Whangaparaoa Community Centre Project Inc v Whangaparaoa Community Trust
[2016] NZHC 951
•11 May 2016
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2015-404-1530 [2016] NZHC 951
BETWEEN WHANGAPARAOA COMMUNITY
CENTRE PROJECT INC First Plaintiff
DESMOND HAMILTON ADAMS Second Plaintiff
NORMA JOAN BUCKLAND Third Plaintiff
AND
THE WHANGAPARAOA COMMUNITY TRUST
First Defendant
THE WHANGAPARAOA RATEPAYERS' AND RESIDENTS' ASSOCIATION INCORPORATED Second Defendant
Hearing: 11 and 12 April 2016 Appearances:
R G Espie for Plaintiffs
J McBride for DefendantsJudgment:
11 May 2016
JUDGMENT OF FOGARTY J
This judgment was delivered by Justice Fogarty on
11 May 2016 at 4.15 p.m., pursuant to r 11.5 of the High Court Rules
Registrar/Deputy Registrar
Date:
Solicitors:
Ken Nicholson, Whangaparaoa
Simpson Dowsett Meggitt, AucklandCopy to:
R G Espie, Whangaparaoa
J McBride, Auckland
WHANGAPARAOA COMMUNITY CENTRE PROJECT INC v THE WHANGAPARAOA COMMUNITY TRUST [2016] NZHC 951 [11 May 2016]
Introduction
[1] The Whangaparaoa Pensinula is part of the Albany Ward and is governed by the Auckland Council. It has a population of approximately 20,000 people. It has a community hall, which until 2005, was owned by an incorporated society, the Whangaparaoa Ratepayers’ and Residents’ Association Incorporated (WRRA).
[2] In January 2005 the WRRA transferred ownership of the community hall to a charitable trust, the Whangaparaoa Community Trust. In these proceedings the plaintiffs challenge the process by which the community hall became the property of the Trust. They seek to have the community hall re-transferred to WRRA, along with a series of related orders.
The history of the Hall and its transfer to the Trust
[3] WRRA was established in 1937 and the community hall built in the 1950s. The hall was originally built on a large site, part of which was transferred to the Council by WRRA for a bowling green. Several members of the committee of WRRA were concerned that, by one means or another, the community hall might become an asset of the Auckland Council. They took legal advice, which was to the effect that the best way to protect local control of the community hall would be to transfer the community hall to a charitable trust formed for that purpose.
[4] On 10 November 2004 the Whangaparaoa Community Trust (the Trust) was incorporated. On 30 November, a public notice was given of a Special General Meeting of the WRRA to vote on the transfer of the land occupied by the hall to the Trust.
[5] On 14 December 2004 the opponents to the transfer of the hall to the Trust commenced proceedings in the High Court. They immediately obtained an interim injunction on 15 December. This was the day of the WRRA’s Special General Meeting. The Special General Meeting was well attended and the members voted in favour of the transaction. The parties to the High Court proceedings went to mediation and the proceedings were settled.
[6] That settlement agreement was signed on 13 January 2005. The settlement agreement was expressly in full and final settlement of the proceedings. The settlement agreement was between the WRRA and Messrs A Parker, J M Taylor-Bell and Norma Buckland. The settlement agreed a Deed of Gift between the WRRA and the Trust. On 20 January, the WRRA transferred the hall to the Trust.
[7] The agreement between the WRRA and the Trust provided that the four founding trustees of the Trust would exercise their power of appointment on an annual basis to appoint one additional member of the Board as put forward each year by the WRRA and also a further additional Board member from the Whangaparaoa community. In short there would be six trustees every year of the Trust, being the four founding trustees, a trustee nominated by the WRRA and a trustee representing more generally the Whangaparaoa community. It was further agreed that the Trust would keep lines of communication with the community open, not only through the WRRA, and would consult with the WRRA and the community before deciding on any significant change in the general pattern of hall use.
[8] There was subsequently a dispute as to the extent that the agreement between the WRRA and the Trust has been implemented relating to the appointment of additional Board members. That dispute is not a major reason for this litigation.
[9] As noted above, as part of the settlement agreement, the parties agreed a
Deed of Gift as part of the transfer. The agreement provided:
Upon the withdrawing of the proceedings the WRRA undertakes to transfer the property ... subject to the attached Deed of Gift and to register with the Registrar of Incorporated Societies the rule changes arising from the Special General Meeting of the 15th December.
[10] This Deed of Gift records:
1. Gift
1.1In consideration of the Recipient’s care and future stewardship of the property and chattels and, further for the consideration of $1.00, the Giver gives the Recipient the Property together with the Chattels for the consideration of $1.00 and the Recipient accepts this gift.
2. Condition
2.1The Giver gives the Property and the Chattels to the Recipient on the condition that the Recipient holds the Property and the Chattels solely for the current objects of the Giver, such objects being stated in clause 2 of the Rules of the Giver and as are set out below, for the avoidance of doubt:
“The objects of the [Giver] are:
a.To promote the interests of the ratepayers, residents and visitors in the Whangaparaoa area of the Hibiscus Coast.
b.To provide facilities for recreation, entertainment, and social and cultural activities in the said area.
c.To promote or assist financially or otherwise in the provision of amenities, facilities and services for the use or benefit with the said area of the public generally.”
2.2Notwithstanding anything in clause 2.1 the Recipient is not required to (and may not) do anything which would jeopardise its charitable status.
[11] I stress that condition 2.1 sets out an exact copy of the objects 2(a) to (c) of the Association.
[12] The next significant event occurred in June and July 2013. On 23 June a joint letter signed by 23 Whangaparaoa residents applied for membership of the WRRA. This was followed by a second joint letter on 15 July signed by most of the same residents.
[13] On 23 August the WRRA rejected all applications on mass and returned the tendered membership fees.
[14] It would appear that the second letter was sent out of frustration and expressed an intention to wind up the WRRA.
[15] In 2014 the WRRA changed its Rules to remove object 2(b) set out above (in cl 2.1). It left in place 2(c). It amended 2(a) so that it now reads:
To promote the maintenance and improvement of the social, cultural and natural environment, and other common interests of the ratepayers and residents of the Whangaparaoa area of the Hibiscus Coast, defined as that part of the peninsula east of the intersection of Viponds Road and Whangaparaoa Road.
[16] Throughout this time period, the hall has been used for the typical uses of a community hall. At present these uses include: a badminton club, an indoor bowling club, martial art groups, a horticultural club, blood donation collections, conservation groups such as Kiwi Conservation Club, a pottery group, three art groups, Tai Chi, yoga, a Baptist Church youth group, rock ‘n’ roll dancing, a community garden, quilting, and a soon to be launched community radio station.
[17] The income from the use of the hall is not large, a little over $30,000 per annum. The surplus from the income is unlikely to be meeting the eventual costs of refurbishment of the hall over the long-term.
The plaintiffs’ causes of action
[18] These proceedings are brought by way of judicial review. They seek to review the WRRA’s decision to transfer the hall to the Trust, and in that respect, the conduct of four members of the General Committee of the WRRA who are also the original four trustees of the Trust, and who continue in that position. It is not argued by the defendants that there is any issue estoppel arising from the earlier High Court proceedings that were subsequently settled.
[19] The proceedings are brought by four applicants. One of whom, Ms M J Buckland, was an applicant in the original judicial review and a party to the settlement. The Whangaparaoa Community Centre Project Incorporated, as first applicant, is a corporate entity formed for this litigation.
[20] The amended statement of claim pleads nine separate causes of action, alleging:
(a) That the WRRA had no authority to transfer the Whangaparaoa Hall to the Trust in early 2005 (the first and second causes of action);
(b) That the WRRA has been unlawfully excluded from the affairs of the
Trust;
(c) Breach of s 19 (acting unlawfully) of the Incorporated Societies Act
1908;
(d)That the WRRA and the trustees engaged in misleading and deceptive conduct by failing to disclose the injunction proceedings brought against the WRRA;
(e) That the trustees knowingly excluded the WRRA and its members from the affairs of the Trust;
(f) That the WRRA’s decision to decline applications to become members
of the WRRA was for an improper purpose and was unlawful;
(g) Financial mismanagement of the members’ funds by the WRRA;
(h) Failure by the WRRA to appoint an auditor; and
(i) Conflicts of interests between the trustees of the Trust and the WRRA. [21] A large number of remedies is sought in the pleadings. In summary they are
to:
(a) Quash the Whangaparaoa Community Trust;
(b) Set aside the decisions of the Special General Meeting of the WRRA
agreeing to transfer the hall to the Trust;
(c) Set aside the mediated agreement and in settlement of the first High
Court claim;
(d)Set aside the transfer of the land by WRRA to the trustees of the charitable trust and re-transfer the hall to the WRRA;
(e) Declare that the four men being the trustees of the Trust and on the
General Committee of the WRRA have misconducted themselves;
(f) Declare the same four men to be unsuitable to hold public office;
(g) Declare that the application of the 20-odd persons to join the WRRA
was wrongly rejected;
(h) Order or declare that they be admitted to membership of the WRRA; (i) Declare that the WRRA has knowingly misled the Registrar of the
Incorporated Society;
(j) Declare that the same four men have been reckless with the funds; (k) Make orders winding up the Trust;
(l) Transferring its assets to the WRRA; and
(m) Find that the trustees of the Trust have misconducted themselves.
Key issues
[22] There are four issues:
(a) Did the WRRA act with authority and with reasonableness in transferring the hall to the Trust?
(b)Were the WRRA and its members knowingly excluded from the affairs of the Trust in breach of s 19 of the Incorporated Societies Act?
(c) Was the decision to reject the membership applications in 2003 for an improper purpose?
(d) Have there been reviewable errors in the administration of the WRRA
and the Trust since the transfer of the hall?
Did the WRRA act without authority and unreasonably in divesting the hall?
[23] The WRRA is an incorporated society under the Incorporated Societies Act
1908. As already mentioned, at the time of the transfer, the objects of the society were:
(a) To promote the interests of the ratepayers, residents and visitors in the
Whangaparaoa area of the Hibiscus Coast.
(b)To provide facilities for recreation, entertainment, and social cultural activities in the said area.
(c) To promote or assist financially or otherwise in the provision of amenities, facilities and services for the use or benefit within the said area of the public generally.
[24] At the time, r 25 of WRRA provided:
None of the following matters shall be decided except by resolution taken at a General Meeting of the Association convened and notified as prescribed in clause 20 or clause 21 hereof as the case may be:
(a) Any proposal in respect of any of the Association’s real or leasehold property that such property be sold, exchanged, leased or disposed of in any other way which would remove it from the control of the Association.
[25] The plaintiffs concede that there was appropriate notice of a Special General Meeting for a resolution to transfer the hall to the Trust. However, the plaintiffs submit that any such transfer had to be conducted reasonably (as understood in the context of judicial review). The plaintiffs say that the transfer was irrational and therefore an unlawful act.
[26] The plaintiffs rely on the decision of Stratford Racing Club Inc v Adlam.1
The Stratford Racing Club transferred its principal asset, a racecourse, to a trust for a peppercorn because it feared expropriation by the Racing Industry Board as part of a
rationalisation of a racing industry in Taranaki. The Trust Deed stated that the Trust
1 Stratford Racing Club Inc v Adlam [2008] NZAR 329 (CA).
operated for the benefit of the Stratford community, not for the Club; that on winding up any surplus assets were to be distributed to charitable purposes in Stratford (which excluded the Club as it was not a charity) and that the Club had no power to appoint trustees.
[27] The Court of Appeal held that the Club had acted contrary to its rules and objects in disposing of its principal asset to the trust for a peppercorn. It also held that an incorporated society may pursue only those objects defined in its rules. The fact that the transfer was made at an annual general meeting did not validate the transfer as it was outside of the Club’s objects.
[28] As the plaintiffs’ argument is that the decision in Stratford Racing Club cannot be distinguished from the present case and is therefore binding on this Court, I think it is necessary to explore, in detail, the decisions of the High Court and Court of Appeal in that case.
[29] In the High Court decision Miller J found:2
Members thought that they were securing the racecourse for the Club; in reality they were alienating it from Club control, having been panicked into doing so by a non-existent threat that outsiders would sell it.
[30] The context had been that a fall in betting turnover in racing generally had resulted in the viability of the racing industry being undermined. The governing bodies of the racing industry started removing available race-days for clubs, particularly country clubs such as Stratford. In Taranaki there were racing venues at New Plymouth, Stratford and Hawera. Stratford suffered the loss of three of its four race-days. This led to the consequence that the Stratford venue functioned principally as a training venue.
[31] A committee, appointed by various racing clubs to examine the issues, recommended a consolidation of venues and in relation to Stratford, noted its value and the poor rate of return being achieved by the Club and questioned its financial status. It recommended Stratford should be closed within a two time year frame and
the race course sold with the proceeds to be held by the Stratford Club which could
2 Adlam v Stratford Racing Club Inc [2007] NZAR 544 at [50].
use its improved financial base to greater effect by racing at other courses. This proposal led to anxiety and to the concept of setting up a trust to own the race course.
[32] In the High Court Miller J identified the issue as being whether the transfer
was consistent with the Club’s objectives.3 He found:
[84] On the view I take of the matter, the Club acted contrary to its principal objects of carrying on horse racing in New Zealand and encouraging the breeding of thoroughbred horses. The Club disposed of its principal, indeed its only real, asset to a third party over which it had no control, for no consideration. It did so without even reserving to itself a right to use the course, which was the only facility available to it for pursing its objects. The decision could not possibly serve the Club’s objects. I recognise that members apparently believed they were preserving the course against outsiders and for the Club’s future, so their purpose was consistent with the Club’s objects. That does not save the respondents, however, for no reasonable person could conclude that it was necessary or even appropriate to transfer the racecourse to the Trust for that purpose. The decision was irrational, and in the Wednesbury4 sense unreasonable. Indeed, it was bizarre. That the Club reached the decision is attributable to two related errors of law, the first and possibly the second of which were promoted by Mr Blue; that the legal protection afforded by the Trust was necessary to prevent outsiders from selling the racecourse, and that the transfer would secure the course for the benefit of the Club.
(Footnote added.)
[33] As noted, Miller J’s ruling was upheld by the Court of Appeal.5
[34] The Court of Appeal found that:
[20] Clearly to give away the racecourse, the club’s principal asset, to a third party would normally be contrary to the club’s objects. Mr King accepts that, but says that what saves the transfer here is the fact that the trust’s objects are similar. Mr King pointed to objects 3 and 4 in cl 2 of the trust deed. We set out all of cl 2:
The Board is established to carry out within New Zealand the following aims:
1.To ensure that this land holding (legal description) asset remains owned by and for the benefit of the local Stratford community.
3 At [83].
4 Associated Provincial Picture Houses Ltd v Wednesbury Corporation [1948] 1 KB 223 (EWCA).
5 Stratford Racing Club Inc v Adlam, above n 1.
2. To maintain the property as a freehold and debt-free asset.
The property may not be used as collateral or other guarantee by any organisation.
3.To ensure that the property remains available for the purpose of training and racing thoroughbred and standard bred horses.
4.To ensure that the property remains available to provide temporary and permanent accommodation for racehorses in training.
5.To ensure that the property remains available for other community usage by request.
6.To work with other organisations or community groups to advance the objects of the trust.
7.Generally to do all acts, matters and things that the trustees consider may advance the objects of the trust as set out above.
[35] The Court considered the following submission on behalf of the racing club:
[21] Mr King submitted that objects 3 and 4 were “identical or almost identical” to object (a) in the club’s rules. He said the race-course could not realistically be used for anything else but racing, “at least not without major work”. Therefore, he argued, the trustees would “have to allow the race- course to be used for horse-racing”. If the trust were to refuse the club use of the race-course, then, he submitted, the trustees would “inevitably” be subject to proceedings under the Charitable Trusts Act 1957 and perhaps under the Commerce Act 1986.
[36] The Court rejected that submission:
[22] We do not accept that submission. While it is true that the property must remain available for the purpose of training and racing thoroughbred and standard-bred horses, there is no obligation on the trustees to provide that service or entertainment through the Stratford Racing Club. Indeed, the land is not held for the benefit of the club, but rather for the benefit of the entire “local Stratford community”. Whether the club can carry out its principal object — “to carry on horse racing in New Zealand in accordance with the Rules of Racing” — is now completely dependent on what the trustees decide. The club has no control over the trustees. The trustees appoint any new trustees: cl 6.1.3 of the trust deed. While Stratford Racing Club may “submit names for consideration as new trustees”, the existing trustees are not bound to appoint their suggestions; they may also appoint others who have not been recommended by the club.
[23] Mr King’s submission overlooks the fundamental change that has been brought by the transfer of the racecourse from the club to the trust. Previously, the members of the club, through the committee they appointed and on which they were eligible to serve, controlled the use of the racecourse
for the benefit of the club’s members. They have now lost all that control. How racing is now carried on in Stratford is entirely up to the trustees, who are not beholden in any way to the club’s members. It is distinctly arguable that the trustees would be acting in breach of trust were they to favour club members over non-members. Further, they are also required to make the property available for “other community usage by request” and to work with any organisation or community group (not just the Stratford Racing Club) to advance the trust’s objects.
[24] We have no doubt that the judge was correct in finding that the club acted contrary to its principal objects in disposing of its principal asset to the trust for no consideration. Mr King’s first argument must fail.
[37] Mr Espie, for the plaintiffs, argued that the Adlam case was directly in point. He submitted that:
The hall was the only means by which the objects of the WRRA could be carried out, i.e. to provide facilities for entertainment and social and cultural activities in the local area. Without a hall objects (b) and (c) would be rendered superfluous.
[38] He submitted that the dictum of Miller J quoted above, of the members having been panicked into the transfer by a non-existent threat, applied fully to the attendees of the WRRA Special General Meeting with regard to the hall. He argued that the situation facing the WRRA was almost identical to that in Adlam.
[39] Mr McBride sought to distinguish the judgment in Adlam. He placed emphasis on the Deed of Gift which binds the Trustees of the Trust to act consistent with the purposes of the WRRA. Mr McBride identified this as a distinguishing point in the present case because there was no similar constraint on the Trust in the Stratford Club case. He said that in Stratford Club the Deed and the necessity for it were not the subject of legal advice. Clause 1 of the objects of the Stratford Trust was to ensure that the land asset “remains owned by and for the benefit of the Stratford community”. There was no reference to the Club in the objects. So, according to Mr McBride, it was the local Stratford community, rather than members of the Club, that were to benefit from the Trust’s activities.
[40] Mr McBride noted Miller J’s observations in the High Court judgment:
[43] I hae reached the clear view that the notice did not comply with the Rules, which reauired that notice be given of the purpose for which the meeting was to be held. It did not adequately notify members of the special
business to be transacted at the meeting. Taking the respondents’ evidence at its highest, it cannot be said that the members were aware of the objectives of the Trust. There is evidence that a copy of the draft trust deed was available at the 1 December meeting for those who cared to look at it, but it was not completed until later and in any event that could not amount to notice of the Trust’s objectives. The minutes on which the respondents rely record that the members were told on 1 December 1998, by Mr Blue, that the purpose of the Trust was to prevent the sale of the Club’s land and assets by the Racing Industry Board. That was not the object of the Trust as expressed in the deed. The express objects of the Trust provide, as noted above, that the Trust is to operate for the benefit of the Stratford community, not for that of the Club. And one of the objectives of the deed, manifested in the provisions for appointment of trustees, is that of ensuring that the Club is unable to control the racecourse, either directly or indirectly through appointment of trustees. Members were not aware of that on 1 December, for (again accepting the respondents’ evidence for present purposes) they “elected” trustees and agreed to look into a mechanism for electing future trustees, suggesting that they believed the racecourse would remain under the indirect control of the Club. As Ms Hughes submitted, the decision to transfer the racecourse to the Trust was a profoundly important one for the Club. Good practice dictated that the members should have been provided with a report summarising the purpose of the transaction and the effect of the trust, and legal and accounting advice about it, with a copy of the deed itself being made available.
[41] Mr McBride made a number of points, but one of the significant ones, in my view, is that the change of use of the race course was a distinguishing feature. By contrast here the community hall was to and has continued its same use by members of the public. The transfer to the Trust was deliberately intended to continue to protect the community hall so it could continue to operate for the stated purposes of the WRRA. The Trust effectively adopted the objects of the WRRA in as much as they are applicable to use of the community hall. As to the use of the community hall, Mr McBride emphasised that nothing in fact has changed. In short, he concluded:
Unlike Adlam, the Deed of Gift made it clear that the community hall was to be used for the object of the WRRA including the provision of facilities for public use.
[42] He went on to submit that, by contrast to Adlam, the decision to transfer the community hall into a charitable trust could not be described as bizarre, irrational or unreasonable. On the contrary, it was based on legal advice presented as a solution to a legitimate concern about the local community losing its community hall, the WRRA having previously conveyed some of its land to the Council.
[43] Finally, Mr McBride submitted that the plaintiffs cannot point to any prejudice to the community and in any event even if the transfer was unlawful the relief should be refused because of delay. I will return to those two closing points later in this judgment.
Analysis
[44] I am satisfied that this case is distinguishable from the material facts of the Adlam decision. Certainly that was the case at the time the Trust was created, for the reasons advanced by Mr McBride, set out above.
[45] These amendments raise the question of the continued applicability of the Deed of Gift. As I have already noted, the original object 2(c) remains, but it has now become 2(b). Object 2(a), to provide facilities for recreation, entertainment and social and cultural activities in the area has been removed.
[46] I am satisfied, however, that the Deed of Gift still applies. These amendments and more particularly the retention of object 2(c) now 2(b) continue to restrain the trustees of the Trust from any change in the provision of the hall for recreation, entertainment and social and cultural activities, these being amenities, facilities and services for the use and benefit of the public within the specified area of the public generally. The amendment to the rules is not intended to nor did it affect, constrain or in any way significantly change the continued use of the hall as a community hall.
[47] Accordingly, I dismiss the plaintiffs’ claim that the WRRA acted
unreasonably, and therefore without authority, in transferring the hall to the Trust.
Judicial review against the trustees – knowing exclusion of WRRA and its members from the affairs of the Trust
[48] The Trust was formed pursuant to the enabling powers of the Charitable Trusts Act 1957. The first complaint here is that the Deed of the Trust makes no reference of the WRRA. That is so, but the Deed of Gift ties the use of the hall by the Trust to the purposes of the WRRA. The terms of the gift prevent the hall being
for used for purposes inconsistent with the purposes of the WRRA. The Trust asset, the hall, is a fixture on the land in Whangaparaoa. There is no evidence that it has ever been used in any way inconsistent with the interests of the persons, residents and ratepayers who live in the area.
[49] There is a complaint that there has been a deliberate breach of s 19 of the
Incorporated Societies Act 1908. This section provides:
19 Restriction of operations of society
(1) If any society carries on or proposes to carry on any operation which is beyond the scope of the objects of the society as defined in its rules, the Registrar may give notice in writing to the society not to carry on that operation.
(2) If after the receipt of that notice the society fails or refuses to conform thereto, every officer of the society and every member of the committee or other governing body of the society shall be liable to a fine not exceeding [$2] for every day during which that failure or refusal continues, unless he proves that the failure or refusal has taken place without his authority or consent.
[50] It was argued that one effect of the transfer of the hall from the WRRA to the Trust was “to immediately provide access to the hall to at least 16,595 previously non-entitled persons”. This is the difference between the total permanent population of the Hibiscus Coast as at the 2006 census of 35,820 persons, of whom only 18,861 lived permanently on the Whangapraoa Peninsula.
[51] This is an argument entirely without merit. It is inconsistent with the argument that the hall is being financially mismanaged in not generating enough income. There is no suggestion on the evidence that any of the persons living permanently on the Whangaparaoa Peninsula cannot use the hall because it is also available for persons living in the wider Hibiscus Coast.
Claim for judicial review and under the Incorporated Societies Act against the WRRA/Trustees for unlawful rejection of applications to become members in the WRRA
[52] On 23 June and 15 July 2013, two letters were sent to the WRRA signed by about 20 residents and ratepayers who wished to join the society. The WRRA general committee rejected the applications wholesale. Apparently this was on the
basis of an apprehension from the second letter that the intent of the plaintiffs was to join, and then by weight of numbers, vote to wind up the WRRA.
[53] I find that an application for membership accompanied by a threat to wind up the organisation upon election is clearly a legitimate reason for refusing an application.
[54] The Minutes of the WRRA Management Committee Meeting on 18 July
2013 recorded receipt of an application for membership from 21 individuals. The payment was in the form of a cheque made out to the Whangaparaoa Ratepayer’s Association, not the Whangaparaoa Ratepayer’s and Residents Association. It was in the wrong name for the wrong amount and it was decided the matter be dealt with at the next committee meeting. At the next committee meeting there was tabled request for dissolution of the WRRA from the same individuals requesting membership and to that end seeking a special general meeting.
[55] The management committee passed the following motion:
That the document detailing the request for an SGM brings the Association into disrepute, appears to be defamatory and amounts to harassment and as a result, that appropriate action is deemed necessary, noting the powers given to the committee under section 24(1) of the constitution.
[56] Discussion then ensued as to how to further deal with the situation in which
21 individuals were applying to join the Association in circumstances where they had subsequently indicated their intention to dissolve the organisation.
[57] Before this Court Mr Espie advised that the subsequent threat was regretted. Given that apology those unfortunate events in 2013 are no barrier to further applications for membership by the same persons. New members will be able to participate in properly called general meetings promoting candidates for the general committee. No remedy is required to redress any prejudice caused by the past failure to process the applications for membership.
[58] The present position is that four men, Messrs Walker, Watson, White and
Parsons sit on the Management Committee of the WRRA and are the four trustees of
the Trust. I have given consideration to whether there is any question of legality by reason of the fact that the four permanent members of the Trust cannot be replaced by any decision of the WRRA. These four trustees hold positions as trustees of a registered charity. Registered charities exist under the umbrella of the Charities Act
2005. Unless the constitution of the charity provides that there is a mechanism for election of trustees (and, indeed, it is not normal for trustees of charities to be elected), they tend to be selected and asked to join the management of the charity as a trustee.
[59] There is no doubt that part of the animosity between the plaintiffs and the respondents in this case is due to the power held by those men as trustees of the Trust. The settlement of the original application to the High Court did provide for two additional trustees, one nominated by the WRRA the other to represent the wider population of the Hibiscus Coast. There is mixed evidence before the Court as to the extent to which these additional trustees have been appointed to the Trust each year.
[60] In the course of the hearing a supplementary affidavit was filed by one of the trustees, Mr W D Walker. He refers to the settlement deed and acknowledges the agreement to have an additional WRRA appointed trustee to the Trust. He refers to the problems in 2013 where a number of persons tried to join the WRRA in order to have it wound up. He says that by 2014 he and the other trustees had had enough and decided to try to sever some of the ties between the two organisations. Two deeds were prepared by their solicitors, one entitled a Deed of Termination of Agreement and another a Deed of Variation. The Deed of Termination purported to add an expiry date on the settlement agreement and so end the obligation to appoint at least one Board member of the WRRA as a trustee to serve a 12 month term. He also refers to a Deed of Variation which purports to vary the conditions of the gift enabling the property, the hall or the proceeds of sale of the hall to be held and applied towards further charitable objects set out in the recipient’s trust deed and for no other purpose. He thinks these deeds were signed, although signed copies cannot be found. More significantly for this litigation he assures the Court:
Having reflected on these documents, I and my fellow trustees determine that they were not effective and did not bind us. The two original agreements were annexed to the settlement agreement we reached with the
objectors back in 2004, and we cannot vary or terminate them without the consent of all the parties to that settlement, together with a resolution passed by the WRRA at a general meeting.
I confirm on behalf of the Trust that it continues to hold and operate the community hall on the basis of the original Deed of Gift and Agreement.
[61] Mr Walker was right that the Trust as the recipient of the gift had no power to unilaterally amend the conditions of the gift. Nor do the trustees have the power to unilaterally amend the settlement agreement providing for two additional trustees.
[62] The settlement agreement and the gift remain in force and bind the trustees. In future full implementation of this aspect of the settlement agreement is encouraged by the Court. There is no need for a formal order and one would not be made without proof of breach, which is lacking.
Have there been reviewable errors in the administration of the WRRA and the
Trust since the transfer of the hall?
[63] The pleadings have a number of complaints against the trustees’ conduct. I will deal first with the topic of financial management. The plaintiffs filed affidavits from two expert accountancy practitioners, Mr Murphy and Mr Mitchell. Both express serious reservations about the financial management abilities of the trustees, but require full financial records in order to arrive at a definitive view. The plaintiffs are concerned that, in the years 2009 to 2015, the Trust appears to be struggling to break even.
[64] The Trust does produce annual financial statements. These do vary in quality and comprehensiveness and have not been audited.
[65] It is, however, essential to grasp that prior to 2016 annual returns of charities have not been the subject by law to any minimum standards on the content or quality of those financial statements. There are over 27,000 registered charities in New Zealand of all different objectives and sizes. As from 2016 four different reporting tiers have been developed to allow smaller charities to prepare financial statements
on a simplified basis.6 Larger charities will be required to use a set of accounting standards.7
[66] I am satisfied that the two expert accountants were presuming that at the relevant time the benchmark was a standard of accounting that was not in fact required by the law. The annual statements appear to be prepared by different persons. Any discrepancies in balancing are in the order of $100 or thereabouts. These annual statements present to the Court as typical of the financial statements often prepared by unqualified secretaries of small clubs, associations and charities, which are operated by volunteers.
[67] In fairness Mr Espie described the evidence as demonstrating a “smidgeon” of mismanagement. I think that is the wrong characterisation. This Trust is run by volunteers, and as such is typical of the many thousands of small charities. Obviously it has been of considerable concern to the four trustees, two of whom are members of the Auckland Council, that there be any suggestion of mismanagement of funds. There is none. The financial records of the Trust have been tested against the wrong standard.
[68] One of the claims is a conflict of interest on the part of the trustees and knowing acquiescence of that by the WRRA. This is an argument that the four men cannot each be trustees of the Trust and members of the general committee of the WRRA. They are knowingly placing themselves in a conflict of interest. This argument overlooks the effect of the Deed of Gift. On the contrary, the Deed of Gift ensures the coherence and consistency of the objectives of the WRRA and the objectives of the Trust.
[69] It is submitted that the trustees are effectively dealing with themselves. This has partly been because they have not been voted out of position on the general committee. But there is no reason in a structure such as this why the same person cannot act both as a trustee and be on the general committee. Indeed, and to the
contrary, there are probably positive advantages in some degree of overlap of
6 See the Financial Reporting (Amendments to Other Enactments) Act 2013, ss 18-22.
7 For further information see: There has been no proof of invalidity of any decision of the Trust or any decision of the WRRA. This cause of action fails.
Miscellaneous points
[70] The cause of action alleging failure of the WRRA to appoint an auditor was not pursued. There is no basis on the evidence for this Court to declare the four trustees of the Trust to be unsuitable to hold public office.
[71] As an exercise of discretion the Court does not make a declaration that the application of the 20-odd persons to join the WRRA was wrongly rejected. But it could have been handled better by both sides. As already indicated, it is best left to be renewed on a proper basis in the future.
[72] I have rejected all suggestions of financial mismanagement. There has been no misleading of the Registrar of the Incorporated Society.
Conclusion
[73] This judgment rejects the core allegation that the community of the Whangaparaoa Peninsula, via the WRRA has lost ownership of its community hall “by stealth and deliberate manoeuvring” on the part of the four trustees. It rejects any suggestion that these four men deceived WRRA members. To the contrary the transfer of the hall to the Trust was done in good faith for the purpose of securing the hall indefinitely for the community at a well-attended special general meeting.
[74] I do not need to address the question of delay raised by the defendants. As I have found no basis for this Court to interfere in the decisions that have been made by the WRRA nor by the Trust.
[75] For these reasons this application for judicial review and relief fails.
Costs
[76] The respondents seek costs on an indemnity basis. Mr Espie said at the beginning of his submissions that his clients were conscious of the serious nature of the allegations they were advancing and aware of the costs implications.
[77] Indemnity costs can be awarded, but it is rare for an order to be made.
[78] Under r 14.6(4) of the High Court Rules a number of grounds are set out which are the threshold to pay indemnity costs. There are six possible grounds. Of these, the only one that is potentially applicable is sub paragraph (a) which provides:
16.4 Increased costs and indemnity costs
(4) The Court may order a party to pay indemnity costs if—
(a) the party has acted vexatiously, frivolously, improperly, or unnecessarily in commencing, continuing, or defending a proceeding or a step in a proceeding;
[79] I do not think that these criteria are satisfied. This is because it is unusual, possibly a unique event, for a community hall to be transferred away from a ratepayers and residents committee to a dedicated charitable trust, in order to prevent the land and building being acquired by the local territorial council. It warranted a special general meeting in the first place. Such was the unusual character of it, that it was not inappropriate to test the legality of the structure in the High Court.
[80] Because I am not satisfied that the defence is entitled to indemnity costs. I have examined whether or not this Court should order the plaintiffs to pay increased costs under sub-rule (3). But the justification for that order is essentially based on the proposition that the time required for steps taken by the party would substantially exceed the time allocated under band C. The hearing itself was conducted efficiently. It may well be, however, that some of the steps that had to be taken to defend the case were simply unnecessary because they related to arguments that lacked any merit.
[81] For these reasons, I think the appropriate order at this stage is that the defendants/respondents are entitled to costs. I exclude indemnity costs, but
otherwise leave it to the successful respondents to formulate a claim for costs and lodge it in the usual way. When I receive that application I will issue a minute timetabling the time for further submissions in opposition and reply.
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