Thomson v Dorchester Apartments Limited [2016] NZHC 604 (7 April 2016)

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[1] This application for summary judgment on a counter claim turns on the correct interpretation of an apartment Occupation Licence signed by the parties.

[2] Messrs Thomson and Martin, as trustees of a family trust, own shares in the defendant company (the Company). Ownership of the shares entitles the shareholder to occupy a nominated apartment. Appended to the Company’s constitution (the Constitution) is an occupation licence which a transferee of shares is required to execute prior to consent being given for acquisition of the shares. That was done by

[3] The occupation licence provides for the making of rules, regulations and by-laws, and requires shareholders to comply with these as well as with the terms of the licence itself. The current rules and regulations were attached to the occupation licence the plaintiffs signed (the Licence). One of the rules is that an occupant may not have a pet without prior approval. In breach of this rule Mr Thomson, who occupies the apartment, introduced a pet dog. He has failed to obtain retrospective consent, and indeed has been served with a notice to remedy the breach. He has declined. Pursuant to a process set out in the Licence, the directors of the Company then served Mr Thomson with a termination notice which if enforced means forfeiture of the shares. In an earlier hearing Mr Thomson obtained an interim injunction preventing enforcement of the termination notice and that is where

[4] It is common ground Mr Thomson is in breach of the rule. The question is what process the Company must follow if it wishes to take further action. The plaintiffs say the termination notice procedure that has been used by the Company is not available for breach of a by-law or regulation. Rather there is a specific provision requiring a 75 per cent shareholder vote before shares can be forfeited for breach of a by-law. The respondent by its counterclaim urges the position that the termination notice is also an available procedure for a breach such as Mr Thomson’s.

11.2	(a)	Should any shareholder, or any person permitted by him or
		her to occupy an apartment, persistently behave offensively
		or in such a manner as to cause a nuisance or annoyance to
		neighbouring occupiers or other holders or commit waste
		either in respect of the apartment held by him or her or of the
		hallways, passage ways, stairways or other portions of the
		building owned by the Company or be found by a court of
		competent jurisdiction guilty of an indictable offence
		involving serious moral turpitude or use any apartment or
		permit the same to be used for any illegal or immoral
		purpose or be guilty of persistent breaches of the Occupation

Licence or of the regulations made thereunder, the directors shall cause to be served upon such shareholder or delivered to the premises notice in writing of their intention, at the expiration of thirty days, to forfeit the shares held by such shareholder and at the expiration of the said period or at any time thereafter, the directors at their discretion may forfeit the shares held by such shareholder and cancel the Occupation Licence at that time held by such shareholder.

[6] It can be noted that the provision applies to persistent objectionable conduct including persistent breaches of the Licence or rules made under it. The power to act in relation to these rests with the directors.

[7] Turning to the Licence, cl 17 requires the shareholder to strictly conform to the Constitution. Clause 25 sets out the rule-making power and describes any such rules as being made “pursuant to the provisions hereof”.

[8] Clauses 27–29 of the Licence deal with forfeiture. They are set out below, but with these comments. Although cl 28 mentions (a)–(g) of “this clause”, somewhere along the line (a)–(g) have been separated off into a new cl 29, so the reference should now read “of clause 29”. Second, only those parts of cl 29(a)–(g) that are relevant to this case are included:

27. Upon forfeiture of the Shareholder’s shares pursuant to the provisions of the Constitution this Licence shall be deemed to be at an end and all right of occupation of the Premises hereby conferred shall cease and the Shareholder shall forthwith quit and surrender them to the Company.

28. Upon the happening of any of the events mentioned in subparas (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.

(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

(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.

[9] Finally brief reference to the rules is appropriate. They are attached to the occupation licence attached to the Constitution, and to the plaintiffs’ occupation licence as a schedule. Examples of the rules are:

(a) Make or permit to be made any noise or vibration or do or permit to be done anything which is likely to disturb irritate or annoy any occupant of any other part of the building.

(b) Obstruct or interfere with or disturb or trespass upon the rights of any occupant of any other part of the building in the quiet and uninterrupted occupation or enjoyment of the premises so occupied by him/her.

(h) Except within the confines of his/her own flat paint, drill into or alter any part of the building or make any alterations to the water, sewerage or electrical installations.

(i) Hang any clothes, bedding or washing or similar articles in any stairway or passage or out of any window, or on any balcony.

[10] As noted the directors gave notice in accordance with cl 29(d), and Mr Thomson has not remedied it. The Company says it can now use the procedure in cl 28. The plaintiffs say that cl 29(f) is specifically designed for breaches of by-laws and regulations and must be used.

[11] Although this is a summary judgment application, I understand the parties accept evidence will not affect matters and wish an answer on the interpretation. Both interpretations are credible.

[12] For reasons which can be briefly stated I agree with the respondent. I acknowledge the other position is tenable but prefer the interpretation that sees the Licence as giving two options for enforcement.

[13] First, cl 28 says it is exercisable for a breach of “any of the events mentioned in subparagraphs (a) to (g)”. Non-compliance with a subpara (d) notice is one of those events, and there is no reason to read it down.

[14] Second, the manner in which the Constitution is modified by the Licence is consistent with this interpretation. Persistent breaches are recognised in the Constitution, and it is the directors who are empowered to terminate as a consequence of such conduct. However, the Licence alters matters not only by transferring this power to shareholders, but also by adding an alternative remedy – the 30 day notice. Consistent with the Constitution, this power is given to directors, and non-compliance authorises (not requires) the termination procedure.

[15] In my view the provisions are therefore complementary. Clause 29(d) is about stopping a particular breach. But what of breaches which by their nature will always be short term – hanging out washing, drilling etc – and so not come within cl 29(d)? That is where cl 29(f) allows action in relation to persistent repeated breaches.

[16] It is incorrect to describe Mr Thomson’s conduct as breaching only a rule or by-law. It also breaches cl 25 of the Licence itself. That clause provides that a shareholder must faithfully and punctually comply with regulations and by-laws. It is accordingly the case that a shareholder who refuses to remedy a clear breach of a by-law is thereby in breach of a provision of the Licence.

[17] Comment should be made on the fact that cl 29(d) uses the term “covenants conditions and provisions” whereas cl 29(f) uses “rules and by-laws”. The first part of the Licence does talk about the parties “covenanting and agreeing” to its terms, whereas the second part, which includes cls 28 and 29, speaks only of “agreeing”. That is a point that favours the plaintiffs. However, in addition to covenants cl 29(d) also uses the terms “conditions and provisions” and there can be no doubt the by-laws are provisions. The Constitution says the attached schedules form part of the Constitution. Clause 3.2 of the Constitution says every shareholder shall be bound by the terms and conditions of the Licence as executed between the shareholder and Company, and the Schedule is part of the Licence. As also noted, in any event Mr Thomson is in breach of cl 25, which is plainly a “provision” of the Licence.

[18] As noted there is a respectable contrary interpretation available, which places weight on the specific reference in cl 29(f) to rules, and regards cl 29(f) as a specific provision modifying the general. I do not, however, see that as consistent with the opening words of cl 28 which refer to a breach of any provision of cl 29, and to the apparent equality of subparas (a)–(g) of cl 29. The plaintiffs’ approach requires subpara (f) to be given precedence over another of the subparagraphs, and given the introductory words of cl 28 that is not an obvious approach.

[19] The parties were agreed that I should defer making any orders if my answer was in favour of the defendant. The parties will seek to agree a resolution failing which leave to seek orders is granted.

(b) the Company can use cl 29(d) to seek to enforce the rule, and in the face of non-compliance, can use the termination procedure in cl 28.

BETWEEN	ALEXANDER HILL BRUCE THOMSON AND RICHARD NORMAN MARTIN Plaintiffs
AND	DORCHESTER APARTMENTS LIMITED _Defendant

Hearing:	14 March 2016
Counsel:	C Matsis for Plaintiffs G J Toebes for Defendant
_Judgment:	_{7 April 2016}

High Court of New Zealand Decisions

Thomson v Dorchester Apartments Limited [2016] NZHC 604 (7 April 2016)