Published 19 August 2011
Justice Rebecca Ellis has ruled in favour of the Westin hotel building’s body corporate in a tit-for-tat spat with the former receivers of developer Nigel McKenna’s management companies.
While the judge was deliberating, BOSIAL (BOS International (Australia) Ltd) assigned its Westin debt ($16.6 million at the date of receivership) to a Sydney-based vulture fund and there was a consequent change of receivers, from Michael Stiassny & Brendon Gibson (KordaMentha Ltd), appointed by BOSIAL, to Tim Downes & Richard Simpson (Grant Thornton Auckland Ltd).
But, lest the new receivers might think the body corporate and the majority of owners on it might not be able to set up their own hotel operation in the building – initially in competition with Westin, now on its own – Justice Ellis said they had every right to do so.
And she said the body corporate wasn’t dysfunctional, the reason the KordaMentha receivers gave for asking the court to appoint an administrator to it.
The majority owners group, representing 116 units in the 173-unit waterfront hotel, had raised the same allegation of dysfunction last year when the body corporate was under the control of the receivers. Mr Stiassny & Mr Gibson turned around to make their allegation after the majority owners group – mostly investors from Malaysia & Singapore who’d been kept in the dark at crucial stages during the demise of Mr McKenna’s Lighter Quay Hotel Management Ltd – gained a majority on the body corporate committee and appointed Graham Wilkinson & his company, Beswick Holdings Ltd, to manage their interests, act as secretary of the body corporate, chairman of the body corporate committee & as building manager. A separate Wilkinson company, Hotel Lighter Quay Ltd, was set up to operate the competing business, Hotel Viaduct Harbour.
Justice Ellis questioned some of Mr Wilkinson’s tactics but broadly found that the majority owners group had appointed him knowing that he stood to gain from their appointment.
The KordaMentha receivers said in their final report in July unit owners were owed $5.6 million at the date of receivership. After the majority cancelled their leases, reducing the Westin operation to about 56 rooms plus commercial areas, rooms owned by those investors had their power switched off and they were unable to gain access to their rooms for 9 months.
Justice Ellis commented: “I think (it’s) fair to say that the circumstances giving rise to the present application are, at their root, of the applicants’ (the receivers) own making. It is, in particular, the actions of Lighter Quay Hotel Management which led to the destruction of the common commercial purpose that had initially united the unitholders & (consequentially) body corporate 384911. Had that purpose not been destroyed, there would be no rival hotel operation.”
The receivers argued in court that the body corporate under Mr Wilkinson’s control favoured the majority investor group. But Justice Ellis, expressed her exasperation during the hearing that the applicant’s case was running in circles and getting nowhere and, basing her comments on a similar Australian case, Filaria Pty Ltd versus the proprietors of a unit plan, said in her judgment: “It seems to me that the requirement that a body corporate act democratically (by majority rule) exists precisely because it may not be possible for a body charged with governing a group of people with potentially disparate interests to exercise its functions in a way that will further those interests equally.
“Even if democracy can be regarded as the model of governance most likely to further the common good, that does not mean that the good of each of its members will or can in all cases be furthered. It is no doubt for that reason that Chief Justice Miles held in Filariathat a body corporate is not rendered ripe for the appointment of an administrator simply because it has failed to act in the interests of a certain group of unitholders. There is thus an additional requirement that its failure to do so be in some way ‘improper’.”
In any case, Justice Ellis said, the receivers had a remedy before them but had chosen not to use it: “The Unit Titles Act contains a specific remedy for minority unitholders who consider that decisions have been made by the body corporate, the effect of which would be inequitable to them. Section 43 has not, however, been invoked by the applicants in this case.”
The judge said she could see nothing in the KordaMentha allegation “that there is something unlawful about decisions being made at extraordinary general meetings rather than by the body corporate committee….. While it may be the expectation that the day-to-day body corporate decisions will be made by the committee, decisions made by majority vote at a properly convened extraordinary general meeting must surely have more, if not equal, legal authority…..
“It is plain that the body corporate is performing its functions, namely maintenance & administration of matters in which the unitholders have a common interest and, in particular, the common property. The body corporate is not deadlocked and, as I have said, no tenable questions of undemocratic or ultra vires actions have been raised.
“While I accept that the circumstances of its operation are unusual (although not unprecedented), any dysfunction or abnormality in them have not been caused by the way in which the body corporate is presently acting. Rather, and as I have already noted, the present situation arises as a result of Lighter Quay Hotel Management’s actions. If, by its actions, it had not destroyed the common commercial purpose that had formerly existed between all the unitholders, the body corporate would not have diverging (let alone competing) interests.
“ The mere fact that body corporate 384911 has made decisions that have the effect of permitting or even facilitating the cancelling owners to pursue their commercial interests does not in my view constitute ‘cause’. That is so even if the competing commercial interests of the applicants are, as a necessary consequence, damaged thereby.”
25 July 2011: Westin quits Lighter Quay
15 July 2011: New receivers at Westin management company
20 June 2011: Room owners set up their own hotel within the Westin
8 June 2011: Lighter Quay body corporate to enter administration
29 October 2010: Westin down to 36 rooms
U: The names behind the action, the week to 17 October 2010, part 3, Lighter Quay Residents Society pursues trail of buyers of 23 Westin units
1 October 2010: 19 more units pulled out of Westin Hotel
U: The names behind the action, the week to 11 July 2010, part 6, New receiver appointments at 2 Melview Lighter Quay companies
U: The names behind the action, the week to 11 July 2010, part 3, Residents society pulls second application to wind up Lighter Quay Hotel Management
U: The names behind the action, the week to 13 June 2010, part 3, Investor’s dispute with McKenna’s Lighter Quay Hotel Management adjourned
U: The names behind the action, the week to 16 May 2010, part 3, Investor’s dispute with McKenna’s Lighter Quay Hotel Management adjourned
U: The names behind the action, the week to 25 April 2010, part 6, Melview The Quays settles with body corporate
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Attribution: Judgment, story written by Bob Dey for the Bob Dey Property Report.