Summary
Inert Holdings Limited (“Inert”) and Western Arm Marina Ltd (“WAM”) unsuccessfully appealed a decision by the High Court to refuse a declaration to give them the status of Developer and Controlling Member of an incorporated society.
Background
The Gulf Harbour Marine Village is a residential and commercial subdivision built on the Whangaparāoa Peninsula, north of Auckland.
The incorporated society structure is useful for a broad range of organisations and purposes. A society’s constitution should be drafted in a manner that aligns with its purpose, and prevents its provisions from being misused.
In 1994 the Gulf Harbour Marine Village Residents’ Association (“the Association”) was incorporated to manage the operation of the Marine Village and its common facilities, with all property owners required to be members.
Under the Association’s Constitution each member had one vote, however the document prescribed that the Developer and Controlling Member, Gulf Harbour Development Limited (“GHDL”), was entitled to out-vote all other members and pass ordinary resolutions. The status also conferred other important commercial benefits under the Constitution.
In 2001 GHDL ceased its involvement in the project due to financial problems. The appellants, WAM and its parent company Inert claimed to be the successors of GHDL and the new Developer and Controlling Members.
However, in 2012 an amended Constitution was registered which, in error, substituted another company, Gulf Harbour Marlin Ltd (“Marlin”) as the Developer and Controlling Member.
WAM and Inert sought declarations from the High Court that the 2012 amendment was void, and that either one or both companies were the Developer and Controlling Member. The Judge granted neither declaration, and the case was dismissed. WAM and Inert appealed to the Court of Appeal.
The case
Did the High Court err in exercising its discretion not to declare the 2012 amendment void?
The Court may declare the alteration a society’s constitution to be void where it has not been passed according to legislation or the society’s own constitution.
The Court of Appeal noted the error in the 2012 amendment was fundamental, and not passed through the ordinary mechanisms of the Constitution. The Court would therefore allow the appeal if the amendment deprived Inert or WAM of the significant benefits envisaged by their desired status.
However, for reasons the Court later discussed, neither appellant would be entitled to the status of Developer or Controlling Member even if the Constitution was amended. As there was no longer a Developer and Controlling Member, the amendment was immaterial. It was relevant to the Court that neither WAM nor Inert asserted any claim to the status for more than four years after they acquired their respective property interests in the village. It was only after a dispute arose that the claim was made by the appellants. Ten years had passed since the innocent error was made, with several further amendments to the Constitution leaving the provision intact. The Court of Appeal agreed with the High Court that possible prejudice to other parties must be considered if the position on the public register was wound back ten years.
The Court of Appeal upheld the Judge’s refusal to declare the amendments void.
Did the High Court err in finding that neither appellant would be the Developer or Controlling Member?
The Court of Appeal agreed with the High Court Judge that the parties must have intended that only one entity could hold the positions of Developer and Controlling Member at one time. To have more than one would contradict the purpose of their commercial status and voting powers under the Constitution.
Counsel for the appellants submitted that a successor of GHDL was any entity holding undeveloped land in the Marine Village and undertaking development on the land. As all other properties were deemed “developed property” under the Constitution, this left Inert as the Developer and Controlling Member. The Court rejected this argument. Though Inert was GHDL’s successor in title, it did not assume the status GHDL previously held under the Constitution. If so, numerous other parties would have been the Developing and Controlling Member, often simultaneously.
The Court also accepted the Association’s submission that Inert’s land was “fully developed by the Developer” under the Constitution. It did not require construction of a dwelling or commercial unit to be considered a developed property, and Inert was not a Developer for the express purposes of the Constitution.
The Court held neither WAM nor Inert qualified as successors to GHDL, and did not take on the rights and obligations of Developer and Controlling Member under the Constitution.
Application to adduce further evidence
The Association sought to adduce further evidence on appeal, however this was declined by the Court. Given the Court’s analysis and conclusions, it was unnecessary for it to consider any further evidence.
Result
The Court of Appeal declined the application to adduce further evidence and the appeal was dismissed.
It should be noted that under the Incorporated Societies Act 2022, the Court’s discretion to void a constitution is extended. For any society registered under the new Act, the court could make an order amending the constitution where for any reason it is just and equitable to do so.
For further information, please contact Director Brigitte Morten.
