Thomson v Dorchester Apartments Ltd
[2015] NZHC 2476
•9 October 2015
IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY
CIV-2015-485-717 [2015] NZHC 2476
UNDER Section 164 of the Companies Act 1993 IN THE MATTER
of an application for an injunction restraining a breach of the constution of Dorchester Apartments Ltd
BETWEEN
ALEXANDER HILL BRUCE THOMSON AND RICHARD NORMAN MARTIN
Plaintiffs
AND
DORCHESTER APARTMENTS LTD Defendant
Hearing: 7 October 2015 Counsel:
C Matsis for Plaintiffs
G J Toebes for DefendantJudgment:
9 October 2015
JUDGMENT OF CLIFFORD J
Introduction
[1] This is an on-notice application for an interim injunction restraining the defendant, Dorchester Apartments Ltd, from giving effect to a notice of termination of occupation licence it had issued to the plaintiffs, Alexander Thomson and Richard Martin, with respect to their apartment in Dorchester Apartments.
Background
[2] Dorchester Apartments Ltd is a flat-owning company within the meaning of
Part 7A of the Land Transfer Act 1952. It is the owner of the land and buildings at
THOMSON v DORCHESTER APARTMENTS LTD [2015] NZHC 2476 [9 October 2015]
144 Oriental Parade, Wellington, comprising a ten-storey apartment building known as Dorchester Apartments.
[3] Messrs Thomson and Martin are shareholders in Dorchester Apartments Ltd and, as such, are parties with Dorchester Apartments Ltd to an occupation licence (the occupation licence) in respect of Apartment 10, Garage H and Box Room M in Dorchester Apartments (together, the Apartment). Mr Thomson occupies the Apartment. Mr Thomson’s dog, Callum, lives with him in the Apartment.
[4] The schedule to the occupation licence contains the regulations of Dorchester Apartments Ltd. Regulation 1(c) provides that, except with the consent in writing of the directors first had and obtained, no shareholder shall:
Bring any animal or bird into his/her flat or any other part of the building or keep the same there.
[5] Mr Thomson acknowledges that, on the face of things, he is in breach of reg 1(c).
[6] On 22 June 2015 Dorchester Apartments Ltd issued a notice to Messrs Thomson and Martin, calling upon them (within 14 days of service of that notice) to remedy the breach constituted by the fact of Mr Thomson’s dog living with him in Apartment 10. Dorchester Apartments Ltd also gave notice that, if that breach was not so remedied, it might terminate Mr Thomson’s licence to occupy on thirty days’ notice, as provided by cl 28 of the occupation licence.
[7] Subsequently a notice of termination of occupation licence dated 11 August
2015 was served on Messrs Thomson and Martin, purporting to terminate the occupation licence from 3.00 pm on Wednesday 30 September 2015 (time being of the essence). Messrs Thomson and Martin thereupon commenced substantive proceedings, alleging that the Termination Notice was defective. At the same time, they filed an on-notice application for an interim injunction to restrain Dorchester Apartments Ltd from giving effect to the Termination Notice.
[8] Dorchester Apartments Ltd responded, denying the notice was defective, pleading an affirmative defence of estoppel and counterclaiming for an order that
Messrs Thomson and Martin remove the dog from the Apartment. In response to Messrs Thomson and Martin’s application for an interim injunction, Dorchester Apartments Ltd sought summary judgment as plaintiff on their counterclaim (for the removal of the dog) and summary judgment as defendant in the substantive proceedings.
[9] By agreement, Messrs Thomson and Martin’s application for an interim injunction was set down at short notice to be heard on 7 October.
Substantive claim
[10] Messrs Thomson and Martin assert that the Termination Notice is defective for three reasons:
(a) Regulation 1(c) is itself invalid. The directors are, by cl 25 of the occupation licence, given the right “to make such rules, regulations and by-laws as in their discretion they may from time to time consider necessary and proper for the safety, care and cleanliness of the building and for preservation and maintenance of good order and behaviour therein”. The “no pet” regulation cannot reasonably be considered necessary and proper for those purposes.
(b)Secondly, a breach of a rule or by-law, such as reg 1(c), may only be the basis for a notice determining a licence to occupy where, in terms of cl 29(f) of the occupation licence, there has been an “affirmative vote of at least three-quarters of the members present entitled to vote and actually voting at a meeting of members duly called for the purpose that the shareholder has persistently violated any of the provisions of the rules and by-laws of the company”. No such meeting has been held and no such vote has been passed.
(c) Thirdly, the Termination Notice is invalid because, in issuing it, the directors have breached their duty to act in good faith, in the best interests of the company and for proper purposes. In making that argument, Messrs Thomson and Martin say the directors have been
motivated by their opposition to proposals from the directors to
amend the company’s constitution.
Application for interim injunction
[11] For the purposes of the interim injunction application, Mr Matsis, for Messrs Thomson and Martin, focused on the second ground of invalidity, namely that there had been no meeting or resolution of shareholders as required for a notice of termination to be given in these circumstances. The following provisions of the occupation licence are relevant:
25.The Directors for the time being shall have the right to make such rules, regulations and by-laws as in their discretion they may from time to time consider necessary and proper for the safety care and cleanliness of the building and for preservation and maintenance of good order and behaviour therein and the Shareholder undertakes with the Company that he/she will faithfully and punctually comply with such rules regulations and by-laws and will do his/her utmost to ensure that their visitors and guests will faithfully observe the same and comply therewith. The regulations set out in the Schedule hereto shall be deemed to be the regulations for the time being made by the Directors pursuant to the provisions hereof, and they may from time to time add to, rescind or alter them.
…
28.Upon the happening of any of the events mentioned in subparagraphs (a) to (g) inclusive of this clause it shall be lawful for the Company by notice to the Shareholder or to determine this Licence 30 days from the date of such notice and thereupon the Licence shall be deemed to be at an end and all right of occupation of the Premises on the part of the Shareholder hereby conferred shall cease and the Shareholder shall forthwith quit and surrender them to the Company but without releasing the Shareholder from any liability in respect of any antecedent breach or non-observance of any covenant or condition herein contained or implied.
29. The events hereinbefore referred to are as follows:1
…
(d) In case the Shareholder shall be in default in the performance or observance of any covenants, conditions or provisions hereof for a period of 30 days after written notice of such default shall have been given to the Shareholder by the Company.
1 There is a very technical argument that the occupation licence is defective as there are no subparagraphs (a) to (g) of clause 28, as those subparagraphs actually appear in clause 29. Whether or not anything can be made of that argument is a point for a later date.
…
(f) In case at any time the Company shall determine upon the affirmative vote of at least three-quarters of the members present entitled to vote and actually voting at a meeting of members duly called for the purpose that the Shareholder has persistently violated any of the provisions of the rules and by-laws of the Company or has been guilty of any conduct detrimental to the Company or its other Shareholders or that because of the objectionable conduct of the Shareholder, his/her invitees or licensees the further occupation of the Premises by the Shareholder is undesirable.
[12] It was, Mr Matsis submitted, clearly arguable that a meeting and resolution as called for by cl 29(f) was required. The structure of the occupation licence indicated that, as regards by-laws as opposed to the substantive terms of the occupation licence itself, directors required the authorisation of the shareholders of the company to issue a notice of termination. That was a specific requirement that overrode the more general provision found in cl 29(d) of the occupation licence, which provides for a notice of termination to be given where the shareholder was “in default in the performance or observance of any covenants, conditions or provisions hereof for a period of 30 days after written notice of such default shall have been given to the Shareholder by the Company”.
[13] In terms of the well-established principles relating to interlocutory applications for interim injunction (there being a serious question to be tried), the question then was where the balance of convenience lay. Mr Matsis argued that the balance of convenience lay with the continuation of the status quo, namely Mr Thomson’s occupation of the Apartment. Mr Thomson had nowhere else to live, and would forfeit his shares were the notice to be effected. He would then be forced to move out. He is a relatively elderly person with significant health issues. He would lose his chance to live in the special Oriental Bay location. That process and outcome would invariably subject him to stress, which could only exacerbate the health issues he suffered from.
[14] For Dorchester Apartments Ltd, Mr Toebes emphasised the fact of the breach of reg 1(c), and Mr Thomson’s acknowledgement of that fact. Mr Toebes took me to a series of emails between Messrs Thomson and Martin, and the directors and
chairperson of Dorchester Apartments Ltd. An early email records Mr Thomson advising the company that he had recently taken delivery of “a small pedigree Dandy Dinmont Scottish Terrier pup”, and that he had not considered the implications of that when purchasing the Apartment. He realised he needed certain permissions to have the dog live with him and “would be grateful if you could put such a request on my behalf before the necessary group. If the response is negative then I accept that ruling and will immediately put my apartment on the market”. The chairperson of Dorchester Apartments Ltd responded, advising Mr Martin that the rules were clear and no pets were allowed. Mr Thomson could canvas the shareholders to change that rule. That was something the directors would not do as they needed to be consistent with past rulings and were charged with upholding the current rules of the company.
[15] Thereafter, attitudes hardened. The position the directors took would appear to have been that they were not in a position to consent, as that consent would not have been obtained before the dog arrived. The shareholders were, they knew, against any change to the rules. Ultimately, the Termination Notice was issued accordingly.
[16] Against that factual background, Mr Toebes submitted that:
(a) It was not arguable that the Termination Notice was defective.
Regulation 1(c) was contained in the form of occupation licence contained in the original constitution of Dorchester Apartments Ltd. As such, the by-laws were, in terms of cl 25, “deemed to be the regulations for the time being made by the Directors pursuant to the provisions hereof, and they may from time to time add to, rescind or alter them”. Moreover, Mr Thomson had accepted the terms of the occupation licence when he purchased the shares which gave him the right to occupy the Apartment.
(b)The “no pets” rule was a rule that was common in flat-owning companies and, indeed, in body corporate rules more generally. In any event, such a rule clearly came within the regulation-making
power given to the directors. No vote of shareholders was required: cl 29(d) applied, and it could not be argued that the directors did not have power to determine the occupation licence.
(c) As for the balance of convenience, Mr Toebes in effect offered (in a round-about way) a compromise solution. The breach (the presence of the dog) should be remedied immediately. If that was the case Dorchester Apartments Ltd would undertake not to act on the Termination Notice until Messrs Thomson and Martin’s substantive claim had been heard. Mr Toebes initially advanced that outcome by reference to his application for summary judgment as counterclaim plaintiff. That application had not been set down for hearing. Mr Toebes submitted, however, that the purpose of that application had been to achieve the outcome which would follow if, in effect, I granted Messrs Thomson and Martin’s application for interim relief, on the condition that the dog be removed from the Apartment. That was, Mr Toebes submitted, an appropriate way to maintain the status quo given the acknowledged breach constituted by the dog’s presence.
[17] In response, Mr Matsis submitted that the status quo was, as sought by Messrs Thomson and Martin’s application, the suspension of the Termination Notice. The status quo also included, pending any shareholders’ resolution, the continued presence of the dog. Mr Matsis emphasised Mr Thomson’s affidavit evidence that the dog was not a loud barking dog, but a small quiet dog and that, to the best of his knowledge, only one occupant of Dorchester Apartments had complained.
Analysis
[18] In my view, first it is clearly arguable that, for a Termination Notice to be given based on a breach of a rule, a shareholder vote is required. It is sufficient to point to the general principle of interpretation that a specific provision will often override a more general one. Second, the rationale for such an approach is reasonably obvious: that is, the shareholders did not want directors to have the power to terminate their rights of occupation by reference to a (mere) breach of a regulation
which the directors themselves might have made. The structure of the occupation licence lends itself to an argument that the “high level” obligations of the parties are dealt with in the occupation licence itself. Subsidiary obligations are found in the regulations.
[19] The question therefore becomes one of the balance of convenience. There is, I acknowledge, some attraction in Mr Toebes’ proposal that the breach, on the face of things, of the dog’s presence be terminated whilst, at the same time, the Termination Notice is suspended pending a substantive hearing. However, on further reflection, I am satisfied that the status quo properly understood is that of the suspension of the Termination Notice without a requirement for the dog to be removed. I say that because the focus of the substantive application is that, without a shareholder vote, the presence of the dog itself cannot be a reason for a termination. Furthermore, the correspondence I was taken to noted that, for there to be a change to the constitutional terms of the occupation licence, a 75 per cent or greater majority was required. It would appear that, based on the history of this matter at Dorchester Apartments, there might be two other occupiers who would support a removal of the “no pet” term. In other words, the directors’ contention was that a 75 per cent majority was not available to support such a change. On the other hand, if an affirmative vote of 75 per cent of the shareholders is required, as Messrs Thomson and Martin say is the case, then – given there are three occupiers who may support the presence of pets – such a majority may not be available.
[20] It is also to be noted that when the chairperson advised occupiers of the dispute that had arisen about the presence of the dog, he noted that some of them may not be aware that there was a dog in the building. That comment goes some way to support Mr Thomson’s observation regarding the degree of concern that occupiers have as regards this matter.
Result
[21] I therefore grant the interim injunction sought by Messrs Thomson and
Martin in the terms applied for.
[22] The question of costs was not discussed before me. I see no reason, however, why costs should not follow the event. If the parties are unable to agree, brief and focused submissions may be filed within three weeks of today’s date.
“Clifford J”
Solicitors:
Gault Mitchell Law, Wellington for Plaintiffs
JT Law, Wellington for Defendant
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