall be passed if passed by majority of not less than two thirds of such members of the Society as being entitled to do so vote in accordance with the secret ballot provisions set out in this Rule 27(d).

(d)    Secret ballots shall be conducted in accordance with the secret ballot by- laws that appear as schedule A to these rules.

(e)   Every vote for the election of members to the Board shall be by secret ballot.

[19]   Rules 27(a) and (b) were amended in 2011. Rule 27(a) was amended to substitute voting in person or by proxy with voting by way of secret ballot. The previous version of r 27(b) required those members present first to vote by show of hands and allowed one third of the members present personally or by proxy to call for a secret ballot. Rule 28(a) lists circumstances that do not invalidate a secret ballot and r 28(b)-d) provide procedures if elected candidates are party to a corrupt practice.

[20]   Rules 31 to 35 appear under the heading “Votes of Members”. Relevantly, they provide:

(31)    NO MEMBER shall be entitled to be present or to vote on any question either personally or by proxy or as a proxy for any other member at any general meeting upon a poll or be reckoned in a quorum whilst any money shall be due and payable to the Society by such member in respect of Rule (65).

(32)     On show of hands every member present in person shall have one vote and upon a poll every member present in person or by proxy shall have one vote.

(33)    VOTES may be given either personally or by proxy.

[21]Under the heading “Alteration of Rules”, rules 73 and 74 provide:

(73)   AT ANY general meeting new Rules may be made and except as hereinafter defined any existing Rule or Rules amended or rescinded by a resolution of the members passed by a majority of not less than two-thirds of such members of the Society as being entitled so to do vote in person or by

proxy at a general meeting of which notice specifying the intention to propose the resolution has been duly given.

(74)     NO ADDITION or alteration to or rescission of the Rules shall be valid until registered. Any such changes to the rules are to be registered without delay at the appropriate place and authority within 28 days from the date of passing.

[22]   The by-laws, attached to the rules as schedule A, make further provision, relevantly, for ballot papers, secret ballot procedures, elections and voting. Clause 3(a) of the by-laws states:

The preservation of the rights of members to a secret ballot and the preservation of the integrity of the voting system is a matter of great importance. Any breach of these by laws shall be regarded by the Society as requiring the Board to consider whether or not the name of any member committing a breach of Rule 27 or any of these by-laws should be struck off the register of members pursuant to Rule 11(d) of the Rules.

[23]   Clause 4(a) of the by-laws provide for the procedure “where a secret ballot is to be held to consider and vote on a notice of motion presented to a general meeting of the Society and is not for the purpose of electing a member or member to the Board”. Clause 4(a)(i) requires the secretary to give notice of a secret ballot within seven days of the meeting at which it has been called for.

Issue 1: Was a secret ballot required?

Submissions

[24]   Mr Kohler, for the applicants, submits rules 73 and 74 impose a specific and exacting standard for the procedure for a constitutional/rule change, “in person or by proxy”. That process requires those voting to hear the debate at the meeting. He submits that means the vote should have taken place at the AGM and should not have been put off for a subsequent secret ballot. He submits the specificity of r 73 trumps the generality of r 27.

[25]   Mr Judd, for the Society, submits r 27 requires a notice of motion to be decided by secret ballot which is the more exacting process. He acknowledges there is a conflict between r 27, as amended in 2011, and the literal words of r 73. He relies on the context of the 2011 amendments to elucidate their purpose under the principles of contractual interpretation. He submits r 73 must have been impliedly amended by the

r 27 amendments. Alternatively, he submits r 73 could be read with a strained construction to give way to r 27 by a proposal for a new rule being introduced at a general meeting and dealt with by secret ballot. Mr Judd submits something has gone wrong with the language with the failure to amend r 73 when r 27 was amended. He submits it would be extraordinary for rule changes to require a less stringent approach to approval than other less important notices of motion.

Was a secret ballot required?

[26]   The text of rr 27(a) and (b) is clear and specific in requiring “each notice of motion submitted to a general meeting” to be passed by members who “vote in person by way of secret ballot” and requiring “every motion submitted to a general meeting” to be “decided by secret ballot”. Rule 73 provides that Rules may be amended “at any general meeting” by members voting “in person or by proxy at a general meeting”. Those rules would not necessarily conflict if rule changes were voted on by secret ballot at the general meeting itself, but that would not be consistent with the procedures for holding a subsequent secret ballot after a general meeting, set out in the by-laws. There is a conflict between the rules, which is evident on the face of the rules. So there is little, here, in the objection that those reading the rules, with no knowledge of the context of their formulation, would be misled by them. Rather, they would be confused.

[27]   I consider the context of the amendment of r 27 in 2011 does assist the interpretation of the Rules of this Society. It is clear that the purpose of the Society in passing those amendments was to require notices of motion at general meetings to be voted on by secret ballot. Clause 3(a) of the by-laws emphasises the importance of secret ballots. To be consistent with those amendments, r 73 should have been updated as well. I leave that to the Society to consider. But the fact it was not updated should not obviate the effect of the 2011 amendments. I consider the text of the Society’s rules, interpreted in their context and in light of their purpose, requires motions at general meetings, including for the amendment of rules, to be voted on by secret ballot.

Issue 2: A two-thirds majority of what?

Submissions

[28]   Mr Kohler relies on the words of r 73 for the proposition that a majority of at least two-thirds of members entitled to vote is required. He submits it is not surprising that is a difficult hurdle to meet because it is a constitutional change and the realities of modern life are met by the provision for proxies. He also submits, irrespective of whether a two-thirds majority of the eligible voters or those voting is required, that the voting numbers in 2018 must have included invalid votes because, on the evidence of Mr White for the respondent, there were only 619 financial members entitled to vote but 640 votes were cast.

[29]   Mr Judd submits the only difference between rr 27 and 73 is whether those eligible are entitled to vote “in person by way of secret ballot (r 27) or “in person or by proxy at a general meeting”. He submits, if a majority of two-thirds of the membership is required, r 37(c) itself was not valid and there is no term limit. He submits that if the intention was that two-thirds of the membership vote, the text would have said that, as are those entitled to convene a special general meeting in r 22 or those who constitute a quorum in r 25. Rather, he submits “such members” in rr 27 and 73 refers to the members “entitled so to do” or “entitled to do so” who actually vote. He submits that, if a two-thirds majority of the membership were required, members could stay away and invalidate a meeting. Mr Judd submits Mr White’s evidence is that 619 members were financial on the day of voting but some members who were financial when they voted had gone into arrears by polling day. He submits, under r 65 and cl 6(a) of the schedule, it is the day of voting that matters.

Two-thirds of what?

[30]    This issue can be resolved by reference to text alone. Context does not disturb my conclusion. The language used in the rules is opaque at various places, and not helped by a determined avoidance of commas. But, as Mr Judd submits, rr 27 and 73 are similar in wording and effect. The relevant phrase is “a majority of not less than two-thirds of such members of the Society as being entitled so to do [or ‘to do so’] vote”. It is the two-thirds majority of “such members of the Society” who, “as being

entitled so to do [or ‘to do so’]”, “vote”. Or, put another way, it is two-thirds of “such members of the Society” who vote, “being entitled to do so”. That means the required majority is two-thirds of those who vote and are entitled to do so. The alternative construction for which the applicants contend is not available on the text of either provision.

[31]   I do not consider there is sufficient evidence before me that supports a finding that any of the votes counted as valid in 2018 were invalid.

Issue 3: From when was the three-term restriction effective?

Submissions

[32]   Mr Kohler submits, even if the 2018 amendments are valid, Mr Patel cannot be a candidate for election in 2019. He submits the terms that Mr Graham and Mr Patel served before 2010 do not “count” for the purposes of s 37(c). He relies on Moore J’s holding in Malhi that retrospective amendment of the rules was not permitted.23 He submits Mr Patel was aware of the three-term restriction when he stood for re-election after the 2010 AGM, affecting his legitimate expectation, so his first term was from 2010 to 2013, his second from 2013 to 2016 and his third from 2016 to 2019.

[33]   Mr Judd submits r 37(c) was introduced at the July 2010 AGM and was passed at the meeting, because r 27 had not yet been amended to require a secret ballot. But, he submits, r 37 did not take effect until 25 March 2011, when the consolidated rules, including the amended r 37, were registered. Because r 37(c) had not been registered when Mr Patel was elected in 2010, the restriction on the number of terms to be served did not take effect until he next sought re-election, in 2013, according to Malhi. Mr Judd submits any observation to the contrary in Malhi was obiter and did not address the issue of when the rule came into force. He submits Mr Patel being aware of the restriction does not mean he was bound by it as a matter of contractual entitlement. And because three terms are now allowed, due to the 2018 amendment to r 37(c), he submits Mr Patel is entitled to stand again.

23     Malhi v Auckland Co-operative Taxi Society Ltd, above n 10.

When did the rule come into force?

[34]   In Malhi, Moore J upheld the Society’s argument that r 37(c) applies prospectively because that right arises from the moment of election.24 He also made obiter observations about when he understood Mr Patel was elected in relation to when r 37(c) was “inserted”.25 But he did not make any finding about that, or about when the rule became effective and it is not clear there was evidence or argument before him as to that.

[35]   Rule 74 provides no alteration to a rule is valid until it is registered. The evidence before me is clear that the three-term limit amendment, in r 37(c), was registered on 25 March 2011. That is when it became effective. Legitimate expectation does not come into it. In accordance with Malhi, the rule had prospective effect. As a result, Mr Patel’s first term which “counted” towards that limit was 2013 to 2016 and his second was from 2016 to 2019.

Result

[36]I declare:

(a)Motions proposed at general meetings, including those for the amendment of rules, must be decided by secret ballot.

(b)Motions proposed at general meetings must be passed by at least a two- thirds majority of the members of the Society who vote and are eligible to do so.

(c)The three-term restriction on serving on the Society’s board was effective, prospectively, from the time of its registration on 25 March 2011.

Palmer J

24 At [69].

25 At [58].