Lihua Ltd v Body Corporate 366611 and Others

• Jurisdiction: New Zealand
• Judge: Stevens,Miller,Dobson JJ
• Judgment Date: 10 December 2013
• Neutral Citation: [2013] NZCA 630
• Docket Number: CA669/2012
• Court: Court of Appeal
• Date: 10 December 2013

BETWEEN

Lihua Limited

Appellant

and

Body Corporate 366611

First Respondent

Theta Management Limited

Second Respondent

Bcs Limited

Third Respondent

[2013] NZCA 630

Court:

Stevens, Miller and Dobson JJ

CA669/2012

IN THE COURT OF APPEAL OF NEW ZEALAND

Appeal from a High Court decision that audited financial accounts did not need to be sent with a notice of meeting of a Body Corporate and which upheld the Body Corporate Committee's refusal to allow access to the register of unit holders — unit complex governed by default rules under Sch2 and Sch 3 Unit Titles Act 1972 — application of transitional provision s220 Unit Titles Act 2010 (“UTA2010”) — whether there was a conflict between the rules and the governance provisions of UTA2010 — whether audited financial statements had to accompany notice of meeting — whether access to the body corporate register of owners could be denied where body corporate did not agree with a communication and owner wished to send to other owners.

Counsel:

B P Rooney for Appellant

S C Price and J K Wilson for First and Second Respondents

No appearance for Third Respondent

• A The appeal is allowed in part. We order that the Body Corporate Committee permit James Keat (or Lihua, at Lihua's option) to search the body corporate register.

• B The Body Corporate must pay Lihua costs in this Court for a standard appeal on a band A basis and usual disbursements.

• C Costs in the High Court are remitted to that Court to fix if Lihua so requests.

• D Lihua must pay BCS costs of $500.

JUDGMENT OF THE COURT

REASONS OF THE COURT

(Given by Miller J)

Introduction

1 The Empire apartment building, at Whitaker Place, Auckland, is a large unit title complex which was built as student accommodation. It comprises 313 units, of which 300 are residential. 1 Many of the unit owners are thought to live overseas. The appellant, Lihua Ltd, owns one unit and manages several.

2 The second respondent, Theta Management Ltd, manages the building under a contract with the Body Corporate. Theta is also the lessee and manager of 276 of the units, many of which it has sublet to tenants. The third respondent, BCS Ltd, is the Body Corporate's secretary. For our purposes it is relevant only as to costs. 2

3 As Woolford J explained in the judgment under appeal, 3 the leases to Theta once included enduring proxies permitting Theta to cast the owners' votes at meetings of the Body Corporate, but the Unit Titles Act 2010 introduced restrictions on proxies, which must now be meeting-specific, 4 and Theta responded by replacing enduring proxies with a power of attorney allowing it to appoint a proxy at any given meeting. The owners of 189 units agreed to vary their leases in this manner. Theta has also negotiated some new leases on the same terms, and it has procured powers of attorney from a few owners whose units it does not lease. In all, Theta holds powers of attorney for 239 units. By this means it controls the Body Corporate.

4 Not all owners find this state of affairs congenial. Lihua, one of the disaffected, believes that the Body Corporate is insolvent and poorly managed. There is a history of conflict. 5 This judgment addresses two specific disputes:

• (a) Lihua contends that the notice of an annual general meeting held on 13 December 2011 had to be accompanied by a set of audited financial statements, and complains that the financial statements that did accompany the notice were not “audited” because the auditors later withdrew their approval;

• (b) Lihua wants access to the Body Corporate register, so that it may write to fellow owners to enlist support for a challenge to Theta.

Must audited financial statements accompany the notice of annual general meeting?

5 The Empire was formerly governed by rules created under s 37 of the Unit Titles Act 1972. That section provided for default rules in schs 2 and 3. It permitted variations upon the default rules, but the Empire's rules did not differ from them in any relevant way. Its rules provided that a notice of annual general meeting must be accompanied by audited accounts:

2.12 The Committee shall:

(d) … arrange for the accounts of the Body Corporate for each year to be duly audited by an independent auditor, for a copy of the duly audited annual accounts to be sent to each Proprietor before each annual general meeting of the Body Corporate, and for the duly audited annual accounts to be presented to each annual general meeting of the Body Corporate.

6 The 2010 Act repealed the 1972 Act, but it contains in s 220 a transitional saving provision for s 37 and schs 2 and 3:

220 Continuation of certain provisions of Unit Titles Act 1972

Despite the repeal of the Unit Titles Act 1972 by section 218 of this Act, section 37 and Schedules 2 and 3 of that Act continue to be in force until 15 months from the first day of the month following the date of

commencement of this Act in respect of an existing unit title development, unless a body corporate agrees under section 221 that sections 105 and 138 of this Act apply.

The 2010 Act commenced on 20 June 2011, so the 15-month transitional window for the former rules closed on 1 October 2012.

7 The financial year for the Body Corporate ended on 30 April 2011. An annual general meeting was convened and held on 20 May 2011, under the 1972 Act rules. The minutes record that the 2010 Act would soon be coming into force and would require an audit of the “financial accounts”. 6 (As we explain later, this last statement was wrong; the 2010 Act does not insist on an audit.) The Secretary suggested that in order to average the cost for the current and next financial years the Body Corporate should budget to audit the accounts “now”. The meeting adopted a budget for the period 1 May 2011 to 30 May 2012; it included $10,000 for audit fees. An audit was commissioned for the year ended 30 April 2011, and in due course audited financial statements were prepared.

8 The 2010 Act also required 7 that every body corporate hold an annual general meeting within six months after the Act commenced. It is for this reason that the Body Corporate held a second annual general meeting in 2011, on 13 December. Theta appointed John Chen as proxy for the owners of 228 units, and owners of 21 other units were represented.

9 We draw the next part of the narrative from the High Court judgment:

The central facts are these: audited financial statements accompanied the notice of meeting; the auditors subsequently withdrew their approval pending further work; and pending clarification the meeting did not adopt those or any other financial statements.

• [13] Prior to the meeting held on 13 December 2011, nominations were sought for the positions of Body Corporate Chairperson and members of the committee. Following receipt of nominations, formal notice was given to the owners of the meeting to be held on 13 December 2011. It was sent pursuant to reg 6 of the 2011 Regulations. The notice was accompanied by the documents required by reg 6(5), including a copy of the Body Corporate's financial statements for the most recent financial year. These statements had been audited. A copy of the audit certificate was also sent out with the notice of the meeting.

• [14] After the notice of the annual general meeting had been sent to the owners, the solicitors acting for Lihua wrote to the auditors making various assertions in relation to the financial statements. On 9 December 2011, four

  days prior to the meeting, the auditors wrote to the Body Corporate committee advising them that, subsequent to issuing their audit opinion, they had been advised of additional facts which could have an impact on the financial results for the year ended 30 April 2011. Under those circumstances, the auditors advised that they were formally withdrawing their audit certificate and further advised that the financial statements should neither be approved at the meeting on 13 December 2011 nor relied upon by any party for any purpose.

• [15] Subsequently, at the annual general meeting on 13 December 2011, the motion to approve the financial statements for the year ended 30 April 2011, which was included in the agenda set out in the notice of the meeting, was withdrawn. The minutes of the meeting record that the auditors would re-issue their audit certificate once the audit was finished and the financial statements would be subject to approval at the next annual general meeting.

10 Lihua contends that audited financial statements must accompany the notice, either under the 2010 Act or under the 1972 Act if the latter still applied, and complains that because the auditor's certificate was withdrawn the financial statements supplied with the notice of meeting were not “audited”. Initially it sought to have the meeting and the decisions made at it declared invalid, but that relief was not pursued before us, Mr Rooney accepting that it is now moot. Rather, Lihua seeks only a declaration that audited financial statements ought to have been provided.

11 It is not in dispute that the 1972 Act rules insisted that a notice of annual general meeting be accompanied by audited financial statements. And, with all due respect to Mr Rooney's argument, the 2010 Act manifestly does not require that every body corporate have its financial statements audited at all, still less that it supply audited statements with the notice of meeting. It provides rather that accurate and auditable financial statements must be kept in a prescribed manner, and that a copy of the statements for the most recent financial year 8 must be provided with the

notice of meeting, 9 and that the body corporate may by special resolution decide at the annual general meeting not to have the statements verified at all for a particular year. 10 Absent such special resolution, the statements must be audited or verified in one of two alternative ways: 11

132...