Clappison and SEA Grape Escape Ltd v Proprietors, Strata Plan NO. 381, Thompson Resorts Ltd and Castaways' Timeshare Ltd

• Jurisdiction: Cayman Islands
• Judge: (Mangatal, J.)
• Judgment Date: 17 May 2016
• Date: 17 May 2016
• Court: Grand Court (Cayman Islands)

Grand Court, Civil Division

(Mangatal, J.)

CLAPPISON and SEA GRAPE ESCAPE LIMITED

and

PROPRIETORS, STRATA PLAN NO. 381, THOMPSON RESORTS LIMITED and CASTAWAYS” TIMESHARE LIMITED

J. Kennedy for the plaintiffs;

M. Dors for the first defendant;

I. Huskisson and C. Ritcher for the second defendant;

H. Robinson and A. Coe for the third defendant.

Cases cited:

(1) Associated Provncl. Picture Houses Ltd. v. Wednesbury Corp., [1948] 1 K.B. 223; [1947] 2 All E.R. 680, applied.

(2) Body Corporate No. 199883 v. Clarke Family Assocs. Ltd.(2004), 5 NZCPR 974; 5 NZ ConvC 194, 087; [2004] BCL 1103, applied.

(3) British Equitable Assur. Co. v. Baily, [1906] A.C. 35, considered.

(4) Citco Banking Corp. NV v. Pusser”s Ltd., [2007] BCC 205; [2007] 2 BCLC 483; [2007] Bus. L.R. 960; [2007] UKPC 13, referred to.

(5) Corocraft Ltd. v. Pan American World Airways Inc., [1968] 3 W.L.R. 714; [1968] 2 All E.R. 1059; [1968] 1 Lloyd”s Rep. 625, considered.

(6) Foith v. Proprietors, Strata Plan No. 436, 2014 (1) CILR 335; on appeal, 2015 (1) CILR 349, considered.

(7) Gatherer v. Gomez, [1992] 1 W.L.R. 727, referred to.

(8) Greenhaven Motors Ltd., Re, [1997] BCC 547; [1997] 1 BCLC 739, distinguished.

(9) Houghton v. Immer (No. 155) Pty. Ltd.(1997), 44 NSWLR 46; [1997] NSWSC 608, considered.

(10) Keim v. Proprietors, Strata Plan No. 275, Grand Ct., December 22nd, 2005, unreported; noted at 2006 CILR N [12]; further proceedings, 2007 CILR N[19], considered.

(11) Kruse v. Johnson, [1898] 2 Q.B. 91, considered.

(12) Lum v. Owners, Strata Plan VR519(2001), 104 A.C.W.S. (3d) 208; 2001 BCSC 493, considered.

(13) McGowan v. Owners, Strata Plan NW1018(2002), 113 A.C.W.S. (3d) 347; [2002] BCSC 673, applied.

(14) Owners, Strata Plan No. 3397 v. Tate(2007), 70 NSWLR 344; [2007] NSWCA 207, applied.

(15) Parker v. Owners of Timberside Villas—Strata Plan No. 27426(2006), 44 SR (WA) 282; [2006] WASAT 254, considered.

(16) Peters” American Delicacy Co. Ltd. v. HeathUNK(1939), 61 CLR 457; 45 Argus L.R. 124; [1939] HCA 2, applied.

(17) Seepersad v. Persad, [2004] UKPC 19, referred to.

(18) World Vision of New Zealand Trust Bd. v. Seal, [2004] 1 NZLR 673; (2003), 5 NZCPR 618, applied.

Legislation construed:

Strata Titles Registration Law 1973, s.9: The relevant terms of this section are set out at para. 97.

s.15: The relevant terms of this section are set out at para. 30.

Strata Titles Registration Law (1996 Revision), s.5: The relevant terms of this section are set out at para. 28.

Strata Titles Registration Law (2013 Revision), s.3(2A): The relevant terms of this sub-section are set out at para. 50.

Land Law—strata corporations—bye-laws—amendment by developer—amendment of bye-law by developer before any units sold, giving developer controlling vote over proprietors, struck down as Wednesbury unreasonable and ultra vires—Strata Titles Registration Law requires corporations to be run democratically

Land Law—strata corporations—administrators—appointment of administrator extreme remedy—may be appointed if executive committee unable to manage strata; substantial misconduct or mismanagement; necessary to bring order to strata”s affairs; or struggle between competing groups inhibiting governance of strata—unnecessary if problems in strata governance caused by amended bye-laws now struck down as ultra vires

The plaintiffs applied for a declaration that the amended bye-laws of a strata development were ultra vires and for the appointment of an administrator.

The plaintiffs were proprietors of several units in a strata development. The first defendant was the body corporate, established under the Strata Titles Registration Law, consisting of all the proprietors of the strata. Responsibility for managing the affairs of the strata lay with its executive committee, but performance was delegated to the second defendant. As well as being its managing agent, the second defendant was also the developer of the strata and the owner and operator of an adjacent resort (the strata and the adjacent resort were managed as a combined resort).

The communal amenities of the strata, such as its car park, were maintained by the second defendant pursuant to its role as managing agent. In addition, the strata shared leisure facilities, such as a beach, with the adjacent resort, and those shared facilities were also maintained by the second defendant which pooled the maintenance costs for both developments and billed the proprietors accordingly.

Governance of the strata was originally subject to the default bye-laws set out in the First and Second Schedules to the Law. Prior to the sale of any of the units, the second defendant, as sole owner, passed a unanimous

resolution amending the bye-laws. Bye-law 2 of the amended bye-laws provided, inter alia, that extraordinary general meetings of the strata corporation could be called only at the second defendant”s sole discretion; the second defendant would, on a poll at any general meeting, be entitled to a number of votes that was equal to all of the votes cast by other persons plus two additional votes; and annual general meetings of the strata corporation could not engage in business other than the consideration of the accounts.

The plaintiffs applied for a declaration that the amended bye-laws were ultra vires in that they were inconsistent with the Law. Further, they alleged that the strata corporation was being mismanaged and applied for the appointment of an administrator to replace the executive committee.

In respect of bye-law 2 of the amended bye-laws, the plaintiffs submitted, inter alia, that (a) the power to amend the bye-laws of a strata plan could not be exercised in a way that was inconsistent with the Law, including the default bye-laws in the First Schedule; (b) bye-law 2 destroyed proprietors” voting rights, which was inconsistent with the underlying rationale of the Law, namely the creation of a democratically elected body enabling each proprietor to participate in the governance of the strata through a process of majority rule; (c) the amended bye-laws were unreasonable in the Wednesbury sense in that they were partisan and unequal in their operation as between the second defendant and all of the other proprietors; and (d) the statutory power to amend the bye-laws was exercised by the second defendant for the purpose of securing a personal benefit for itself. In respect of their application for the appointment of an administrator, the plaintiffs submitted, inter alia, that (a) the following factors pointed in favour of the appointment: there was evidence of spiralling costs in maintaining the strata; the lack of transparency as regards the strata accounts; irretrievably strained relations between the second defendant and the majority of the strata proprietors; and an entirely dysfunctional management structure; and (b) in particular, there was evidence that the second defendant was pooling the maintenance costs of the strata and the adjacent resort and inappropriately billing the strata proprietors for maintenance costs of the resort.

The defendants submitted in reply, inter alia, that (a) there were no legislative restrictions preventing a developer from exercising its 100% voting control of a strata corporation to amend the default bye-laws in the First Schedule prior to the sale of the strata lots; (b) the amendments did not contravene any provisions of the Law, and the court could not create a remedy for the plaintiffs in the absence of statutory authorization; and (c) in purchasing their units, the plaintiffs, in their agreements for sale, had expressly agreed to adopt the amended bye-laws. On the question of the appointment of an administrator, the defendants submitted that (a) the appointment of an administrator was an extreme remedy to be employed only when absolutely necessary and the plaintiffs were required to demonstrate substantial misconduct, mismanagement or an inability to

manage the strata; and (b) the plaintiffs” complaints concerning the inappropriateness of pooling and billing to the strata proprietors the maintenance costs of the adjacent resort were misplaced because the plaintiffs had understood at the time of purchase that their units were part of a resort, they accepted that it made sense in principle for there to be sharing of costs between the strata and the resort and, even if the plaintiffs did not use them, the shared amenities made their units more valuable.

Held, allowing the application in part:

(1) The amended bye-law 2 would be struck down as ultra vires. The underlying intent of the Strata Titles Registration Law was that strata corporations should be run democratically. The voting structure envisaged by and embodied in the Law was designed to be a democratic, inclusive process, by and large enabling majority rule, and allowing the proprietors to make collective decisions. The proprietors of strata lots in a strata plan formed and became a body corporate. By virtue of the Law, they had voting rights and entitlements, express and implied, to vote as members of the corporation. They were entitled to have decisions reached on various matters concerning themselves and their property rights in the manner provided for in the Law. When the second defendant had been the sole owner of all of the units in the strata plan, it had technically had the right to amend the bye-laws. However, when it ceased to be the sole proprietor an inconsistency had arisen between bye-law 2 of the amended bye-laws and the Law. It was implicit in the scheme of the Law that the court had the power to strike down an amended bye-law that was inconsistent with it or destroyed or diluted rights created by it. The voting rights conferred on proprietors by the Law had been rendered nugatory by the amended bye-law 2 (i.e. that the second defendant would be entitled, on a poll, to the number of votes as the votes of others cast at the...