Karenza Jewell (Fifth Defendant)
Representation: Counsel:
Mr JP Knackstredt with Ms A Elizabeth (Plaintiff/Cross-Defendant)
Mr A Di Francesco (Third Defendant)
Mr L Gor (Fourth Defendant)
[2]
Solicitors:
Argyll Law (Plaintiff)
John Allanson & Associates (Third Defendant)
Colin Biggers & Paisley Lawyers (Fourth Defendant)
[3]
Submitting appearances:
Frances Pope (Second Defendant)
Karenza Jewell (Fifth Defendant)
[4]
No appearance:
Meglo-Yowrie Flat Units Pty Ltd (First Defendant/Cross-Claimant)
File Number(s): 2022/172020
Publication restriction: N/A
[5]
Introduction
These proceedings concern the affairs of Meglo-Yowrie Flat Units Pty Ltd (ACN 000 189 944) (the Company). The Company owns a property and heritage-listed building at 19-21 Quinton Road, Manly, which is divided into four units. The share capital of the company is divided into four classes of shares, each of which confers on the registered owner of those shares rights to occupy one of the units.
Ms Tracy Blumentals is the plaintiff in these proceedings. Ms Blumentals has been the registered holder of one class of shares since 5 July 2017. On 18 October 2018, Ms Blumentals entered into a contract to purchase a second class of shares in the Company from Ms Frances Pope. That contract was completed, and Ms Pope signed a transfer of those shares to Ms Blumentals on 5 November 2018. The directors of the Company have declined to register the transfer of those shares to Ms Blumentals.
The defendants in these proceedings are the Company (the first defendant), Ms Pope (the second defendant), Ms Caroline Newstead (the third defendant, who is a shareholder of the Company and was a director of the Company at times relevant to the decisions and other corporate conduct that Ms Blumentals seeks to impugn), Mr Greg Hendy (the fourth defendant, who owns shares in the Company jointly with his partner, who was also a director of the Company at relevant times, and who remains a director of the Company), and Ms Karenza Jewell (the fifth defendant, who owns shares in the Company jointly with her partner, Mr Hendy).
Ms Blumentals claims:
1. a declaration that Ms Pope validly transferred the disputed shares to her;
2. a declaration that the Company is required to register the transfer of the disputed shares pursuant to s 1071F(2) of the Corporations Act 2001 (Cth);
3. a declaration that Ms Newstead and Mr Hendy breached, or caused the Company to breach, the Articles by not registering the transfer of the disputed shares from Ms Pope to Ms Blumentals; and
4. an order compelling the Company to register the transfer of the disputed shares to Ms Blumentals pursuant to ss 1071F(2) and/or 1324 of the Corporations Act.
Ms Blumentals claims to be entitled to those declarations and to an order compelling registration of the transfer on the basis that she has presented a valid transfer form for registration, and that the Company's directors did not have power under the Articles to decline to register the transfer. Alternatively, if the Company's directors did have power under the Articles to decline to register the transfer, then Ms Newstead and Mr Hendy exercised that power invalidly in order to cause harm to Ms Blumentals and her family, in order to benefit themselves, in breach of their fiduciary and/or statutory duties as directors of the Company, and in breach of the Articles. Ms Blumentals further contends that Mr Hendy and Ms Newstead declined to register the transfer of the disputed shares without just cause within the meaning of s 1071F of the Corporations Act.
[6]
Salient evidence and findings of fact
Ms Blumentals case includes allegations of oppression since January 2019, and a contention that the Company is in a state of "long-running dysfunction and deadlock". It is therefore necessary to refer in some detail to the extensive evidence adduced by the parties concerning the manner in which the Company's affairs have been conducted during that period, and the evidence concerning certain events during 2017 and 2018 on which Ms Blumentals relies as part of the context in which the subsequent conduct of the Company's affairs falls to be considered. For the most part, relevant events are evidenced by contemporaneous documents, including minutes of meetings and email communications between the parties. As acknowledged by counsel for each of Ms Blumentals, Ms Newstead, and Mr Hendy at the conclusion of the hearing, there is little dispute about the facts concerning those events. Where relevant facts are in dispute, I have identified the dispute and recorded my findings in the summary of the evidence below.
The Company was incorporated on 26 November 1956 and has a share capital of 6,002 ordinary shares.
The Company is governed by a Memorandum of Association dated 15 November 1956, along with Articles of Association.
The objects of the Company are set out in clause 2 of the Memorandum of Association. Those objects include:
"(a) To provide homes or home units and keep the same suitable and available for occupation by members of the Company or their sub-tenants or Licensees or other persons approved by the Directors.
(b) To purchase from Peter Louis Schonewald the land comprised in Certificate of Title Volume 6342 Folio 219 on which is erected a block of four flats known as "Meglo" No. 19 Quinton Road Manly and "Yowrie" No.21 Quinton Road Manly."
The land known as 19 and 21 Quinton Road, Manly, is on one title. The Company acquired that title shortly after its incorporation. The building on the land is divided into sides - 19 and 21 Quinton Road - by a common party wall. Each side of the building has two levels, and each level is configured as one self-contained unit. The upstairs units are known as Unit 1/19 Quinton Road and Unit 1/21 Quinton Road. The downstairs units are known as Unit 2/19 Quinton Road and Unit 2/21 Quinton Road. I will refer to the land and the building as the Property and to the units as Units 1/19, 2/19, 1/21, and 2/21. As I have already mentioned, the Property is heritage listed.
[7]
On 17 September 2018, Ms Newstead sent an email to Ms Pope (copied to Mr Hendy) in the following terms:
"Dear Frances,
After lengthy consideration of Tim and Tracey Blumentals's email (16 August) we have decided to not give approval to the share transfer of unit 2/21 from yourself to Tracy Blumentals.
The decision is based solely on points within the Meglo-Yowrie Pty Ltd constitution.
At the shareholder's meeting Thursday September 13 you mentioned an alternative where you could rent out 2/21 for, twelve months if approval was given and place the property on the market after that. We are happy to approve this alternative.
Yours faithfully,
Greg Hendy
Karenza Jewell
Caroline Newstead"
It is not clear when the decision referred to in Ms Newstead's email was made, given that the minutes of the 17 September 2018 meeting referred to above record that no vote had been taken at that meeting.
Ms Pope forwarded Ms Newstead's email on to Ms Blumentals later that day.
On 18 October 2018, Ms Pope (as vendor) and Ms Blumentals (as purchaser) entered into a "contract for sale of a company title unit" in respect of shares numbered 4503 to 6002 in the Company.
Clause 3 of the contract provided:
"3.1 Completion of this contract is subject to and conditional upon the directors of the Company consenting to the transfer of the Shares to the Purchaser. Immediately after the making of this contract the Purchaser must apply to the Company at the Purchaser's expense for consent to the transfer of the Shares to the Purchaser. The Purchaser must lodge in support of that application such evidence as the Company may require and do all that is required and sign all documents that may be required to obtain the consent of the Board of Directors as soon as practicable after the making of this contract. The Vendor must do all acts and things as may reasonably be required by the Company to procure the consent of the directors of the Company.
3.2. If the directors of the Company decline to consent to the transfer of the Shares to the Purchaser either party may by notice in writing to the other rescind this contract and the provisions of clause 17 will apply.
3.3. If the directors of the Company fail, within 35 days after the making of this contract, to consent to the transfer of the Shares to the Purchaser either party may by notice in writing to the other rescind this contract and the provisions of clause 17 will apply.
3.4. Immediately upon the Purchaser obtaining the consent of the directors of the Company to the transfer of the Shares to the Purchaser, the Purchaser must at the Purchaser's own expense tender to the Vendor for execution a form of transfer of the Shares drawn in accordance with the Constitution of the Company."
[8]
Consideration and determination
I have considered all of the parties' written and oral submissions, irrespective of whether they are expressly referred to in these reasons.
It is convenient to summarise the principles applicable to Ms Blumentals' claims for relief, and to address the proper construction of Article 34, before turning to the substance of each claim.
[9]
Proper construction and the scope of the power conferred by Article 34
As was submitted on behalf of Ms Blumentals, the Articles apply as a contract between the Company and its shareholders, between the Company and each director, and between the shareholders. [10]
It was common ground that the Articles are to be construed in accordance with the well-known principles applicable to the construction of commercial contracts, which were explained in the following terms by the High Court in Electricity Generation Corporation v Woodside Energy Ltd: [11]
"The meaning of the terms of a commercial contract is to be determined by what a reasonable businessperson would have understood those terms to mean. That approach is not unfamiliar. As reaffirmed, it will require consideration of the language used by the parties, the surrounding circumstances known to them and the commercial purpose or objects to be secured by the contract. Appreciation of the commercial purpose or objects is facilitated by an understanding 'of the genesis of the transaction, the background, the context [and] the market in which the parties are operating'. As Arden LJ observed in Re Golden Key Ltd (in rec), unless a contrary intention is indicated, a court is entitled to approach the task of giving a commercial contract a businesslike interpretation on the assumption 'that the parties … intended to produce a commercial result'. A commercial contract is to be construed so as to avoid it 'making commercial nonsense or working commercial inconvenience'."
Inherent in the requirement to consider the commercial purpose or objects of the contract is the recognition that the construction determined by the Court may depart from the literal or ordinary meaning of the words employed in the clause or clauses construed. The commercial purpose is to be discerned objectively, with the contract itself supplying the best source for the ascertainment of that objectively determined purpose. [12]
In the present case, the principal object underlying the Articles as a whole is to provide a building in which members can live, with each member having the exclusive use of a particular unit. This is recorded in the Memorandum of Association referred to at [19] above, and in the terms of Article 30 referred to at [21] above. That object is an important factor that informs the construction of the Articles, consistently with the principles referred to above. [13]
[10]
"Just cause" under s 1071F of the Corporations Act
Section 1071F of the Corporations Act provides:
"(1) If a relevant authority in relation to a company:
(a) refuses or fails to register; or
(b) refuses or fails to give its consent or approval to the registration of:
a transfer or transmission of securities of the company, the transferee or transmittee may apply to the Court for an order under this section.
(2) If the Court is satisfied on the application that the refusal or failure was without just cause, the Court may:
(a) order that the transfer or transmission be registered; or
(b) make such other order as it thinks just and reasonable, including:
(i) in the case of a transfer or transmission of shares - an order providing for the purchase of shares by a specified member of the company or by the company; and
(ii) in the case of a purchase by the company - an order providing for the reduction of the capital of the company."
In the present case, the "relevant authority", as defined in s 1071F(3), is the directors of the Company.
As Brereton J (as his Honour then was) said in Beck v Tuckey: [20]
"The purpose of s 1071F was to provide an easier remedy than rectification and to widen the power of the Court to do justice to the parties in the case of a dispute about registration of a transfer [Monardo v Complete Hardware Ltd (1990) 20 NSWLR 489, 2 ACSR 605]. It reflects the principle that the holder of a share has a prima facie right to transfer it [Roberts v Coussens (1991) 25 NSWLR 171; 9 ACLC 1403, 1416-7]. The prevailing view is that the onus of showing an absence of just cause for the purposes of s 1071F remains with the applicant for registration, and that the corporation and the directors do not bear any onus of establishing just cause [Roberts v Coussens; Leaver v Taxi Combined Services (Launceston) Pty Limited (2002) 10 Tas R 362; [2002] TASSC 2 [7]]. However, that is not to say that, once it appears objectively that there is no such cause, an evidentiary onus may not easily shift to the directors to raise some cause [Roberts v Coussens]; and while failure to give reasons does not of itself vitiate the decision or prove there is no just cause, at least where reasons are not required to be given, nonetheless, the failure to provide reasons may, in the context of the whole of the evidence, assist in the drawing of an inference that there is no good reason."
[11]
Oppression
In Tzavaras v Tzavaras & Sons Pty Ltd, [21] the Court of Appeal endorsed the following summary of the principles that apply to the Court's jurisdiction under ss 232 and 233 of the Corporations Act by Stevenson J in Munstermann v Rayward; Rayward v Munstermann: [22]
"1. The test of oppression is an objective one of unfairness (Wayde at 472-473 (Brennan J); Re Quest Exploration Pty Limited (1992) 6 ACSR 659 at 669 (Mackenzie J)).
2. The court must look to determine whether on the balance of probabilities the objective commercial bystander would be satisfied that the affairs of the company were being conducted unfairly (Campbell v Backoffice Investments Pty Ltd [2008] NSWCA 95; (2008) 66 ACSR 359 at [362] (Young CJ in Eq); Cassegrain v CTK Engineering Pty Ltd [2005] NSWSC 495; (2005) 54 ACSR 249 at [84] (White J)).
3. A director may act oppressively in the sense relevant to the operation of s 232 and yet not breach any fiduciary or other duty owed as a director (Gerard Cassegrain & Co Pty Ltd v Cassegrain [2011] NSWSC 1156 at [49] (Barrett J)).
4. Conduct of a company's affairs may be oppressive even though the conduct is otherwise lawful (Campbell v Backoffice Investments Pty Ltd (2009) 238 CLR 304; [2009] HCA 25 at [176] (Gummow, Hayne, Heydon and Kiefel JJ) ("Campbell v Backoffice")).
5. Conduct that has the effect of paralysing a company in the operation of its business is properly characterised as conduct contrary to the interests of the members as a whole (Campbell v Backoffice Investments Pty Ltd [2008] NSWCA 95; (2008) 66 ACSR 359 at [185] (Basten JA)).
6. A shareholder of 50 per cent of the shares in a company can seek relief for oppressive conduct because they do not have control in the form of power to prevent the oppression, particularly where individual strong arm tactics are used (Patterson v Humfrey [2014] WASC 446; (2014) 291 FLR 246 at [52]-[53] (Le Miere J)).
7. The court must formulate an opinion about oppression or unfair prejudice as at the date of the institution of proceedings and the issue of relief under s 233 must be determined as at the date of the hearing (Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd [2001] NSWCA 97; (2001) 37 ACSR 672 at [159] (Spigelman CJ)).
8. The discretion under s 233 is wide as to the appropriate remedy (Smith Martis Cork at [70] (Wilcox, Marshall and Jacobson JJ) citing United Rural Enterprises Pty Ltd v Lopmand Pty Ltd [2003] NSWCA 910; (2003) 47 ACSR 514 at [34]-[38] (Campbell J)).
9. The nature of the remedy chosen by the court under s 233 will be dependent upon the conclusions drawn by the court as to the type of oppression with which the court is dealing and the court will choose the remedy which is least intrusive (Re Enterprise Gold Mines NL (1991) 9 ACLC 168 at 174 (Murray J); United Rural Enterprises Pty Ltd v Lopmand Pty Ltd at [26] citing Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd [1998] NSWSC 413; (1998) 28 ACSR 688 at 742 (Young J) ("Fexuto")).
10. The aim of any order under s 233 must be to put an end to the oppression (Nassar v Innovative Precasters Group Pty Ltd [2009] NSWSC 342; (2009) 71 ACSR 343 at [125] (Barrett J)).
11. The court should only look to wind up an otherwise solvent company as a 'last resort' (Fexuto at 742 (Young J)).
12. As a remedy for oppression, an oppressor can be ordered to sell their shares to the oppressed party (Re A Company; Ex parte Shooter (No 2) [1991] BCLC 267 (Harman J); Re Brenfield Squash Racquets Club Ltd [1996] 2 BCLC 184 (Rattee J)).
13. If an order is to be made for the purchase of shares under s 233 the task of the court is to fix a price that represents a fair value in all the circumstances (Smith Martis Cork at [71] (Wilcox, Marshall and Jacobson JJ))."
[12]
Just and equitable winding up
Section 461(1)(k) of the Corporations Act confers power on the Court to order that a company be wound up if the Court is of the opinion that it is just and equitable to do so. The cases in which orders are made under s 461(1)(k) conventionally fall into a number of classes, including those identified by Brereton J in In the matter of Catombal Investments Pty Ltd: [24] (1) failure of the substratum of the company; (2) deadlock or disagreement in the management of the company's affairs; (3) fraud in the formation of the company; (4) misconduct by the directors of the company; (5) a constitutional and administrative vacuum in the management of the company; and, (6) lack of confidence, fairness, and public interest and commercial morality. However, the power under s 461(1)(k) is not restricted to those classes, or to any particular class of case. The concept "just and equitable" is a broad one incapable of exhaustive definition. An applicant for winding up is entitled to rely on any circumstances of justice and equity that affect them in their relationship with the company, and each case must turn on its own facts. [25] Winding up under s 461(1)(k) must be just and equitable for all - not only for the applicant for winding up. [26]
As I said after surveying the relevant authorities in In the matter of Gearhouse BSI Pty Ltd, [27] it is not the case that any relationship breakdown or loss of confidence between shareholders necessarily provides a sufficient foundation for winding up on the just and equitable ground. It is generally necessary to demonstrate that the breakdown is of a nature and degree that materially frustrates the commercially viable and sensible operations of the company in accordance with the shareholders' expectations, that the loss of confidence is justified, and that there is a restriction on the transferability of the shares of the applicant for winding up. A person who is themselves responsible for the breakdown of the relationship is less likely to be afforded relief. [28]
Winding up has been described as an "extreme step", particularly where the company in question is solvent. As the Queensland Court of Appeal explained in Asia Pacific Joint Mining Pty Ltd v Allways Resources Holdings Pty Ltd, that is because: [29]
"ordinarily the winding up of a solvent company will have far reaching effects. It will not only deprive the other shareholders of their investment in a solvent enterprise, but it will also be likely to affect the interest of others, such as the company's employees and third parties whose interests from transacting business with the company would be affected. It is the likelihood of substantial and wide ranging prejudice of this kind which would cause judges to describe a winding up of a solvent company in this context as an extreme step."
[13]
The impugned decisions
Ms Blumentals' pleaded case is that she presented a valid transfer of the Unit 2/21 class of shares to the Company for registration on 20 December 2018, and that the directors declined or refused to register that transfer on three occasions - 17 January 2019, 22 January 2022, and 21 February 2022. It is pleaded that each decision was made in breach of the Articles because it was an invalid exercise of the power under Article 34. As I understand the submissions, that contention turned on the construction of Article 34 that I have rejected at [208]-[221] above. It is also pleaded that each of the decisions made on 17 January 2019, 22 January 2022, and 21 February 2022 was made in order to cause harm to Ms Blumentals, and to benefit Mr Hendy and Ms Newstead, and that each decision was made in breach of the directors' fiduciary and statutory duties owed to the Company, was made without just cause within the meaning of s 1071F of the Corporations Act, and was oppressive to, unfairly prejudicial to, and unfairly discriminatory against Ms Blumentals. [33]
As I have mentioned earlier in these reasons, there is no evidence that the directors made any further decision in relation to Ms Blumentals' requests for registration of the Unit 2/21 share transfer in January 2022 and February 2022. The directors' inaction in the face of those requests meant that their decision made on 17 January 2019 continued to apply. [34] Ms Blumentals' pleaded case does not extend to the outcome of the motion that she caused to be put to the directors' meeting on 25 September 2023. [35]
[14]
The directors' decision on 17 January 2019 declining to register the transfer of the Unit 2/21 class of shares
Prior to the meeting of directors on 17 January 2019, the directors had declined on 17 September 2018 and on 13 November 2018 to approve Ms Blumentals as the transferee of Ms Pope's shares. [36] Accordingly, for the reasons explained above, [37] the directors had a discretion under Article 34 to decline to approve the registration of transfer of those shares to Ms Blumental if they did not approve of her as a member of the Company in respect of the Unit 2/21 class of shares.
The submissions made on behalf of Ms Newstead and Mr Hendy raise a threshold question about whether Ms Blumentals even submitted a valid instrument of transfer of the Unit 2/21 class of shares for the directors' consideration under Article 34.
Section 1070A of the Corporations Act relevantly provides that a share is personal property that is transferrable or transmissible as provided by the company's constitution.
The relevant provisions of the Articles are Articles 32 to 34, which are set out at [29] above. Consistently with s 1071B(2) of the Corporations Act and reg 7.11.22 of the Corporations Regulations 2001 (Cth), the prescribed terms of the instrument of transfer in Article 33 include a reference to New South Wales as the jurisdiction in which the Company was registered.
As referred to earlier in these reasons, the instrument of transfer submitted to the directors for registration on 20 December 2018 was in the following terms:
"I Frances Clarice Pope of 2/21 Quinton Road, Manly (transferor) in consideration of the sum of $1,075.000 paid to me by Tracy Anne Blumentals of 1/21 Quinton Road, Manly (transferee) do hereby transfer to the said transferee 1,500 shares numbered 4503 to 6002 inclusive in the undertaking of Meglo-Yowrie Flats Pty Limited ACN 000 189 944 Duly Incorporated in NSW to hold the same unto the said transferee subject to the several conditions on which I hold the same.
I, the said transferee, do hereby agree to take the said shares subject to the said conditions aforesaid."
The instrument included the prescribed reference to New South Wales as the jurisdiction in which the Company was incorporated. However, it was submitted on behalf of Ms Newstead and Mr Hendy that it was not a valid instrument of transfer under Article 33 because:
1. the name of the Company is misstated as "Meglo-Yowrie Flats Pty Ltd", rather than "Meglo-Yowrie Flat Units Pty Ltd"; and
2. it stated that the shares were transferred to the transferee to hold "unto the said transferee", rather than to hold "unto the said transferee his executors administrators and assigns".
[15]
Continuation of the refusal to register the Unit 2/21 share transfer from January 2022
The constructive refusal of the directors to revisit their 17 January 2019 decision in January and February 2022, and the resulting continuation of that decision to decline to register the transfer of the Unit 2/21 class of shares to Ms Blumentals, occurred in very different circumstances to those that existed when that decision was first made on 17 January 2019. [44]
The question whether the continuation of the 17 January 2019 decision constitutes oppression in and from January 2022, as alleged by Ms Blumentals, falls to be considered having regard to the circumstances existing in early 2022. During the three years between the 17 January 2019 decision and January 2022, the Company had acquiesced in Ms Blumentals' occupation of Unit 2/21 by failing to make any demand, or to take any other legal action against her or against Ms Pope, for Ms Blumentals to vacate Unit 2/21. On the contrary, the Company had approved renovations carried out by Ms Blumentals to Unit 2/21 in June 2019. [45] The Company had accepted levies (including special levies) that Ms Blumentals had paid in respect of the Unit 2/21 class of shares during the period from December 2018 to July 2020. [46] Ms Blumentals ceased paying those levies in July 2020 following advice from the Company's newly appointed strata managing agent, and on the basis that she would pay those levies if and when the Company registered the transfer of the Unit 2/21 shares. That remains her intention, including the payment of levies in respect of the period between July 2020 and the date of registration of the transfer. [47] At the same time as adhering to their decision to decline to register the transfer of the Unit 2/21 shares to Ms Blumentals, the directors of the Company steadfastly maintained that Ms Blumentals was responsible for the payment of all levies in respect of the Unit 2/21 shares. [48] Suggestions made by Ms Blumentals that, if she was expected to pay levies in respect of the Unit 2/21 shares, then she should be issued with a share certificate reflecting her ownership of the Unit 2/21 shares, were rejected by Ms Newstead as "strong arm tactics". [49]
Counsel for Ms Newstead submitted that the circumstances referred to above were not part of the pleaded oppression case. However, counsel identified no prejudice to his client if the Court were to have regard to those circumstances - which were the subject of evidence from all parties, save for Ms Pope who has not played any active role in the proceedings - in determining the oppression claims concerning the events of January and February 2022. Counsel's speculation about the evidence that Ms Pope might have given if Ms Newstead had chosen to call her as a witness, was not to the point. No steps were taken by Ms Newstead to call Ms Pope about any of the numerous factual matters that Ms Newstead chose to put into contest through her own extensive affidavits.
[16]
The remaining aspects of the oppression case
As I have accepted Ms Blumentals' claim that the directors' failure to approve the registration of the Unit 2/21 shares to her was oppressive from January 2022, it is not strictly necessary to address the remaining elements of Ms Blumentals' oppression claim. Those remaining elements are: [53]
1. the alleged refusal to exercise the power of the Company to repair the Property insofar as repairs were required to Units 1/21 and 2/21 Quinton Road, in circumstances where the Company allegedly approved other necessary repairs;
2. the alleged enforcement of the House Rules in a manner that was unfair to Ms Blumentals when compared with the manner in which the House Rules were enforced against Ms Newstead, Mr Hendy, and Ms Jewell; and
3. the alleged exclusion of Ms Blumentals from decisions regarding the appointment of managing agents and lawyers for the Company.
If it had been necessary to address those elements of the oppression claim, I would have concluded that Ms Blumentals had failed establish any of those matters.
In relation to (1) above, counsel for Ms Blumentals submitted that there is no evidence of any instance in which the Company paid for repairs that benefitted Unit 1/21 and Unit 2/21. That may be so, but there is also no evidence of any instance in which the Company paid for repairs that benefitted Unit 1/19 or Unit 2/19 during the period since early 2019. The evidence discloses that the repairs carried out by the Company during that period are limited to the replacement of the back stairs (which took more than one year to arrange, and which benefitted all of the units), [54] and the replacement of the back fence (in relation to which Ms Blumentals effectively forced the Company's hand by undertaking the work on the 21 Quinton Road side of the Property without approval). [55] The Company was unable to fund other repairs, and struggled even to pay its insurance premiums, managing agents' fees, and water bills. [56] Factors contributing to the Company's lack of funds included Ms Blumentals' understandable decision to withhold payment of levies in respect of Unit 2/21 unless and until the Company registered the transfer of the Unit 2/21 shares to her, the legal costs of the ongoing dispute that is the subject of these proceedings, and Ms Blumentals' unexplained conduct in withholding payment of levies in respect of Unit 1/21 during the period from July 2020 to January 2022. [57] In the period since April 2022, the Company has not carried out repairs requested by Ms Blumentals to prevent water ingress into Unit 1/21 and Unit 2/21. There is no evidence that the Company has funded repairs for the benefit of other units during that period. On the contrary, the Company's list of outstanding repairs agreed at the meeting held on 1 December 2022 also includes repairs needed to address water ingress into the 19 Quinton Road side of the building through windows, through the roof, and due to the Company's failure to repair or replace the brick pointing. All of those works have been put on hold pending the outcome of these proceedings. [58]
[17]
Relief for oppression and the claim for just and equitable winding up
As established by the authorities referred to at [227] above, the question of relief for oppression must be determined as at the date of the hearing. The Court has a wide discretion as to the appropriate remedy, and the remedy chosen will be that which represents the least intrusive means of putting an end to the type of oppression that the Court has found.
In the present case, the remedy that will address the oppression that I have found at [261]-[262] above is an order under s 233 of the Corporations Act requiring the Company to register the transfer of the Unit 2/21 shares from Ms Pope to Ms Blumentals.
It is neither necessary nor appropriate to make declarations to the effect sought by Ms Blumentals that the Company has acted in a manner that was oppressive to, unfairly prejudicial to, or unfairly discriminatory against Ms Blumentals. The terms of those proposed declarations go further than my findings of oppression at [261]-[262] above.
For the following reasons, I reject the submissions made on behalf of Ms Blumentals that an order for the winding up of the Company is the appropriate remedy for the oppression in all the circumstances of this case.
There is no evidence that the Company is presently insolvent, or that it is likely to become insolvent in the future, whether as a result of the oppression or otherwise. The Company has struggled to pay its expenses, but has managed to do so with the financial support of Mr Hendy and Ms Jewell as shareholders.
The challenges faced by the Company in funding repair and maintenance works to the building will be reduced once Ms Blumentals resumes paying levies in respect of Unit 2/21 and honours her commitment to pay those levies retrospectively since July 2020. The Company's need to raise funds for significant repair and maintenance works reflects the nature of its operations, being the ownership and maintenance of this heritage-listed building. It is unremarkable that there may be debate, and even disagreement, between shareholders and directors from time to time about whether or when particular works should be undertaken, and in what manner, and at what cost. Such matters are not symptomatic of dysfunction or paralysis in the management of the Company's affairs. It is equally unremarkable that the Company from time to time needs to raise special levies for significant works. The evidence is that, as at May 2022, no member was materially in arrears in the payment of their levies, with the exception of the levies for Unit 2/21 which Ms Blumentals had ceased paying in circumstances where the Company refused to transfer the shares to her. [62] Those levies will be brought up to date when the Company complies with the order to be made for the registration of the Unit 2/21 share transfer to Ms Blumentals. [63]
[18]
Conclusion and orders
For all of the foregoing reasons, the orders of the Court are as follows:
1. Order pursuant to s 233 of the Corporations Act 2001 (Cth) that the First Defendant is to register the transfer of the shares numbered 4503 to 6002 from the Second Defendant to the Plaintiff within 28 days of the date of these orders.
2. Order that the Plaintiff's claims for relief in the Second Further Amended Originating Process and Further Amended Statement of Claim filed on 5 October 2023 are otherwise dismissed.
3. Order that the Cross-Summons filed on 18 July 2022 is dismissed.
4. Reserve all questions of costs.
I will hear the parties in relation to costs.
[19]
Endnotes
Crumpton v Morrine Hall Pty Ltd [1965] NSWR 240; (1965) 82 WN (Pt 1) (NSW) 456 at 462 (Jacobs J).
Corporations Act, s 258B; Wilson v Meudon Pty Ltd [2006] ANZ ConvR 91; [2005] NSWCA 448 (Wilson v Meudon) at [67]-[68] (Bryson JA, Handley and Hodgson JJA agreeing).
See [53] above.
It is common ground that the date of 20 September 2018 appearing in the minutes is in error and that the meeting was held on 17 September 2018.
See [116]-[127] below.
Plaintiff's Closing Submissions, paragraph 68.
See [154]-[156], [165], [167]-[170] and [178] above.
See In the matter of Meglo-Yowrie Flat Units Pty Ltd [2023] NSWSC 1160.
Tcpt, 4 October 2023, pp 70(49)-80(36); Tcpt, 5 October, 208(35-44).
Corporations Act, s 140; Wambo Coal Pty Ltd v Sumeski Materials Co Ltd (2014) 88 NSWLR 689; (2014) 290 FLR 18; (2014) 101 ACSR 643; (2014) 32 ACLC 14-083;[2014] NSWCA 326 at [40] and [46] (Barrett JA, Bathurst CJ and Beazley P agreeing).
The J & P Marlow (No 2) Pty Ltd v Hayes and McCabe in their capacity as joint and several liquidators of Peak Invest Pty Ltd (in liq), Five Islands Pty Ltd (in liq), Surry Hills Pub Invest Pty Ltd (in liq) and Four by Four Investments Pty Ltd (in liq) [2023] NSWCA 117 at [75]-[80] (Bell CJ) and [88]-[90] (Meagher and Kirk JJA), and the authorities there cited.
Wilson v Meudon at [71]-[72] (Bryson JA, Handley and Hodgson JJA agreeing).
See [111] above.
See [175] above.
See [175] above.
Wilson v Meudon Pty Ltd at [67]-[68] (Bryson JA, Handley and Hodgson JJA agreeing).
Ibid at [72].
Magill v Santina [1983] 1 NSWLR 517; (1983) 8 ACLR 289; (1983) 1 ACLC 1108 at 1 NSWLR 527B (Glass JA); see also Currwayina Pty Limited v Adam [2010] NSWSC 666 at [25] (Slattery J).
(2007) 213 FLR 152; [2007] NSWSC 1065 at [9] (Beck v Tuckey).
Tzavaras v Tzavaras & Sons Pty Ltd [2023] NSWCA 168 at [74] (Gleeson and Adamson JJA, Griffiths AJA) (Re Tzavaras).
Ms Blumentals also claims a declaration that the Company has acted in a manner that is oppressive to, unfairly prejudicial to, or unfairly discriminatory against her by refusing and failing to register the transfer of the disputed shares (in breach of their fiduciary and statutory duties as directors of the Company), by the Company's refusal to carry out necessary repairs to the Property affecting Unit 1/21 and Unit 2/21 (in circumstances where the Company approved other necessary repairs to the Property), in enforcing the "House Rules" in manner that was "unfair" to Mrs Blumentals and her family (when compared with the manner in which the "House Rules" were applied to Ms Newstead, Mr Hendy, and Ms Jewell, and in excluding Ms Blumentals from decisions regarding the Company's appointment of managing agents for the Property and the Company's appointment of lawyers. Ms Blumentals relies on s 233 of the Corporations Act as an alternative basis for her claim for a declaration that the Company is required to register the transfer of the disputed shares.
Ms Blumentals pleads that the Company engaged in the allegedly oppressive conduct referred to above in order to benefit the interests of Ms Newstead, Mr Hendy, and Ms Jewell, and in a manner that is "unjust and unfair to" Ms Blumentals. It is also pleaded that the allegedly oppressive conduct has caused, and continues to cause, Ms Blumentals to lack trust and confidence in Ms Newstead and Mr Hendy as directors of the Company (although Ms Newstead is no longer a director), and has resulted in "a complete breakdown in the relationship between the directors and members" of the Company.
In addition to her claims for declaratory relief and an order compelling the Company to register the transfer of the disputed shares, Ms Blumentals claims an order under s 233 winding up the Company.
Further or alternatively, relying on all of the matters referred to above, Ms Blumentals claims an order under s 461(1)(k) of the Corporations Act winding up the Company on the ground that it is just and equitable to do so.
Although the Company filed a defence and cross-summons in the proceedings, it did not appear at the final hearing. The Company's directors (Ms Blumentals and Mr Hendy) had met in the week prior to the commencement of the final hearing and had failed to resolve to continue providing instructions to, and paying the fees of, the solicitor who had been on the record for the Company in these proceedings. The solicitor was then granted leave to file a notice of ceasing to act.
Each of Ms Pope and Ms Jewell filed a submitting appearance in the proceedings submitting to any judgment and order save in relation to costs.
Ms Newstead and Mr Hendy have defended the proceedings. They have filed separate defences and have had separate legal representation throughout the proceedings.
Mr Hendy does not admit, and Ms Newstead denies, Ms Blumentals' contention that she has presented a valid transfer of the disputed shares to the directors of the Company for registration. Ms Newstead contends that the form of transfer that has been presented to the directors did not comply with clause 33 of the Articles, and did not comply with ss 1071B(2) and/or 1311(1) of the Corporations Act.
Ms Newstead and Mr Hendy plead that they acted consistently with clause 34 of the Articles, and validly exercised their discretion under that clause, in declining to approve the registration of the transfer of the disputed shares from Ms Pope to Ms Blumentals. They deny that they declined to register the transfer in order to cause harm to Ms Blumentals and her family, in order to benefit themselves, in breach of the Articles, or in breach of their fiduciary and/or statutory duties as directors of the Company, or otherwise without just cause.
Ms Newstead and Mr Hendy deny the oppression allegations referred to at [6] and [7] above, and deny that the Company should be wound up under s 233 of the Corporations Act or on the just and equitable ground.
When the Company was incorporated, Mr Peter Schonewald and Ms Amelia Schonewald subscribed for one share each. Article 30 provides that the remaining share capital of the Company was divided into the following groups:
1. 1,500 shares numbered 3 to 1502, the registered holder of which was entitled to "absolute and exclusive use" of Unit 1/19;
2. 1,500 shares numbered 1503 to 3002, the registered holder of which was entitled to "absolute and exclusive use" of Unit 2/19;
3. 1,500 shares numbered 3003 to 4502, the registered holder of which was entitled to "absolute and exclusive use" of Unit 1/21; and
4. 1,500 shares numbered 4503 to 6002, the registered holder of which was entitled to "absolute and exclusive use" of Unit 2/21.
Article 31 provides that shares in the Company are not transferable other than in those groups.
As counsel for Ms Newstead and Mr Hendy submitted, the different rights conferred on the holder of each group of shares referred to above mean that the groups are properly characterised as classes of shares, notwithstanding that the Articles do not use the word "class". [1] In these reasons, I shall distinguish the classes of shares by reference to the rights conferred on the registered holder of the relevant class. I shall refer to them as the Unit 1/19 class, the Unit 2/19 class, the Unit 1/21 class, and the Unit 2/21 class.
Article 30(c) makes provision for the Company (as lessor) to enter into a lease with the registered holder of shares in the Company (as lessee) in respect of the Unit that the shareholder is entitled to occupy. It is common ground that the Company did not enter into any such leases with shareholders at any time relevant to these proceedings. The rights conferred by each class of shares to the exclusive occupation of a specified unit in the building are therefore properly characterised as contractual licences. [2]
Article 30(d) qualifies the right conferred by clause 30(b) of the Articles on each registered shareholder to the "absolute and exclusive use" of the Unit corresponding with their shareholding in the following terms:
"(d) The rights under Sub-Clause (b) of this Article and under any lease pursuant to Sub-Clause (c) hereof shall be subject to the power of the Directors to determine such right or lease in the event of the holder of such shares failing to pay the moneys payable under Sub-Clause (f) hereof committing waste failing to take reasonable care of the Home Unit or creating or permitting a nuisance or annoyance to occupiers of other Home Units or failing to observe or comply with the House Rules of the building from time to time decided upon by the Directors."
Article 30(e) provides:
"(e) The holder of any such group of shares shall have the right to grant a licence to occupy the Home Unit to which his group of shares relate to such person and in such form as the Board approves but may not otherwise confer any rights in respect of the use or occupancy of the Home Unit to which his shares relate except pursuant to any lease granted under Sub-Clause (c)."
Article 30(f) makes provision for the entitlement to rents and profits of any lease of any part of the Property that was on foot at the time the Company acquired the Property, and is not relevant to these proceedings.
Article 30(g) provides:
"(g) The holder of any such group of shares shall pay to the Company from time to time such amounts, as the Directors may from time to time decide as the share attributable to the Home Unit to which the group of shares relate of the money payable for the maintenance repair and renewal of the property the rates and taxes thereof the expenses of cleaning (furnishing or re-furnishing the hall and stairways) lighting heating and otherwise operating and maintaining the building or otherwise in respect of the building or the management thereof and of the Company including secretarial management accounting and other wages salary professional or other remuneration or expenses incidental or relating to the building or the Company. Except when the Directors otherwise decide, in their unfettered discretion the said moneys shall be borne and paid by the members in proportion to the amount of capital paid up on the shares held by them respectively."
Articles 32 to 34 provide:
"32. The instrument of transfer of any group of shares shall be signed both by the transferor and the transferee and the transferor shall be deemed to remain the holder of such shares until the name of the transferee is entered in the register in resect thereof.
33. The instrument of transfer of any group of shares shall be in writing in the following form or as near thereto as circumstances shall permit:-
"I, A.B. of in consideration of the sum of pounds paid to me by C.D., of hereinafter called the said transferee hereby transfer to the said transferee shares Numbered to both inclusive in the Undertaking called "MEGLO-YOWRIE FLAT UNITS PTY LIMITED" to hold unto the said transferee his executors administrators and assigns subject to the several conditions on which I held the same immediately before the execution hereof. And I the said Transferee do hereby agree to take the said shares subject to the same conditions.
As witness our hands this day of 19 .
Witness to the signatures etc".
34. The Directors may decline to register any transfer of shares to a transferee of whom they do not approve and who they have not previously resolved is approved as suitable to be a member of the Company and shall not be bound to assign any ground or reason for so declining. If the Directors refuse to register a transfer of any shares they shall forthwith send to the transferee notice of the refusal as required by Section 178 of the Companies Act."
Article 76 provides that the Company shall have at least two, and not more than four, directors, until otherwise determined by the Company in general meeting. Article 79 provides that it is not necessary for a director to hold shares in the Company. Articles 84 to 86 provide that one third of the directors (or the number that is nearest to, but not exceeding, one third) - being the directors who have been in office for the longest period - are to retire from office at each annual general meeting, and are immediately eligible for re-election. The directors are elected by the Company in general meeting, and the Company may also increase or reduce the number of directors, and may determine in what rotation that increased or reduced number is to retire from office. Article 87 provides that, if the position of a retiring director is not filled at the annual general meeting at which an election of directors is to take place, that retiring director may, if willing, continue in office until the next annual general meeting, and so on from year to year until that director's position is filled, unless the Company determines at that meeting to reduce the number of directors. Article 104 provides that the management of the business of the Company is vested in the directors.
Articles 94 to 102 make provision for meetings of directors. The secretary is required to convene a meeting if requested to do so by any director. Two directors constitute a quorum. The directors are to elect a chairman, either to hold office for a specified period or otherwise to chair a particular meeting. Resolutions at directors' meetings are decided by a majority of votes, with the chairman having a second or casting vote. A resolution in writing signed by all directors has the same effect as if it had been passed at a meeting of directors duly convened and constituted.
As at March 2017, Ms Newstead was the owner of the Unit 1/19 class of shares, Mr Hendy and Ms Jewell were the joint owners of the Unit 2/19 class of shares, the executors of the estate of the late Mr John McSweeney were the owner of the Unit 1/21 class of shares, and Ms Pope was the owner of the Unit 2/21 class of shares. The directors of the Company were Ms Pope, Mr Hendy, and Ms Newstead. It is common ground that Ms Jewell has never been a director of the Company.
As referred to at [25] above, Article 30(d) provides that a shareholder's right to absolute and exclusive use of the unit specified in Article 30 as correlating to their class of shares is subject to the power of the directors to terminate that right if, inter alia, the shareholder fails to observe or comply with "the House Rules of the building from time to time decided upon by the Directors". It was submitted on behalf of Ms Blumentals that the evidence does not establish the terms of any House Rules that the directors of the Company had decided upon as at the time of the events relevant to these proceedings. I reject that submission on the basis of the following evidence.
The Unit 1/21 class of shares was listed for sale by the executors of Mr McSweeney's estate from about mid-2016. The listing agent sent an email to Mr Hendy on 17 March 2017 requesting a copy of the House Rules for the Company, so that the listing agent could check that he had the current version of that document to provide to prospective purchasers and to attach to any contract for sale. Mr Hendy replied on 20 March 2017 attaching a copy of the House Rules, which he described as containing a minor update regarding the shared areas of the Property. Mr Hendy had been a director of the Company since December 2010 and the company secretary since July 2012. It is inherently probable that Mr Hendy identified and provided to the listing agent a copy of the House Rules that accurately recorded all of the rules that, as at March 2017, had been decided upon by the directors of the Company to apply as the House Rules. There is no evidence suggesting otherwise, and it was not put to Mr Hendy in cross-examination that he failed to do so. I infer that the listing agent attached a copy of those House Rules provided by Mr Hendy to the contract that Ms Blumentals subsequently entered into in about April 2017 to purchase the Unit 1/21 class of shares.
There is no evidence that the directors resolved to amend the House Rules at any time between April 2017 and 18 October 2018, when Ms Blumentals entered into a contract with Ms Pope to purchase the Unit 2/21 class of shares. I therefore infer that the copy of the House Rules attached to the 18 October 2018 contract was the same as the copy of the House Rules that had been attached to the April 2017 contract after being confirmed by Mr Hendy as accurate and current. The parties to the 18 October 2018 contract were Ms Pope, who had been a director of the Company since August 2008, and Ms Blumentals, who had been a director of the Company since September 2017. It is inherently probable that Ms Pope and Ms Blumentals were satisfied at the time that they entered into the 18 October 2018 contract that the House Rules document attached to the contract did in fact record the applicable House Rules, and I infer that they did so. I draw that inference more comfortably because it is clear from the evidence in these proceedings that Ms Blumentals tended to pay attention to the House Rules when she considered it to be in her interests to do so. The evidence includes contemporaneous communications in which Ms Blumentals sought to deploy the House Rules in support of her position in various discussions between shareholders and directors of the Company in relation to some of the events relevant to these proceedings. Indeed, Ms Blumentals' oppression claim in these proceedings includes an allegation that the House Rules were applied to her in a manner that was unfair compared to the manner in which the House Rules were applied to Ms Newstead, Mr Hendy, and Ms Jewell. The terms of the House Rules are therefore relevant to Ms Blumentals' claims, and she has adduced no evidence casting any doubt on the accuracy or applicability of the House Rules attached to the contract that she entered into with Ms Pope on 18 October 2018.
For those reasons, I find on the balance of probabilities that the House Rules recorded in the document attached to the 18 October 2018 contract were the applicable House Rules referred to in Article 30(d) at all times relevant to these proceedings.
The provisions of the House Rules included:
"1. BOARD APPROVAL OF RESIDENTS
No person may occupy a unit or move anything into a unit until they have been interviewed and approved as a resident by the Board of Directors.
…
5. ASSIGNED AREAS
Units 2/19 and 2/21 have been assigned the side bricked areas as their private courtyards. The Side access paths are for access to the lower units and are not to be used as a thoroughfare. If access is required approval should be sought from the relevant unit resident.
The Front entrance paved area is shared and should be kept clear. The rear paved area is a shared utility space for laundries, the washing line and waste and recycling bins.
All furniture, bicycles, etc are to be stored in the resident's unit or laundry space.
6. NOISE
No resident shall make noise that interferes with other residents' rights to peaceful enjoyment. In particular no resident shall, after 11.00pm, permit any noise from social gathering in the building that is likely to interfere with the peace and enjoyment of other residents of the building. Residents and their visitors should enter and leave the building quietly.
…
8. RENOVATIONS TO UNITS:
Advice must be given to the Board and consent obtained before any alterations which involve the construction or removal in whole or in part of any walls or the relocation of fire safety, plumbing, drainage or sewerage outlets. The application must include a written description and plans of the proposed work, a report from a qualified structural engineer and, where necessary, the consent of the Council or other relevant authority. The plans must show any alterations to fire safety, electrical, plumbing, drainage and sewerage outlets.
The Board may require the application to be forwarded to an architect and/or structural engineer nominated by the Board for their advice in which event their fees shall be paid by the shareholder. The Board may either decline or grant approval to any alterations in whole or in part taking Into account the advice of its consulting architect or structural engineer. The Board will give the shareholder written notice of its decision.
The hours of work must be restricted to 8.00 am to 5,30 pm Monday to Friday where possible. It is not permitted for work to be carried out on Sundays or public holidays.
Particularly noisy work such as hammering, drilling or tile removal with power tools may not be undertaken on Saturdays.
Shareholders shall permit the Board, its agents or consultants, to inspect all renovations, repairs and alterations upon their completion to ensure that they have been carried out in accordance with the plans and specifications.
9. SALE OF UNITS
Shareholders must give advance notice to the Board of Directors if they propose to sell their unit and provide a copy of the House Rules to any real estate agent handling the sale. A copy of the House Rules should be annexed to any Contract for Sale of the shares in respect of any unit prior to exchange of contracts.
Proper notice of exchange should be given to the Company's managing agent so that an interview can be arranged between the proposed purchaser and the Board of Directors whose consent is required by the Articles of Association to the transfer of any of Company's shares."
In about May 2017, Ms Blumentals and her family moved into Unit 1/21 after Ms Blumentals completed her purchase of the Unit 1/21 class of shares from the McSweeney estate. The transfer of those shares to Ms Blumentals was registered by the Company on or about 5 July 2017. As referred to at [32] above, Ms Pope, Ms Newstead, Mr Hendy, and Ms Jewell were the other shareholders at that time. Ms Pope lived in Unit 2/21 immediately below Ms Blumentals and her family in Unit 1/21. Ms Newstead lived in Unit 1/19 on the other side of the common party wall from Unit 1/21. Mr Hendy and Ms Jewell lived in Unit 2/19 immediately below Ms Newstead.
When Ms Blumentals and her family moved into Unit 1/21, the unit consisted of a sunroom overlooking Quinton Road (which I will refer to as the "front" of the unit), behind which there was lounge and dining room. Behind the lounge and dining room lay the main bedroom, a bathroom, a second bedroom, and a kitchen. There was a balcony outside the kitchen (at what I will call the "rear" of the unit), with stairs leading down to a courtyard. That rear courtyard was also accessible to the occupants of the other three units. The configuration of Unit 1/21 did not correspond with the configuration of Unit 2/21 below, and the room used by Ms Pope as her bedroom was located immediately below the kitchen at the rear of Unit 1/21.
Ms Blumentals has given evidence that, when she and her family purchased and moved into Unit 1/21, the room designated as the kitchen at the rear of the unit had no oven, no stove, no rangehood, no gas outlet, and no benches, and had only one power point. Ms Blumentals used the single power point and extension cords to connect an electric frying pan and slow cooker in order to be able to cook in the kitchen. Before long, Mr and Ms Blumentals had determined that they wanted to install a new kitchen in the sunroom at the front of Unit 1/21, and to convert the existing kitchen at the rear of the unit to a third bedroom. From Mr and Ms Blumentals' perspective, this had the advantages of being able to create a larger kitchen, of having the kitchen located closer to the living and dining rooms in the unit (thereby reducing foot traffic within the unit), and creating a more private bedroom for their teenage daughter, who was then using the sunroom immediately adjacent to the living room as her bedroom.
Ms Blumentals has given evidence that she understood that the proposed kitchen relocation within Unit 1/21 would also be advantageous for Ms Pope because the kitchen, and the noise associated with its use, would no longer be immediately above Ms Pope's bedroom. As counsel for Ms Blumentals submitted, the evidence adduced by all parties in these proceedings establishes that a great deal of noise permeated from the upper floor units (Units 1/21 and 1/19) to the lower floor units (Units 2/21 and 2/19). That is evident from many of the contemporaneous communications between the residents referred to below.
I accept Ms Blumentals' evidence referred to above about the limited facilities available in the rear kitchen when she and her family moved into Unit 1/21. Ms Newstead's evidence disputing this was exposed in cross-examination as lacking any rational foundation.
On 5 July 2017, Mr Hendy sent an email to Ms Blumentals and the other shareholders welcoming Ms Blumentals and making arrangements for a meeting of shareholders.
In July 2017, Mr Hendy and Ms Jewell were carrying out renovations to the kitchen in Unit 2/19. Those renovations were nearing completion by the end of July 2017. Ms Pope and Ms Newstead had given informal, verbal approval for those renovations in separate conversations with Mr Hendy. The renovations had not been discussed at any meeting of directors or shareholders and were not the subject of any written approval. The renovations involved moving the location of the kitchen to the living room within Unit 2/19.
On 28 July 2017, Mr Blumentals sent an email to Mr Hendy enquiring about the date of the shareholders meeting, and stating:
"As discussed we have noise and size concerns about placing our kitchen in the back room directly above Francis's bedroom.
We are getting a plumber to advise viability of run water to sunroom so we can explore placing kitchen in front sun room.
This location will work better for us and certainly Francis. We would also be able to pull up the hard floor and extend soundproofing and carpet to back room.
Anyway just letting you know our plans, look forward to catching up."
On 7 August 2017, Mr Blumentals sent an email to Mr Hendy, Ms Jewell, Ms Newstead, and Ms Pope on behalf of himself and Ms Blumentals stating that they had begun updating the kitchen in its existing location at the rear of Unit 1/21, but had found that the space was too small. They had therefore investigated moving the kitchen to the sunroom at the front of Unit 1/21. The email stated:
"… benefit of this the lounge room is adjacent plus it is also well away from Frances sleeping/living area. The sunroom has gas adjacent and water can be run along the outside of the wall (up high). A small waste pipe can be plumbed up the wall into the main waste line that runs along the right side of the property (under brick near gas lines at right front corner of property).
I would be keen for your feedback and trust this plan suits all …"
Ms Blumentals accepted in cross-examination that, in sending this email, she and Mr Blumentals were seeking the permission of the Company for their proposed building works to relocate the kitchen of Unit 1/21 to the location of the existing sunroom, with the associated plumbing changes.
The kitchen relocation proposal for Unit 1/21 was placed on the agenda for a meeting of shareholders to be held on 9 August 2017. The proposal was discussed at that meeting but, contrary to the submissions made on behalf of Ms Blumentals, no approval - informal or otherwise - was given for the work to proceed. On the contrary, Mr and Ms Blumentals were asked to provide information about the proposal so that the directors could then make a decision. Ms Blumentals understood this at the time.
On 10 August 2017, Ms Newstead sent an email to Ms Blumentals and other shareholders raising the need to attend to appointing Mr or Ms Blumentals as a director of the Company, and asking them to advise which of them would like to take on that office. Ms Newstead's email stated that:
"… the Directors are responsible for voting on decisions which affect the building, where majority vote decides the outcome."
Mr Blumentals replied by email later that day requesting that Ms Blumentals be appointed as a director. Mr Blumentals' email also stated:
"I will provide Kitchen plan and plumbing plan ASAP, I will also get the plumber to quote on replace Gal water pipes."
On 11 August 2017, Mr Blumentals sent an email to the other shareholders attaching a diagram drawn by hand that he described as a "rough layout for our planned kitchen". The email stated:
"Hi All
Please find attached a rough layout for our planned kitchen.
Our intention would be to bring hot/cold water plus gas in via the wall and through the white timber (see below picture). We would place pipes (copper) just above gutter so not visible from ground.
With respect to kitchen waste we would run down next to down pipe and run into sewerage line (which runs underneath side walk way) - we would paint pipe to match building.
Gas and cold water are already are located at the corner of the building - Hot water would run (up high) from Hot Water system (pipe will be copper).
I trust the attached layout suits all."
Mr Blumentals' email was sent on behalf of himself and Ms Blumentals, and was copied to Ms Blumentals.
On 16 August 2017, Mr and Ms Blumentals arranged for a plumber to remove a small area of paving in the side path beside of Unit 2/21 to expose the sewer in order to investigate the feasibility of connecting waste pipes that could be run up the outside of the building to service the kitchen in Unit 1/21 in its proposed new location in the sunroom. Mr and Ms Blumentals paid for this work, which cost $1,700. Although the ditch was relatively small, it left only a very narrow path along the side of the Property. Under the House Rules, that side path had been assigned as a private area for Unit 2/21. The path was the means for occupants of that unit to walk through to Quinton Road. An email from Mr and Ms Blumentals to other shareholders on the morning of 16 August 2017 apologised for failing to advise that they were planning to undertake that investigative work, and stated that the removal of the paving had revealed that "the sewer line is only 500mm down and has been laid within an excavated sandstone trench". Mr and Ms Blumentals sought the other shareholders' "feedback on pipe location and access into sunroom", bearing in mind "the heritage of our building".
Mr Hendy replied to that email on 16 August 2017, and undertook to coordinate the shareholders' feedback and revert to Mr and Ms Blumentals. Mr Hendy, Ms Pope, and Ms Newstead had been exchanging comments about the information in Mr and Ms Blumentals' 11 August 2017 email and attached a "rough plan" in emails passing between themselves. By the afternoon of 16 August 2017, Ms Newstead's position was that: "When we've been supplied with the engineering report, soundproofing, water proofing etc, if its all fine, I'm fine with it". Ms Pope adopted the same position, noting that the sunroom area "had never been a kitchen so unknown territory with the weight of appliances, possible stone bench tops and cupboards". Mr Hendy agreed to send a request to Mr and Ms Blumentals for an engineer's report, following which the directors could discuss the proposed kitchen relocation further.
On 17 August 2017, Mr Hendy sent an email to Mr and Ms Blumentals on 17 August 2017, stating:
"Morning Tim and Tracy,
The feedback from the group is that the idea of moving the kitchen to the front is a good concept. Noise is still an issue in the block and having a high traffic area over a bedroom will continue to be a problem no matter what sound proofing steps are introduced. Moving the kitchen to the other end should also reduce traffic across the down and up stairs which are an inherent noise generating feature of the building.
As a group we need to ensure this is done correctly so you can proceed with confidence and we as a governing body are comfortable the building can handle the change. The directors would also like to ensure that the visual impact from the outside is kept to a minimum. I understand from conversations with you that you are also keen to see this is the case which is great.
The concerns then are;
Is the Sunroom built to take the weight/traffic/vibration of a kitchen
Is the kitchen floor isolated from the downstairs ornate ceilings in the event of a flood or vibration from dishwasher/fridge/appliances?
Can the Waste pipes and hot and cold service pipes neatly enter the building without impacting the side panelling features and appearance of the building.
Noise levels from sunroom/new kitchen
To address the above concerns can you supply:
An engineering report covering the first 2 points above.
A detailed diagram of how the pipes will enter the building and how big each pipe is.
What you intend to use as floor coverings in the new kitchen.
I think we are all now satisfied that connecting to the sewer service line wont be a problem but could you also indicate in the above diagram where it rises and how the pipe weaves around the existing pipework if it needs to. I think we all understand that the existing pipework in the building is a terrible mess but we should be taking the opportunity to improve at these points as opposed to just adding more mess. If you believe any of these items should be done by the group as opposed to yourselves then please let us know so we can consider it.
Could we meet again next Wednesday to discuss or sooner if it gives you enough time to get the above?
Best regards
Greg"
Mr Hendy's email was copied to the other shareholders.
In relation to the question in Mr Hendy's email about pipes, Mr and Ms Blumentals sent an email to Mr Hendy and the other shareholders on 17 August 2017 attaching a diagram that he had prepared himself depicting how four pipes - hot water, cold water, gas, and waste - were proposed to run up the outside of the building and enter into the sunroom (being the proposed new kitchen location) above the gutter in the where heritage timber panelling meets brickwork.
In relation to the questions about whether the sunroom in Unit 1/21 was built to take the weight, traffic, and vibration of a kitchen, Mr and Ms Blumentals obtained an engineering report at a cost of $750, which Mr Blumentals emailed to the directors on 18 August 2017. The one-page report stated that a structural engineer had inspected Unit 1/21 that day and examined the existing timber floor of the sunroom. The letter stated that the engineer had found that floor "to be in excellent structural condition". The letter concluded:
"This is to certify that the existing timber floor of unit 1 front sunroom is structurally adequate to support the additional loads of the proposed kitchen and the relocation of the kitchen from the rear to the front sunroom will not affect the structural integrity of the building in general."
Ms Newstead replied to Mr Blumentals' email, stating:
"Thanks for sending this [the structural engineer's report] through Tim. When you have the to-scale schematic plan for the verandah, and other requested details please send these through. When all the information is in we'll be in a position to go forward with the decision. Please do not proceed with any building work until the approval is given in writing. If you have any queries please refer to the House Rules document which outlines the Company procedures."
Ms Newstead was the director who had raised the question that had been included in Mr Hendy's 17 August 2017 email about noise levels from the proposed new kitchen in the sunroom. On 19 August 2017, Ms Newstead sent an email to Mr Blumentals asking what advice the structural engineer had given about the noise and waterproofing issues raised in Mr Hendy's email of 17 August 2017. Mr Blumentals replied on 21 August 2017 on behalf of himself and Ms Blumentals:
"I asked the structural engineer about noise and vibration he could only comment that the structure was structurally sound and that as it only spans 2 metres it has little flex or movement when walked on (so little vibration)
Noise is very difficult to comment on as I said we will be placing a natural fibre rug with backing onto the timber floor."
On 20 August 2017, Mr Blumentals sent a further email on behalf of himself and Ms Blumentals attaching "to scale plans for our kitchen". The email stated that the kitchen was 6 metres by 2 metres in area, and that cupboards had been located on the sunroom wall adjacent to Unit 1/19 to reduce any noise passing into Ms Newstead's sunroom. The attached plans were prepared using the IKEA Home Planner, and did not include the proposed locations of electrical, plumbing, and drainage outlets. The email invited any further questions about the proposed works.
On 21 and 23 August 2017, Ms Pope sent emails to Mr Hendy and Ms Newstead stating that she would prefer the existing kitchen in Unit 1/21 to be a bedroom (as proposed by Mr and Ms Blumentals as part of the plan to relocate the kitchen to the existing sunroom), and stating that "I vote for them to proceed". Mr Hendy replied to Ms Pope and Ms Newstead on 23 August 2017 to the effect that he and Ms Jewell had no further objections "so vote to allow them to proceed". Later that day, Mr Hendy sent an email to Ms Newstead and Ms Pope asking whether a meeting was necessary to decide about the Unit 1/21 kitchen relocation "or can we make that decision now?". Ms Newstead replied that she was delaying her approval because she was waiting to hear from a solicitor about the engineering report, but that "only 2 out of 3 votes need to be in favour of approval so my vote is just a formality now".
On 25 August 2017, Mr Hendy sent an email to Ms Newstead and Ms Pope stating that he and Ms Jewell were considering "switching to a No vote", because he was finding it "quite daunting", and he and Ms Jewell were becoming concerned about "unbalancing the property by swapping out that lovely open vista filled sunroom with a kitchen and the impacts of another bedroom for now and the future". In cross-examination, Mr Hendy was unable to explain the substance of his concern about "unbalancing the property". Mr Hendy gave evidence that the substance of his concern about the impacts of an additional bedroom was that the existing noise transfer problems between Units 1/21 and 2/21 would be exacerbated if Unit 1/21 had an additional bedroom and might therefore be occupied by larger families in the future than if it remained in its current configuration with two bedrooms. In relation to noise transfer issues, Mr Hendy's email stated:
"… what was said to be just their weekender has turned into at least 4 of them plus 2 dogs plus all their kids mates in and out at the weekend. If I'm honest though I haven't heard much noise, yes you can hear a bit occasionally but not nuisance levels but we haven't got them overhead. Glass half full - it will be fine, the kids will move on soon and I'm sure we can trust them to do as they say and we can all live in harmony, half-empty they all live there full time or they sell it as a 3 bedroom and an equally big family moves in. Maybe we just need to make them wait for 12 months before they can make any major changes? Will hold off on final vote until we meet together but I thought it better to let you both know what we are thinking."
Mr Hendy's email also records a concern about "the pipework that will be required into the side which is not easy to do neatly unless you spend a lot of money grouping and concealing the pipes".
Ms Pope replied on 25 August 2017 that she agreed with the decision of Mr Hendy and Ms Jewell "to say no for the time being" because she had "reservations as previously mentioned re their motivation for relocation", and because she considered that the existing kitchen "must be currently fully functional".
Ms Newstead replied to Mr Hendy on 25 August 2017 that she was surprised by his decision, and proposing to meet on Tuesday, 29 August 2017. Ms Newstead added:
"I'm quite a stiggler [sic] for keeping the upstairs as 2 bedrooms because I sincerely believe the values of the bottom units would be devalued because the noise above. I still believe they are doing this for a quick turnaround profit. … let's talk Tuesday."
On 26 August 2017, Ms Newstead and Mr Hendy exchanged emails in which they agreed that Mr and Ms Blumentals should be told that they would have an answer about their kitchen relocation proposal by Wednesday, to ensure that they did not proceed with any work in the meantime. Ms Newstead sent an email to that effect to Mr and Ms Blumentals that afternoon. Mr and Ms Blumentals were not informed about the meeting scheduled for Tuesday night. Nor were they informed about, or given an opportunity to respond to, the matters that had been raised by Mr Hendy, Ms Pope, and Ms Newstead referred to at [63]-[66] above.
In an exchange of emails on 28 August 2017, Mr Hendy asked whether their meeting to discuss the Unit 1/21 kitchen relocation proposal should be "just for us" or whether Mr and Ms Blumentals should also be in attendance. Ms Pope suggested that the business of the meeting should be limited to the proposal, and that she would therefore prefer the meeting to be limited to herself, Ms Newstead, Mr Hendy, and Ms Jewell. Ms Newstead replied that the meeting should be called an Extraordinary Directors meeting, and that it should be limited to the kitchen relocation proposal. In cross-examination, Mr Hendy was unable to offer any explanation for not inviting Mr and Ms Blumentals to attend the meeting, other than that Ms Pope had requested that they not be present at the meeting.
That meeting was held on 29 August 2017. The directors unanimously resolved to reject the proposal to relocate the kitchen in Unit 1/21 to the existing sunroom. Ms Newstead, Ms Pope, and Mr Hendy were present at the meeting. Ms Jewell was also present, notwithstanding that she was not a director.
On the afternoon of 30 August 2017, Ms Newstead sent an email to Mr and Ms Blumentals advising them of the directors' decision at the meeting held the previous day:
"Last night Greg, Frances and I met to vote on giving approval for your
kitchen move to the verandah.
After careful consideration a NO vote was carried. The kitchen cannot
be relocated to the verandah.
As Directors of Meglo-Yowrie we met in accordance with the
Company's Articles of Association and the decision we came to is final
and binding."
Neither Ms Newstead's 30 August 2017 email, nor the meeting minutes that Mr Hendy emailed to Mr and Ms Blumentals later that evening, recorded reasons for the directors' decision to reject the kitchen relocation proposal for Unit 1/21.
It is plain from the communications and events which then followed that Mr and Ms Blumentals felt surprised and aggrieved by the directors' decision, and by the fact that they had not been given the opportunity to attend the meeting at which the decision had been made.
Before referring to the evidence of those communications and events, it is convenient to record that I reject the submission made on behalf of Ms Blumentals that she was not required to seek the directors' approval for the proposed kitchen relocation within Unit 1/21, and that the directors had no entitlement to refuse approval for that work. To the extent that the submission relied on the notion that there is no evidence of any applicable House Rules, I reject it for the reasons explained at [33]-[36] above. To the extent that the submission relied on the contention that clause 8 of the House Rules did not apply to the proposed work because it did not "involve the construction or removal in whole or in part of any walls or the relocation of fire safety, plumbing, drainage or sewerage outlets", that is wholly inconsistent with the contemporaneous communications referred to above that describe the nature of the proposed work. Those communications record Mr and Ms Blumentals' intentions to install new plumbing connections in the existing sunroom of Unit 1/21 by connecting new water pipes to the sewer outlet buried beneath the courtyard at the side of the building and running those pipes up the outside of the building into the sunroom on the top floor.
It is also convenient to record at this point that I accept the submission made on behalf of Ms Blumentals to the effect that she was required to provide information about the proposed kitchen relocation for Unit 1/21 of a kind that Mr Hendy and Ms Newstead had not been required to provide in respect of the renovation of their kitchen that had been completed in July 2017. There is no evidence that Mr Hendy and Ms Jewell provided any plans of the kind referred to in clause 8 of the House Rules. Counsel for Ms Blumentals submitted that no complaint was made in these proceedings about Mr and Ms Blumentals being required to provide the information requested by the directors about their proposed Unit 1/21 works. Rather, the complaint is directed to the manner in which that information was used by the directors. It was submitted that the reasons for the directors' decision to refuse approval for the work were "spurious". On the basis of the evidence of the emails referred at [63]-[66] above, I accept the submission made on behalf of Ms Blumentals that the reasons for the decision appear to have been some concern about the aesthetics and potential heritage implications of the proposed new pipework on the outside of the building, a concern that the work would result in Unit 1/21 becoming "unbalanced", a concern that there would be increased noise transfer from Unit 1/21 to other units in the building if Unit 1/21 was converted from a two bedroom apartment to a three bedroom apartment as proposed by Ms Blumentals, and a concern that the object of the work was to make a "quick turnaround profit". There is considerable force in Ms Blumentals' criticisms of those reasons. The evidence of Ms Newstead and Mr Hendy in cross-examination did not shed any further light on reasons for the decision. Mr and Ms Blumentals, together with their two children, were already living in Unit 1/21. A family of four had lived in Unit 1/21 immediately before Ms Blumentals purchased her shares. The noise generated by a family of four occupying the unit would not alter depending on whether the unit had two or three bedrooms. However, as I explain at [251]-[256] below, the merits of the directors' decision to refuse approval for the work, and the reasons for the decision, are not relevant to the issues to be determined in these proceedings.
Approximately two hours after receiving Ms Newstead's 30 August 2017 email, Mr Blumentals forwarded a copy of it to Ms Blumentals' email address and set out what appears to be a draft response to Ms Newstead and the other directors in the following terms:
"Hi All
I find this very disappointing considering the effort we went to placate everyone. To get a NO with really no reason is unsympathetic to our family, living without a workable kitchen and just unfair.
I think in that Frances was originally in favour of moving the kitchen to the front shows a unusual backflip.
We didn't comment on the impact of other recent modifications by other owners.
I will be seeking legal advice to challenge the company title as I believe it violates basic rights.
We will continue to look to locate the kitchen at the front and run pipes internally.
Have a nice evening."
In cross-examination, Ms Blumentals said that she agreed with the sentiments in the draft response.
There is no evidence that the draft response was in fact sent to the directors. Mr Blumentals did send an email to Mr Hendy on 11 September 2017 on behalf of himself and Ms Blumentals in the following terms:
"It was very disappointing to have received a NO response from "the group" to the proposal of having the kitchen of 1/21 in the current sunroom. The layout as it stands does not suit our needs and is out of date for modern living. Having the kitchen and living areas separate is not conducive to an enjoyable home life. Our daughter sleeps in the sunroom adjacent to our living space and this greatly impacts her study and sleeping patterns as well as our relaxation time i.e. unable to watch television as it disturbs her.
Unfortunately sometimes you only realize how spaces do not work for you once you start living in them.
Could you please respond to the following:
Why were we not given notification and an opportunity to be in attendance of the extraordinary meeting that was held?
As the installation of pipes can quickly and easily be done without compromising the building, please notify the reason why a NO and REJECTED response was given?
As per Frances's email it was written she was in agreement to the kitchen of 1/21 being in the current sunroom and we believe verbally you mentioned that you did not have a problem with it as the amount of foot traffic and noise would be greatly reduced with having the kitchen/living together.
We believe the kitchen in the current sunroom would greatly benefit everyone long term.
Taking into consideration the above and that we covered all points of concern to you as a group at our own expense, we are a little perplexed by the outcome and look forward to your response at your earliest convenience."
Mr Hendy forwarded Mr Blumentals' 11 September 2017 email on to Ms Newstead and Ms Pope on 19 September 2017, asking for their opinions because he was "struggling with a response to this". In cross-examination, Mr Hendy accepted that one of the reasons why he was "struggling" was that there was no good answer to Mr Blumentals' first question about why he and Ms Blumentals had not been given an opportunity to attend the meeting.
Ms Newstead replied to Mr and Ms Blumentals later that day (19 September 2017) in the following terms:
"Hi there Tim and Tracey,
I'm responding to emails you sent through to Greg and Frances recently. In doing so I think it may be helpful to cover off on some details pertaining to Meglo-Yowrie.
Greg, Frances, and myself are Directors of Meglo-Yowrie, with Greg elected secretary/treasurer and myself elected chairperson. Tracy has been nominated as Director recently and paperwork is being done to action that. Any correspondence pertaining to the company needs to be addressed to all Directors and shareholders.
In general, Directors are permitted to meet without notifying shareholders, and whilst this occurs infrequently, it occurred in this case specifically to reach a decision on the kitchen request. All ongoing conversations around consideration of the application prior to the meeting were informal and speculative, especially as the application details were provided over time and not in one go.
The decision reached as recorded in the company minutes reflects a unanimous vote, the outcome a result of the Director's wishes for the state of the building.
Please note that you have purchased shares giving exclusive right to occupy 1/21, but that the company owns the apartment.
Television noise etc from the living room to the verandah is understandable, and the second bedroom is at a reasonable distance to not be affected.
Kind regards,
Caroline Newstead"
In relation to Ms Newstead's reference to Ms Blumentals having "recently" been nominated as a director, I note that Ms Blumentals had been nominated on 10 August 2017. In cross-examination, Ms Newstead and Mr Hendy said that it took time to prepare the necessary documents. Those documents are not complex. It appears that they were first prepared by the Company's external registry service provider on 22 September 2017, and that Ms Blumentals' appointment was notified to the Australian Securities and Investments Commission (ASIC) as having commenced on that date. The evidence does not explain the Company's failure to cause its service provider to prepare and lodge the relevant documents promptly after 10 August 2017.
Ms Newstead's 19 September 2017 email does not answer the two questions posed in Mr Blumentals' 17 September 2017 email. It is plain from Ms Blumentals' evidence referred to at [83] below that this added to the sense of grievance that she already felt about the directors' decision to refuse approval for the work.
The submissions made on behalf of Ms Blumentals' sought to characterise the directors' decision made on 29 August 2017 has having no effect on the basis that the Unit 1/21 kitchen relocation work had already been approved at the shareholders' meeting on 9 August 2017. For the reasons explained at [48] above, that submission is contrary to the evidence concerning the 9 August 2017 meeting, and I reject the submission.
In cross-examination, Ms Blumentals confirmed that, at the time of receiving Ms Newstead's email on 19 September 2017, she knew that the Company owned the Property (including Unit 1/21), and that the directors had refused permission for the proposed kitchen relocation. Ms Blumentals gave evidence that she had not been prepared to accept that decision of the directors, and that she had proceeded with the work despite their decision. In her affidavit affirmed on 7 August 2023, Ms Blumentals described her state of mind in deciding to proceed with the work without approval:
"… there was no working functional kitchen at Unit 1, 21 Quinton Road in the back room and was completely unfair that our proposal was rejected when Mr Hendy and Ms Jewell relocated their kitchen without board approval, a Council inspection or any plumbing or structural certificates required. No valid reason was given nor were we given a say in the decision as we were not invited to the meeting, they were never going to say yes to anything we asked for. We decided to go ahead because it was not possible to live in the unit without a kitchen. Once we realised that a different standard applied to Ms Jewell's and Mr Hendy's renovations, it confirmed our decision to go ahead with the renovation and relocation notwithstanding the Board's refusal to permit it. We notified the other shareholders we intended to go ahead."
There is no contemporaneous evidence that Mr and Ms Blumentals in fact notified the other shareholders of their intention to go ahead before they carried out the work in the Christmas period at the end of 2017 and beginning of 2018. Mr and Ms Blumentals changed their plans so as to route the water pipes required for the new kitchen through the roof cavity above the ceiling in Unit 1/21 from the rear of the unit to the sunroom at the front of the unit where the new kitchen was then installed. As this involved the relocation of plumbing outlets, board approval was required under clause 8 of the House Rules. However, Ms Blumentals was able to carry out the work in this way without it being visible to other residents that plumbing outlets were being relocated. As Mr Hendy said in cross-examination, he was aware that work was being carried out, but he assumed that Ms Blumentals was simply renovating the existing kitchen at the rear of Unit 1/21. I reject the submission made on behalf of Ms Blumentals that the work actually done was permissible without approval because the installation of pipes in the roof cavity to convey water to the new kitchen in the sunroom "resolved" the directors' concern about the "external aesthetics" of the pipework for the new kitchen. As counsel for Ms Blumentals acknowledged, the work resulted in the new water pipes intruding into the roof cavity, which was "common property". In fact, the whole of the building was property of the Company, and the roof cavity was outside the confines of Unit 1/21 that Ms Blumentals had a licence to occupy under Article 30.
The submissions made on behalf of Ms Blumentals sought to characterise her conduct in going ahead with the work as an understandable, and justifiable, "self-help" response to the directors' "spurious" decision not to approve the work. I reject that submission. As I have already explained, clause 8 of the House Rules required Ms Blumentals to obtain the board's consent for the work before proceeding. Ms Blumentals was bound by the Articles, which vested the management of the business of the Company in the board, and which conferred power on the directors to terminate her right of exclusive use of Unit 1/21 if she failed to observe the House Rules. Ms Blumentals' decision to proceed with the work for which the board had refused consent demonstrated utter disregard for corporate governance, as counsel for Mr Hendy submitted. If Ms Blumentals considered that the reasons for refusal were non-existent or "spurious", or that the refusal constituted a breach of the directors' statutory and fiduciary duties to the Company, or that the refusal was oppressive, there are several legitimate ways in which she could have pursued this, including by commencing proceedings under ss 232 and 233 of the Corporations Act and/or by seeking leave to commence proceedings in the name of and for the Company in respect of the alleged breaches of directors' duties. Ms Blumentals instead proceeded with the work that she wanted to do to the Company's property, ignoring the decision of the directors.
It is relevant at this point to observe that the directors' decision to refuse approval for Ms Blumentals' kitchen relocation and associated works within Unit 1/21 was not part of her pleaded oppression case in these proceedings. Indeed, the decision had no adverse impact on Ms Blumentals at all. Ms Blumentals ignored the decision and carried out the work as she pleased.
The building includes a laundry that is shared between the occupants of Unit 1/21 and Unit 2/21. On 25 September 2017, Ms Blumentals advised Ms Pope by email that she and Mr Blumentals would be cleaning out and painting that laundry, replacing the sink, and laying some tiles. Ms Pope replied: "All sounds good". During the course of that work, Ms Blumentals arranged for a plumber to inspect a water leak in the laundry and to replace some rusted and leaking water pipes. The plumber issued an invoice to the Company for the $450 cost of this work. Ms Blumentals did not seek the Company's approval for the works, and has given evidence that she did not realise that she needed approval. The submissions made on behalf of Ms Blumentals assert that the Company did not pay for the works even though they involved repairs to common property. The submissions made on behalf of Ms Newstead assert that Ms Blumentals reimbursed herself for the cost of those works by deducting the cost from the levies that she paid to the Company for Unit 1/21. Neither of these submissions was supported by any reference to evidence, and this issue was not canvassed in cross-examination. The evidence does not permit a finding to be made about whether Ms Blumentals or the Company ultimately bore the cost of the works to the laundry.
The investigative ditch that Mr and Ms Blumentals caused their plumber to dig on 16 August 2017 when investigating the potential to run water pipes up the outside of the building for their proposed new kitchen in Unit 1/21 was left uncovered for many weeks. [3] On 9 October 2017, Ms Newstead sent an email to Ms Blumentals asking her to advise when the ditch would be filled in and the side courtyard outside Ms Pope's unit returned to its original condition. Ms Newstead noted that she had sent two previous emails to Ms Blumentals, to which she had received no reply.
In her affidavit affirmed on 7 August 2023, Ms Blumentals gave evidence that she met with Mr Hendy privately on 24 January 2018 at the Ivanhoe Hotel, and that Mr Hendy told her that "we agreed as a group not to approve any of your and Tim's requests. We need to 'rein you in'". Mr Hendy agrees that he met with Ms Blumentals at the Ivanhoe Hotel, but says that this meeting occurred on 24 January 2019 (not 2018). Mr Hendy's evidence about the timing of the meeting is consistent with Ms Blumentals' first affidavit affirmed on 10 June 2022. I accept the evidence in Ms Blumentals' first affidavit, and Mr Hendy's evidence, that their meeting at the Ivanhoe Hotel occurred on 24 January 2019. I address their competing accounts of what said at this meeting below.
On 16 August 2018, Mr and Ms Blumentals sent emails to Ms Newstead, and to Mr Hendy and Ms Jewell, seeking their approval for the sale of Ms Pope's shares in the Company to them.
This request was included in the agenda for a meeting of directors that was held on or about 17 September 2018. [4] Ms Newstead, Mr Hendy, Ms Pope and Ms Blumentals attended the meeting as directors, and Mr Blumentals and Ms Jewell were also present. The minutes of that meeting include the following entries:
"
Brick Pointing (see attached quotes)
BRICK POINTING It was agreed that the brick work on the building was in very poor shape. Tim had got a quote from a company that had done work on another building of theirs in Manly and they had done a good job.
Agreed to get more quotes and prioritise. This would require a special levy as we don't have the funds to cover the cost.
Way up [sic] cost of splitting into different stages and spreading the cost if much cheaper
…
Tracy wishes to purchase UNIT 2/21
Tracy stated her mother will be moving in to be closer to the family. This would not happen immediately but would be at some point in the future.
PROPOSED SALE OF UNIT 2/21 TO TRACY BLUMENTALS Tracy and Tim may live there and the kids upstairs or something like that, there would effectively be 4/5 people in the 21 side of the building.
Tim and Tracy stated that if they were to purchase they had no plans to alter the layout of the 2 units other than updating the Kitchen and Bathroom in the ground floor unit.
Caroline raised concerns that the house rules haven't been kept up for Unit 1/21 and that they had gone ahead and made unapproved changes to the layout after
having them rejected and that if the purchase were to go ahead this would likely continue.
Tim and Tracy argued that they hadn't been affecting anyone with the work they have done.
Tracy and Caroline then got into an argument and Caroline left the meeting and said she would be voting No to the proposed Sale.
A vote was not formally taken on the night.
BACK STAIRS It was agreed that the back stairs are in a good state of disrepair and should be made good.
(Discussed after Caroline left the meeting) It was agreed that the stairs should not be used unit we can get them repaired. People should take care and use them at their own risk.
Agreed to get quotes for their replacement.
Clause 12 of the contract provided:
"12. Adjustments
The Vendor is entitled to the rents and profits and must pay all outgoings and levies payable in respect of the Shares and in respect of the Unit up to and including the date of completion of this contract, from which date the Purchaser will be entitled to the rents and profits and must pay all outgoings and levies and any necessary adjustment between the parties is to be made on completion."
Clause 15 of the contract provided:
"15. Purchaser Covenants
15.1 As and from the date of completion of this contract or until the Purchaser becomes registered as the holder of the Shares, the Purchaser will make all payments and do all things as if the Purchaser were the registered holder of the Shares and bound by the Constitution of the Company and that the Purchaser will indemnify the Vendor against all liability to pay or perform the same.
15.2 The Purchaser's failure to comply with clause 15.1 entitles the Company to terminate the use and occupation of the Unit by the Purchaser and to invoke the provisions of the Constitution of the Company as if the Purchaser were registered as the holder of the Shares."
Clause 17 of the contract provided that, if the contract was rescinded pursuant to an express right of rescission conferred by the contract, then the vendor would refund the deposit and any other money paid by the purchaser under the contract, and neither party would be liable to the other in respect of any damages, costs, or expenses.
On 25 October 2018, solicitors then acting for Ms Blumentals sent a draft transfer of shares from Ms Pope to Ms Blumentals to the Company for approval, stating that they looked forward to receiving formal consent for the transfer of the shares.
However, on 2 November 2018 Ms Blumentals sent an email to Mr Hendy stating that her solicitor had advised her that, as she had already been approved as a member of the Company and was a director of the Company, there was no requirement for Ms Blumentals to be "re-approved" for the purpose of the registration of the transfer of shares from Ms Pope.
Ms Pope and Ms Blumentals signed the transfer of shares on 5 November 2018, which was then duly stamped. The transfer was in the following terms:
"I Frances Clarice Pope of 2/21 Quinton Road, Manly (transferor) in consideration of the sum of $1,075.000 paid to me by Tracy Anne Blumentals of 1/21 Quinton Road, Manly (transferee) do hereby transfer to the said transferee 1,500 shares numbered 4503 to 6002 inclusive in the undertaking of Meglo-Yowrie Flats Pty Limited ACN 000 189 944 Duly Incorporated in NSW to hold the same unto the said transferee subject to the several conditions on which I hold the same.
I, the said transferee, do hereby agree to take the said shares subject to the said conditions aforesaid."
In an exchange of emails on 7 November 2018, Ms Newstead informed Mr Hendy and Ms Jewell that she was seeing Mr John Allanson, solicitor, the following day in relation to the sale of Unit 2/21. Ms Newstead stated that the directors had two choices about how to respond to Ms Blumentals - either to write to her directly in the same terms as Ms Newstead's 17 September 2018 email to Ms Pope, or to have a letter drawn up by a solicitor. In further emails to Mr Hendy and Ms Jewel on 7 November 2018, Ms Newstead wrote:
"It's not fair that people walk over us because they want to make a profit but i think we can achieve both preventing them buying 2/21 and the reversal of their unauthorised works relatively inexpensively with a short response from John [referring to Mr Allanson]."
At a directors' meeting held on 13 November 2018 attended by Ms Newstead and Mr Hendy, it was resolved that consent should not be given to the transfer of the Unit 2/21 class of shares from Ms Pope to Ms Blumentals. No reasons for the decision were given. The minutes record that Ms Blumentals and Ms Pope had not acknowledged the email advising them of the meeting. Mr Hendy has given evidence that neither Ms Blumentals nor Ms Pope attended that directors' meeting, and that he was "disappointed that we were not going to be able to discuss the issue face to face". Ms Blumentals has given evidence to the effect that she did not attend the meeting because she did not receive notice of it. It is not necessary to resolve the dispute between the parties about whether notice of the meeting was given to Ms Blumentals. Mr Hendy sent an email to Ms Blumentals on 14 November 2018 advising her of the outcome of the meeting.
A meeting of the directors of the Company was held on 30 November 2018. Mrs Newstead, Mr Hendy, and Ms Blumentals attended. Mr Blumentals attended as proxy for Ms Pope. The meeting was convened to vote on a resolution about appointing Mr John Allanson to act as solicitor for the Company. That resolution was passed over the opposition of Ms Blumentals and Ms Pope by Ms Newstead using her casting vote as Chairman. The discussion turned to the sale of Ms Pope's shares to Ms Blumentals. The minutes record:
"Tim stated that they were proceeding with the sale and if it meant taking us to the Supreme Court and spending all the money he had he would do it.
Tim stated that he was entitled to purchase the apartment and that there was nothing anyone could do about it.
Things then got a little personal and it was agreed that we were beyond the scope of the meeting and that the meeting should be brought to a close."
On 14 December 2018, Mr Allanson wrote to the solicitors acting for Ms Pope referring to the contract for the sale of Ms Pope's shares to Ms Blumentals, and stating that he was instructed that Ms Pope and Ms Blumentals had already been informed in writing that the application for consent to transfer the shares has been refused. The letter also referred to Mr Allanson's instructions that Ms Pope was not presently in occupation of Unit 2/21, and stated that only the registered holder of the relevant parcel of shares is permitted to occupy a unit under the Memorandum and Articles and the House Rules. Mr Allanson also wrote to Ms Blumentals's solicitors, enclosing a copy of his letter to Ms Pope's solicitors.
Ms Blumentals' solicitors replied to Mr Allanson on 14 December 2018 setting out their contentions that Article 34 did not confer on the directors the power, or a valid reason, to refuse to register the transfer of the shares to Ms Blumentals, and that any such refusal after the contract is completed and the executed transfer is submitted to the directors together with the request for registration would not be a valid exercise of any power under Article 34 and would be "without just cause". The letter stated that Ms Blumentals would commence proceedings under ss 1071F, 232, and 233 of the Corporations Act in the event that any director frustrated the registration of the share transfer.
Ms Blumentals completed her purchase of the Unit 2/21 class of shares from Ms Pope on 19 December 2018, and she and her family commenced occupying Unit 2/21 at about this time. Submissions made on behalf of Ms Newstead complain that Ms Blumentals did not have the permission of the board of directors of the Company to occupy Unit 2/21. That is so, but it must also be said that the Company has never taken any action against Ms Blumentals and/or Ms Pope to require Ms Blumentals to vacate Unit 2/21. On the contrary, as will be seen below, the directors have approved certain renovations that Ms Blumentals has made to Unit 2/21 and has looked to Ms Blumentals, rather than to Ms Pope, to pay levies to the Company in respect of Unit 2/21.
Ms Blumentals has given evidence that she commenced paying levies in respect of Unit 2/21 from December 2018 in the expectation that the share transfer would be registered. In cross-examination, Mr Hendy confirmed that the Company had received payment of levies for Unit 2/21 from Ms Blumentals in the period up to July 2020, when Ms Blumentals ceased or suspended paying those levies pending the Company issuing her with a share certificate for Unit 2/21, as referred to at [145] below. The levies paid by Ms Blumentals for Unit 2/21 included levies that covered the cost of significant works, such as the replacement of the common stairs at the rear of the building in April 2020, as referred to at [143] below.
On 20 December 2018, Ms Blumentals' solicitor sent the signed and stamped transfer together with the original share certificate to Mr Hendy as the company secretary and requested that the Company's records be updated to reflect the settlement of the sale.
A meeting of the directors of the Company was held on 17 January 2019. Only Ms Newstead and Mr Hendy attended the meeting. Mr Hendy prepared the minutes. He confirmed in cross-examination that the minutes reflect his best recollection of what was discussed at the meeting, and that they reflect his view of the reasons for declining to register the transfer of Ms Pope's shares to Ms Blumentals. The minutes record the receipt of the stamped and executed transfer and other documents from Ms Blumentals' solicitor. The minutes then record:
"Resolution: Formally consider the exercise of the Directors power to decline the Transfer of Shares under Article 34
Resolved to exercise the Directors power in Article 34 to Reject the Transfer of Shares.
The following items were discussed, and it was felt that the actions of the Blumentals since moving in have given us no choice but to reject the Transfer of Shares.
In a previous meeting Tracy requested to move their kitchen to the front Verandah and convert the old kitchen to a bedroom, this was considered in a company meeting and rejected on several grounds including but not limited to:
Detrimental change to apartment layout
No water services exist to the front of the building
Increase in apartment occupancy from 2 bedrooms to 3 and the subsequent noise impacts to the apartment below, which were already a problem.
Setting of a precedent for the other top floor apartment to change to 3 bedroom and the potential increase in occupancy that this caters for when the apartments are sold to new buyers.
Increased risk of Flood in the front of the building where sensitive period features are prevalent.
Tracy ignored the rejection and embarked on a covert operation to move the kitchen.
As part of this operation the entrance pathway was excavated to access plumbing with no advice to occupants of the building. Directors were forced to intervene and order the plumber to stop. When a request was made to refill the hole it was ignored. The waist deep excavation was left for several days as a dangerous hazard that obstructed access without any safety signage or barricading, then after a barricade was added the hole was left like that for several weeks representing a serious OH&S issue on company property.
The Kitchen build continued unknown to other occupants because window blinds were permanently kept closed and apartment is top floor.
Unauthorised Plumbing has since appeared in the common roof space running the entire length of the building presumably to service the unauthorised kitchen.
Withholding of levies for plumbing costs incurred by the Blumentals' own unauthorised work (carried out in laundry shared by 1/21 and 2/21).
Occupying an apartment without the registering of the required bundle of shares; made possible with the cooperation of Frances Popes. (Tracy Blumentals organized a tradesman to quote for floorboard polishing at 2/21 but refused comment when asked about this)
Ignored House Rule regarding construction noise. Noisy drilling in the back-room renovation early on a Saturday morning. When approached about this they were dismissive of the rule.
At a 2018 meeting Greg, Karenza, and Caroline arrived at the agreed venue. When phoned to see where they were, both Tracy and Frances gave excuses for pulling out without notice. At 2 meetings called to vote on the share transfer of 2/21, neither Tracy or Frances responded appropriately. In the calling (email) of these Meetings they were given the option of moving the meeting date/time, providing delegates, remote vote by phone in case they proposed time was unsuitable. No response was made, no apologies forward.
At the Director's meeting to resolve use of John Allanson Solicitor services, Tracy immediately attempted to close down the meeting with spurious objections. Later, when Tim Blumentals said that he would take Greg and Caroline to court if we didn't sign the shares transfer he was reminded that he was there as Frances's delegate and only that. He was asked to respectfully not volunteer his own agenda. Ignoring that, he repeated that threat.
It was NOTED that the prospective Transferees had threatened to take us to the Federal Court if the Directors failed to process the Transfer or Shares.
It was NOTED that the communications between the parties involved had become strained and to a point where it had completely broken down."
As referred to at [87] above, Ms Blumentals and Mr Hendy met at the Ivanhoe Hotel on 24 January 2019. According to Ms Blumentals' evidence, Mr Hendy told her that "we agreed as a group not to approve any of your and Tim's requests. We need to 'rein you in'". Mr Hendy denies saying this. On this matter, I reject the evidence of Ms Blumentals and accept the evidence of Mr Hendy. First, Ms Blumentals' detailed account of the words that she says were spoken at that meeting is inherently unlikely to be a reliable account of the words spoken, due to the passage of more than three years between the conversation occurring and Ms Blumentals affirming her affidavit on 10 June 2022. Second, if Mr Hendy had participated in a "group" decision to "rein in" Ms Blumentals, it is inherently unlikely that he would have almost immediately disclosed this to her, thereby arming her to complain about it. Third, Mr Hendy's subsequent conduct is inconsistent with him having participated in a "group" decision to "rein in" Ms Blumentals. For example, it was Mr Hendy who facilitated a directors' meeting to approve works that Ms Blumentals was carrying out in Unit 2 in June 2019, and the directors in fact approved those works. [5]
On 18 February 2019, Ms Pope resigned as a director of the Company.
Mr Hendy sent an email to the directors of the Company on 18 February 2019 setting out various works that were required to the Property, including replacement of the back stairs that were dangerous and in need of replacement. Mr Hendy stated that he had received one quote for $15,000, and that he would be seeking further quotes. Mr Hendy noted that Ms Newstead had advised that "she is unable to fund any major works this year as she has family matters to attend to." Mr Hendy stated that he and Ms Jewell were "happy to fund building works as long as they are agreed to and prioritised in a timeline we can budget for".
Mr Hendy's email raised questions about the composition of the board of directors following the transaction between Ms Pope and Ms Blumentals, the financial position of the Company, and how directors were going to make decisions in circumstances where Ms Blumentals and Ms Newstead had each informed him that they were reluctant to attend any meetings:
"I have spoken with Caroline and Tracy and both have expressed a reluctance to attend a meeting so these matters will remain in this state until that changes and we have a quorum of Directors available to make Company related decisions.
Sale of unit 2/21 - Frances has clearly left the property to Tim and Tracy to take over. However, the Transfer of Shares was rejected by the board so technically they shouldn't be occupying the unit unless there is some other agreement for occupancy that hasn't been shared with the Board.
The reasons for the rejection were circulated in the meeting minutes with the Directors and there has been no attempt made to address any of those concerns and the situation has not changed so the Transfer documentation has been returned to Frances's lawyer.
Frances Pope is still a Director. We received $250 for outstanding levies from HPL lawyers and then she also paid her levies for 01 2019 (Possibly unwittingly). We have no forwarding address and she is not responding to emails. I have included her in this communication. We have received neither a formal request to retire or a resolution to remove her from the Board.
…
The Current funds available in the bank are: $2,873.55
We Owe $1,025 from the levy overpayments above so available amount is $1,848.55.
Looking ahead, financial forecast to end of 02 2019
Income from Q2 Levies $2,300
Water bill Approx $860
Insurance due in May $3,600 (estimate based on last year)
So without the legal costs included we are going to be $3-500 short depending on what those bills come in at. I will notify you when I get them
…
We don't have a functioning Board at present to make decisions on these important matters but will remind you as Directors are liable for all OH&S matters for the building. The back stairs are an urgent OH&S issue and need to be dealt with as a priority."
In about late February 2019, Ms Blumentals replaced the leaking bath and cracked tiling in the bathroom of Unit 1/21. Ms Blumentals informed Mr Hendy in advance about her intention to carry out the work, describing the nature of the work and stating that the layout of the bathroom would not change. The expert report of Mr Redfern confirmed that the location of the bathroom fixtures and fittings had not been changed by the works. There is no evidence that Mr Hendy objected to the work. Mr Hendy's submissions in these proceedings refer to those works as "unauthorised". However, there is no evidence that the work was of a kind that required approval under the House Rules.
On the afternoon of 12 June 2019, Mr Blumentals sent a text message to Mr Hendy, which stated:
"Hi Greg we have a builder coming tomorrow to put in an access door and re-enforce the stairs to stop them moving and making noise… won't start to 10am just letting you know thanks"
Mr Hendy replied:
"Tim, access door? This has never been agreed to. As per the articles of association all building works need to be approved by the board. You will need approvals before anything can go ahead. I can call a meeting but we will need the plans available to review. Do you want me to send an emergency meeting request?"
Mr Blumentals replied to Mr Hendy:
"Hi Greg reinstating doorway between unit 1 and 2 …21 Quinton Road this will reduce traffic around front door … we thought may as well since we are doing building works now and sound proofing … can't imagine it effects anyone negatively .. I hope you will be supportive … please send emergency email thanks"
Mr Hendy replied:
"Personally I think it has large ramifications for the building the constitution of the company and how it's managed moving forward. Which would need investigation. I will send an email shortly. Please confirm you have cancelled the builder."
Mr Blumentals replied to Mr Hendy:
"To be honest Greg the building should never have been turned into units and would never meet today's building code to separate them… we have no intention of selling and would not feel comfortable selling either apartment due to the noise that transfers through the floor and through the walls …."
Ms Blumentals was asked about her understanding of the noise transfer issues referred to in Mr Blumentals' message to Mr Hendy. Ms Blumentals said that she did not know what Mr Blumentals was referring to. However, the sentiments expressed in Mr Blumentals' message to Mr Hendy are consistent with Ms Blumentals' evidence in her affidavit affirmed on 7 August 2023 that Ms Pope had told her in 2017 that she often put the television on in Unit 2/21 "to block out some of the noise from you walking around upstairs". Ms Blumentals deposed that Ms Pope's comment made sense to her, because there were four members of the Blumentals family walking around in Unit 1/21 above Ms Pope's unit. It is convenient to record at this point that Ms Newstead's evidence, and the submissions made on her behalf, sought to portray Ms Blumentals and her family as unreasonably noisy. However, there is no evidence of any formal complaint ever having been made by the Company against Ms Blumentals in relation to noise under clause 6 of the House Rules. Some level of noise must be tolerated as part of the "give and take" between neighbours in a heritage building that has been converted into units. The evidence does not provide a sufficient basis for any finding about whether noise generated by Ms Blumentals and her family was excessive.
Mr Hendy sent an email to himself at about 10:30pm on 12 June 2019 setting out his note of his interaction with Mr and Ms Blumentals earlier that evening:
"Text message from Tim received advising that they have a builder coming to knock through the wall tomorrow
Conversation screenshots
5:54pm
Text from Tracy - Greg give me a call when you can Thanks, If you're around let me know.
Called and had 15min phone conversation
Tracy advised that she won't come to a meeting and that she wanted me to come around and look at what they are proposing.
I advised that it would still need to be discussed at a meeting and formally approved.
To this she argued and got aggressive, suggested that we never sought approval for our kitchen makeover and that its one rule for us and another for them. She felt that ever since they moved in we have said no to everything that they have wanted to do. At one stage she told me to shut the F up.
I stated I would not tolerate being sent a text message instruction that they were making changes to the building the next day.
I said I was not a mediator between her and Caroline and that they need to gain her approval.
I asked Tracy to write an email proposing what they intended to everyone including pictures and we could take it from there.
They invited me over and at 9pm myself and Karenza went over and were shown the doorway location.
Tim reiterated that if they were to sell the property the doorway would be rebricked over and that it was purely for the convenience of them not having to walk around the property.
Tim also mentioned in passing that:
Company title law was archaic and out of date
That the federal court can no longer be bothered with it
that they only need our approval to proceed because Tracy is 2 Directors and they would only need one more.
That Frances always wanted the kitchen above moved and that she was bullied by Caroline into not allowing it.
They conceded to doing the sound proofing was a favour to us and that they didn't need to do it
The door would be a solid core door same height and size opening as the kitchen one opposite it.
When asked if the downstairs would become the main kitchen for the 2 apartments he said no the upstairs would remain as is.
He said he wants to get it done on Friday."
On 14 June 2019, Mr Hendy sent an email to the directors referring to his previous "company update" sent on 18 February 2019 and stating that "matters are still pending and will remain open until we have a quorum of Directors available to make Company related decisions. I have requested meetings but Directors have expressed that they will not attend." Mr Hendy referred to a special levy request that had been made on 8 May 2019 because "we did not have enough funds to pay for basic building fees including Insurance and Water." Mr Hendy stated that shareholders had not agreed to the special levy, and that he and Ms Jewell had paid the 2019-2020 insurance out of their own personal funds. Mr Hendy also stated that the back stairs had not yet been replaced and were "getting worse by the day". He expressed the view that the stairs were "an OH&S issue and should be the top priority". Mr Hendy also listed works that Mr and Ms Blumentals had undertaken or were undertaking to Unit 2/21:
"Alterations/Renovations/Works
Tim and Tracy have or are carrying out the following works to my knowledge:
Installing under floor ventilation - Completed
Fixing up floors in Kitchen and Pantry - Completed
Installing new kitchen - In Progress
Installing an Access door - Not started,
Re-enforcing the stairs to stop them moving - Not started
Fence renewal - Not started"
Mr Hendy requested a meeting on 20 June 2019. The meeting took place with Mr Hendy, Ms Jewell, and Ms Newstead attending in person, and Mr Blumentals attending by telephone. In relation to the financial position of the Company, the minutes of the meeting record:
"Company secretary update on Finances and recurring bills
Greg had paid for the Insurance out of our own funds as there was no money left after paying for the Legal fees. A $400 levy was proposed by Greg to cover it and put us back in the black but this was not agreed to by either Caroline or Tim and Tracy. Caroline argued that she had paid her share and would not pay any more and Tim and Tracy argued they didn't agree to get Legal advice and had their own legal fees to pay.
Agreed to leave as is and Greg to be paid back after next round of levies had been paid."
In relation to the ownership of Unit 2/21, the minutes of the meeting record:
"Share certificate for Unit 2/21
To consider and, if thought fit, pass a resolution as an ordinary resolution: That the Shares associated with Unit 2/21 Quinton road, Manly be transferred to Tracy Blumentals of Unit 2/21 Quinton Road, Manly. NSW.
Notes from discussion: Referred to previous meeting outcomes and reasons for not agreeing to the share transfer. Agreed to hold off and review at next meeting.
Decision: No decision made
Actions: Review next meeting"
In relation to the works being carried out to Unit 2/21, the minutes of the meeting record discussion about the doorway that Mr and Ms Blumentals were proposing to install to facilitate access between Unit 1/21 and Unit 2/21. The minutes record that Mr Blumentals confirmed that the door was an internal access door between the two units and was not to be treated as joining the two units as one property, and that the doorway would be bricked up if Ms Blumentals sold one or both of the units. The minutes record that Mr Blumentals agreed that the kitchen in Unit 2/21 would not be used as the main kitchen for the two units (which would cause increased stair traffic and associated noise), and informed the meeting that he was looking into noise dampening solutions for the stairs. The minutes also record that Mr Blumentals told the meeting that, if the doorway caused problems for other units, he and Ms Blumentals would brick it up again. The minutes do not record any decision taken or actions agreed upon in relation to the proposed doorway. In relation to the renovation of the kitchen in Unit 2/21, the minutes state (emphasis in original):
"Unit 2/21 Kitchen renovation
To Consider and, if thought fit, approve the kitchen renovation planned for Unit 2/21 Quinton road.
Notes Tim outlined what they were planning for the new kitchen. Included island with sink and dishwasher, Floor to ceiling cupboards with bench on common wall. Fridge in cupboard opposite bathroom. Will install soundproofing behind cupboards on common wall in kitchen. Greg and Karenza agreed to contribute towards materials for that.
Decision: Approved.
Actions: Tim to proceed with renovation and keep us updated of progress."
The minutes also record discussion of various works required for the ongoing maintenance of the building. It was agreed that the back stairs should be replaced as a priority and that Mr Blumentals and Ms Newstead would obtain quotes to be considered at the next meeting. The minutes record discussion about when to replace or repair the pointing of the brickwork of the building. An updated quote from Premier Pointing was reviewed and discussed. According to the minutes, Mr and Ms Blumentals were happy to proceed with that work on the front, side, and rear of the 21 Quinton Road side of the building. Mr Hendy and Ms Jewell were content with the quote, and were happy to proceed with the front and back of the 19 Quinton Road side of the building, but were still undecided about whether to proceed with the repair and replacement on the side wall of the building because that increased the cost of the work dramatically. Ms Newstead was agreeable with the updated quote and the proposed work, and was in favour of including the side walls of the building, but did not currently have the funds to contribute to the cost of the work.
A general meeting of the Company was held on 4 September 2019. Mr Hendy, Ms Jewell, and Mr Blumentals attended in person. A person named Mark attended by telephone as proxy for Ms Newstead. The minutes of the meeting record that Mr Hendy and Ms Jewell had paid for the Company's insurance, and that the Company still had insufficient funds to reimburse them for this cost. It was resolved that they would be reimbursed as soon as there were sufficient funds to do so.
In relation to the Unit 2/21 shares, the minutes record (emphasis in original):
"Frances was still noted as being a shareholder and the board must move to resolve the dispute and get her removed and the register updated with ASIC.
Share certificate for Unit 2/21
To consider and, if thought fit, pass a resolution as an ordinary resolution: That the Shares associated with Unit 2/21 Quinton road, Manly be transferred to Tracy Blumentals of Unit 2/21 Quinton Road, Manly. NSW.
Notes from discussion.
Frances has resigned as s Director in February. Question was put is Frances still a Shareholder? Currently the structure is 3 Directors Tracy, Caroline and Greg. 4 Shareholders Frances, Tracy, Caroline, Greg and Karenza (Joint holders).
Tim stated that they were advised that as Tracy had previously been accepted as a shareholder for the purchase of Unit 1/21 there was no requirement to be accepted for the purchase of 2/21.
Tim suggested that there was an agreement that they would put sound proofing in the kitchen if Greg and Karenza voted in favour of the share transfer. This was refuted by Greg and Karenza who stated that they did not agree to that the only way the decision could be made was by vote at an appropriately convened meeting.
Tim noted that they had made many improvements to their side of the building, admittedly unapproved but in most cases were for the good of the building, noting the underfloor ventilation that had a positive impact. Karenza noted that we would have done the same had we known about it and that these sorts of changes should be done by the Company for the good of the entire building.
Tim also stated that moving the kitchen/creating an extra bedroom were done for the benefit of his family so the space works for them, a concern about outside plumbing was rectified by routing internally and the changes made were never about making it a 3 bedroom for financial gain.
Mark noted that the reason for the rejection still stood and that was changes were made to the layout of the apartment moving the kitchen to the front and making it into a 3 bedroom all of which were rejected in a meeting, but they went ahead and made the changes anyway without approval.
Making unapproved alterations to the apartment and not adhering to house rules made it impossible and irresponsible for the board to vote in favor of the share transfer.
This also raised concerns that the alterations could increase fire and flooding risk, impact the insurance on the building and done without council approval.
Tim stated that this sort of alteration was specified as exempt on the Northern Beaches Council planning guidelines website, so no approval was required. Clarification for this should be sought.
Tim also asked if Greg and Karenza obtained Council approval for their kitchen, they didn't as it was never requested but would have if necessary and are happy to check with Council on this.
Decision: No decision made, defer until action items completed.
Actions:
Greg to check with the insurance provider to see if changes impact the insurance and are changes required to the policy.
Clarify Northern beaches council position on Kitchen layout changes."
The minutes record discussion about work required to repair or replace the back stairs to the Property, and to replace or repair the pointing of the brickwork on both sides of the building. The minutes also note that the renovation of the kitchen in Unit 2/21 had been completed.
I observe that it is difficult to reconcile the directors' view in September 2019 that it would be "irresponsible" to approve the transfer of the Unit 2/21 shares to Ms Blumentals due to her conduct carrying out the unauthorised kitchen relocation and associated works in Unit 2/12 in late 2017 and early 2018, with the fact that the Company had been accepting Ms Blumentals' payment of levies in respect of Unit 2/21 since December 2018, and the fact that the directors had acquiesced in Ms Blumentals' occupation of Unit 2/21, including by approving her renovations to that unit in June 2019.
Ms Newstead made inquiries of the Company's insurer about any impact on the insurance policy resulting from the Unit 1/21 kitchen relocation. On 26 November 2019, Ms Newstead sent an email to Mr Hendy, Ms Jewell, and Ms Blumentals stating:
"I have contacted our insurance company regarding changes made by Tracy Blumentals - kitchen/bedroom - at 1/21. They have advised that these changes invalidate our policy with them in regards to any damages incurred associated with any aspect of the changes.
It would be irresponsible of myself and any other Meglo-Yowrie director not to call for the reversal of these changes.
I call for the reversal and seek a seconding of the motion please. This matter requires immediate attention"
Mr Hendy replied later that day, stating that he had contacted the insurance company on 4 October 2019 and been advised that "the changes did not have any impact on the policy".
There is no evidence of any written advice from the Company's insurer to Mr Hendy that there was no impact on the insurance policy. Nor is there any evidence of any written advice from the Company's insurer to Ms Newstead to the effect that the policy was invalidated by the alterations made to Unit 1/21 in December 2017 and January 2018, or that the policy would not respond to any claims for any damage incurred that was associated with those alterations. There is evidence of an email from an underwriter at the insurer to Ms Newstead dated 2 December 2019, which refers to the policy wording that the Company is insured (up to the policy limit) for damage to its building and common area contents that occurs during the period of insurance that is not otherwise excluded by the policy. The email does not refer to the nature or terms of the exclusions. The email then states: "It could cause complications in the event of a claim if there are unauthorised building works. However our policy is to repair/replace the building by bringing it to the way it was (prior to the damage)." That vague and equivocal response is unhelpful and uninformative. There is no evidence that Ms Newstead or anyone else made any further inquiries on behalf of the Company. The evidence does not provide a sufficient basis upon which to determine whether the alterations made to Unit 1/21 in December 2017 and January 2018 in fact had any adverse impact on the Company's insurance policy.
In about November 2019, Mr and Ms Blumentals corresponded with the Council in relation to the work that they had undertaken in Unit 1/21. The Council inspected the Property on 22 January 2020. On 14 February 2020 the Council notified Ms Blumentals that the Council "has considered the impact of the unauthorised works and has determined to take no further action at this time". Ms Blumentals was advised to lodge an application for a building certificate if she wanted to seek formal approval of the work for her own records or for insurance purposes. Ms Newstead complained to the Council about this outcome, to no avail. Ms Newstead considered making a complaint to the Ombudsman about the Council's response, but ultimately did not pursue that course.
In February and early March 2020, Mr Hendy corresponded with the other shareholders about a proposed special levy for the replacement of the back stairs and to raise the funds required to carrying out the pointing work that the directors had agreed to prioritise on 17 September 2018, and which they had discussed again at the meeting on 20 June 2019. In relation to the pointing work, Mr Hendy's advised the other shareholders on 19 February 2020 that Premium Pointing would need to see proof of full funding for the project. Mr Hendy advised that it would therefore be necessary to raise a special levy in the total amount of $60,000. Mr Blumentals replied that he and Ms Blumentals were happy to pay their share of the pointing cost, but that, "as we are expected to pay half we would expect that we receive our share certificate for 2/21 Quinton Road first". Ms Newstead replied: "Hi Tim. We don't do strong arm tactics here". There is no evidence of any other response by any other shareholder, or on behalf of the Company, to Mr Blumentals' suggestion that, if he and Ms Blumentals were expected to pay 50 per cent of the special levy being raised by the Company for works to the building, then the Company should issue Ms Blumentals with a share certificate in respect of the Unit 2/21 class of shares so that she would be the registered holder of 50 per cent of the shares in the Company. I note that the Company had been accepting payment from Ms Blumentals of ordinary levies for Unit 2/21 since December 2018.
On 13 March 2020, Mr Hendy sent a further email to all other shareholders providing a breakdown of the latest quote from Premier Pointing of $29,180 for the 19 Quinton Road side of the building (equating to $14,590 for each of Unit 1/19 and Unit 2/19) and $32,326 for the 21 Quinton Road side of the building. Mr Blumentals replied to Mr Hendy's email, raising two points:
"Firstly I don't understand why our side is more expensive …. If it is the building it should be split 4 ways.
Secondly without our finalised entitlement to Unit 2 i.e. Share certificate we are not happy to contribute."
Mr Hendy replied:
"To your first point that's the way we've been calculating it up until now. From the start you have stated you will pay your side and we will pay ours. I wasn't aware of that changing and hadn't considered it.
To your second point, if that's your decision then I will call Premier pointing today and let them know we are not proceeding."
Mr Blumentals replied:
"Well let them know we are not proceeding."
The back and side fences of the Property were dilapidated and in need of replacement. On 30 March 2020, Ms Blumentals sent an email to the other shareholders with details of quotes that she had obtained for replacement of the back fence (including an additional gate on the 21 Quinton Road side of the back fence to be installed at Ms Blumentals' cost, to match an existing gate on the 19 Quinton Road side of the back fence), and the replacement of the side fence on the 21 Quinton Road side of the building. The email stated that the owners of 23 Quinton Road would meet half the cost of replacing the side fence between 21 and 23 Quinton Road. Ms Newstead replied the following day that, since Ms Blumentals had "put on record" that she would pay for the cost of replacing the 21/23 Quinton Road side fence, she should "go ahead if you feel it's urgent". In fact, Ms Blumentals' email had not stated that she agreed to bear the cost of replacing the side fence. As the side fence was property for which the Company was responsible together with the owners of 23 Quinton Road, there was no reason why Ms Blumentals should bear that cost personally. Ms Newstead's email also stated that she would vote on the proposed replacement of the back fence if and when a vote was organised.
Mr Hendy, Ms Jewell, and Ms Newstead held a meeting on 4 April 2020 at which they resolved to replace the back fence without the additional gate requested by Ms Blumentals. Ms Blumentals subsequently replaced half of the back fence on the 21 Quinton Road side of the building in April 2020, including installing the gate that she had requested, at her own cost. According to her own evidence, she did this in frustration at not having received any response from the other shareholders to a fencing quotation that she submitted for their consideration on 20 April 2020. As was submitted on behalf of Mr Hendy, Ms Blumentals had not been authorised to carry out this work to the Company's property. By doing so, she created an absurd situation - the Property had a half-new and half-dilapidated back fence. This was addressed by the Company replacing the 19 Quinton Road half of the back fence. Ms Blumentals asserted in her affidavit affirmed on 25 September 2023 that the cost of replacing the 19 Quinton Road half of the back fence was paid for by the Company. However, Mr Hendy gave evidence in cross-examination that the Company raised the funds for that work by a special levy that was imposed on Mr Hendy and Ms Newstead only. The cross-examiner did not challenge Mr Hendy's account that the occupants of the 19 Quinton Road side of the building paid the whole of the cost of replacing that half of the back fence.
The back stairs had been replaced by April 2020. Ms Blumentals paid 50 per cent of the cost.
Ms Newstead took steps in May 2020 to engage Strata Embassy as managing agents for the Property in consultation with Mr Hendy and Ms Jewell, but without consulting Mr and Ms Blumentals. Strata Embassy were appointed by a vote of directors taken on the papers on 26 June 2020. The notice of meeting to be conducted on the papers was emailed to all directors, including Ms Blumentals, on 19 June 2020. Only Ms Newstead and Mr Hendy participated in the vote.
Shortly after the managing agent was appointed, Mr Cabello of Strata Embassy told Ms Blumentals that she was not responsible for paying the levies for Unit 2/21 as she had not been issued with the relevant share certificate. Ms Pope remained responsible for those levies, as the shares were still registered in her name. Acting on Mr Cabello's advice, Ms Blumentals ceased paying levies for Unit 2/21 on the basis that, as she told Mr Cabello, she would pay the levies as soon as the shares were registered in her name. In her affidavit affirmed on 25 September 2023, Ms Blumentals confirmed that: "As soon as the company registers my shareholder, I will pay the levies for Unit 2. I do not believe that I am required to do this when Mr Newstead and the company have expressed an intention to refuse the registration of my shares". The submissions made on behalf of Ms Blumentals in these proceedings confirm that her intention is to pay the levies for Unit 2/21 in respect of the period since July 2020, and also to commence paying the levies for Unit 2/21 going forward, if the Company transfers the Unit 2/21 class of shares to her.
From July 2020, Ms Blumentals withheld payment of levies for Unit 1/21. Ms Blumentals' evidence did not explain her reasons for doing so. Ms Blumentals did not recommence paying levies for Unit 1/21 until January 2022.
Ms Newstead made inquiries with the Office of State Revenue on 28 September 2020 about whether Ms Blumentals had paid stamp duty in respect of the transfer of Ms Pope's shares. Ms Newstead's email to the Office of State Revenue stated that she was "being put under significant pressure to approve" the transfer of shares from Ms Pope to Ms Blumentals "in the absence of any documentation/evidence of proper purchase process" and that "I do not want to be found guilty of approving a transfer when stampduty/proper process by Tracy Blumentals in this matter is amiss". Ms Newstead expressed similar sentiments in an email to Mr Hendy and Ms Jewell dated 25 September 2020, that she believed that Mr Blumentals had sought to avoid paying stamp duty, and that he had "put us through hell to save himself $40000 …. All that misery to our lives and manipulation to make a profit." Ms Newstead added: "If we had done the transfer without the proper documentation we would be guilty of assisting in tax evasion". Ms Newstead's belief that Mr and Ms Blumentals had evaded stamp duty was baseless. As was pointed out to her in cross-examination, the transfer document that Ms Blumentals' solicitor had sent to the Company for registration on 20 December 2018 was stamped. The Office of State Revenue responded to Ms Newstead's inquiry on 29 September 2020 confirming that stamp duty had been paid.
In about November 2020, Ms Blumentals installed a security camera on the outside wall at the rear of Unit 1/21. She did not obtain the Company's approval to affix the camera to the outside wall.
In March 2021, the directors were obtaining quotes for repairs to the roof of the Property. Ms Newstead was dissatisfied with the time being taken to arrange the repairs, which she considered to be urgent. On 25 March 2021, Ms Newstead sent an email to Mr Cabello of Strata Embassy, Mr Hendy, and Ms Jewell stating that she had made arrangements to have the roof fixed because she was not prepared to wait any longer. Ms Newstead did not include Ms Blumentals in this email. Mr Cabello replied:
"Caroline
Stop, the Company is charged with maintaining the roof and no one has authority to undertake works as you are aware.
I will pick up the discussion where we left off about the quotation obtained. I think all Directors want to assist you in fixing the roof and maintaining the property. It is finalising and agreeing to a scope of works and committing to the expense."
Ms Newstead responded, criticising Mr Cabello for adopting what she described as a "patronising" attitude towards her and disputing that she did not have the directors' support to fund the roof work. Ms Newstead maintained that she was arranging the roof repairs "for the protection of the building's structural integrity".
Mr Cabello replied, denying that he had been patronising, identifying the quote that was before the directors for consideration, and noting that Mr Hendy had raised the question whether they should investigate whether the work now required was covered by a warranty given by tradespersons who had undertaken previous repairs to the roof. Mr Hendy also replied, confirming that he wanted the warranty issue to be considered. Ms Newstead replied to Mr Hendy, criticising Mr Cabello and not addressing the issue raised by Mr Hendy about whether the work now required could be done under warranty. Ms Newstead proceeded by arranging and paying for the work, for which she later required the Company to reimburse her.
The March 2021 email exchanges concerning the roof included Mr Cabello and other Strata Embassy representatives, Ms Newstead, Mr Hendy, and Ms Jewell. Ms Blumentals was not copied into any of those emails.
On 27 August 2021, Ms Newstead sent an email to Mr Hendy advocating for the impasse about the ownership of Unit 2/21 to be resolved by Ms Pope transferring the shares to a new owner approved by the directors, with the purchase price being paid to Mr and Ms Blumentals. Ms Newstead informed Mr Hendy that she intended to raise this at a forthcoming meeting.
The Company's insurance policy for the Property expired on 30 August 2021 because the premium had not been paid. Mr Hendy sent an email to Mr Cabello of Strata Embassy on 1 September 2021 advising him of this and stating that Mr Hendy understood that the water bills for the Property had not been paid. Mr Hendy's email stated that "there are owners who are deliberately withholding their levy payments that have caused this situation". Mr Hendy requested that Mr Cabello immediately advise all directors and shareholders of the Company's bank account balance, the amount of levies outstanding per unit, and the current list of debtors. I infer that Mr Hendy intended to request a list of creditors, rather than debtors, as the Company's debtors would be identified by the information about outstanding levies. Mr Hendy stated that, after receipt of that information, he intended to issue a demand for all outstanding levies within 14 days. Mr Hendy confirmed in cross-examination that he considered that Mr and Ms Blumentals were responsible for paying levies in respect of Unit 2/21.
Mr Cabello did not respond to Mr Hendy's 1 September 2021 email. Mr Hendy followed this up with another representative of Strata Embassy by email on 27 September 2021. Mr Hendy's email stated:
"… over the weekend the Shareholders who have not paid levies began construction work on 2 bathrooms in their unit without approval to go ahead. …
The Insurance that you arranged has expired because we have no funds. I have called CHU this morning to arrange cover myself. …
We have no insight into how much they owe in Levies - my approx. calculations are roughly $9000 - which I think is how much we owe in Water bills and Insurance - again I don't know as this info is not being circulated to us."
In cross-examination, Mr Hendy said that he was referring to Mr and Ms Blumentals when he wrote that he did not know "how much they owe in Levies".
On 29 September 2021, Mr Cabello sent an email to the directors stating that the Company was insolvent.
By the end of September 2021, Ms Blumentals had renovated the bathroom in Unit 1/21. Ms Blumentals gave evidence in cross-examination that this work had not involved relocating the bathroom fittings and fixtures, and the position of the shower, toilet, and bath. In his expert report based on his inspection of the Property on 1 February 2023, Mr Redfern opined that the fixtures and fittings had been relocated. His opinion was based on his comparison between the layout of the bathroom on the date of inspection and the layout of a bathroom depicted in a photograph provided to him by the Company which he was instructed, and which he assumed, was a photograph of the bathroom in Unit 1/21 taken before Ms Blumentals moved in. The defendants did not adduce any evidence proving Mr Redfern's assumption concerning that photograph, which was the sole basis for his opinion that the Unit 1/21 bathroom fixtures and fittings had been relocated. Accordingly, the evidence does not prove the defendants' contentions that the fixtures and fittings were relocated, and that Company approval for the bathroom renovation was required under the House Rules. I therefore reject the submission made on behalf of Mr Hendy that these bathroom works were "unauthorised".
On 1 October 2021, Ms Newstead tendered her resignation as chairperson of the Company, effective immediately.
Strata Embassy resigned as managing agents of the Property on 15 October 2021 citing "the impasse between shareholders", the directors' rejection of Strata Embassy's advice about "a pathway forward to resolve the matter of transmission of shares and recovery of outstanding levy contributions", and the lack of funding to pay outstanding creditors of the Company, including utilities. In a text message sent to Mr Hendy at this time, Mr Cabello also expressed concern about the risk to Strata Embassy in managing an uninsured building.
In late October and early November 2021, Mr Hendy and Ms Newstead approached Fresh Strata to be appointed as the new managing agent for the building. Contemporaneous correspondence between them and Mr Newmarch of Fresh Strata records their communications for the purpose of arranging a general meeting for shareholders to vote on the appointment, and resolutions concerning outstanding levies and other matters that Ms Newstead wished to include on the agenda for that meeting. Mr and Ms Blumentals were not included in that email correspondence. It appears that there was some discussion between Mr Hendy and Mr Newmarch about whether Fresh Strata could be appointed in the context of the ongoing dispute involving Mr and Ms Blumentals. On 29 October 2021, Mr Newmarch sent an email to Mr Hendy stating that Fresh Strata was in the process of taking legal advice about that question. Mr Hendy replied on 1 November 2021, stating:
"One thing I would highlight is our Articles of association say that members who are not financial cannot vote. The Blumentals have not paid levies for over 18 months so I assume that whatever type of meeting we have they would not be eligible to vote anyway?"
On 9 November 2021, Mr Newmarch emailed a notice of extraordinary general meeting to all shareholders. Mr and Ms Blumentals replied to Mr Newmarch's email later that evening:
"… we are surprised to have received your correspondence as to your appointment and we have not had any opportunity to voice our concerns or motions.
How can an insolvent company engage your services?
That said we will not be attending the EGM as we are still not in receipt of our Share Certification for our purchase on 2/21 Quinton Road (purchased 19th December 2018), which we a legally entitled to. The previous Strata company informed the Directors of Meglo-Yowrie that they are obliged to issue the share certificate.
We were also promised this share certificate by Greg Hendy and Karenza Jewell when we installed the sound proofing in our kitchen back in early 2019.
As we have stated many times, levies can be paid when our ownership is recognized. Please note we have asked and never received a statement regarding any levies owed.
…"
In cross-examination, Mr Hendy gave evidence to the effect that formal invoices for levies had not been issued, but that everybody understood that the levies were $575 per quarter for each Unit.
Mr Newmarch replied to Mr and Ms Blumentals by email on 10 November 2021 that the extraordinary general meeting had been "duly requisitioned by the Directors under their delegated authority". Mr Newmarch also stated that the solvency status of the Company did not affect its ability to convene a meeting or to appoint a managing agent, and that funds to pay for the agent's services could be raised by special levy in accordance with a resolution of directors.
The resolution to appoint Fresh Strata as managing agents for the Property was carried at the extraordinary general meeting, which was held on 17 November 2021. Mr and Ms Blumentals did not attend the meeting, as foreshadowed in their 9 November 2021 email to Mr Newmarch. Ms Newstead, Mr Hendy, and Ms Jewell did attend. Several other resolutions were carried, including a resolution to immediately issue a letter of demand to Ms Pope and Ms Blumentals for unpaid levies, and a resolution to charge interest at the rate of 10 per cent per annum on unpaid levies.
Counsel for Ms Blumentals submitted that Ms Blumentals was not advised about the appointment of Fresh Strata, that she was not involved in the vote "purporting to appoint" Fresh Strata, and that the appointment was made by Mr Hendy, Ms Jewell, and Ms Newstead "on the false basis that Ms Blumentals was unfinancial at the time". [6] I reject that submission. On Ms Blumentals' own evidence, she was unfinancial at the time because she had deliberately ceased paying levies in respect of Unit 1/21 in July 2020. She did not resume paying those levies until January 2022. Ms Blumentals was given notice of the meeting at which the appointment of Fresh Strata was to be put to a vote. Mr and Ms Blumentals told Mr Newmarch that they refused to attend the meeting. The reason cited by Mr and Ms Blumentals was that they had not yet been provided with a share certificate for the Unit 2/21 class of shares. It would be irrational for Ms Blumentals to abstain from participating in the meeting on that basis, given that the matters to be determined also affected Unit 1/21. I infer that the true reason why Mr and Ms Blumentals did not attend that meeting was that they well knew that they had not paid levies for Unit 1/21, and they knew that they would therefore not be entitled to vote. They did not wish to attend the meeting only to be told by Ms Newstead that they were not allowed to vote.
The resolution passed at the extraordinary general meeting on 17 November 2021 to immediately issue a demand to Ms Pope and Ms Blumentals for outstanding levies was not able to be actioned because the Company did not even know the amount of levies outstanding in respect of Unit 2/21 at this time. As will become apparent below, it took a further six months after the extraordinary general meeting for Mr Newmarch to obtain and review the Company's financial records in order to calculate the levies outstanding in respect of Unit 2/21, and to ascertain the position in relation to levies in respect of each other Unit. Once that exercise had been completed, the demand in respect of Unit 2/21 was issued to Ms Blumentals, not to Ms Pope.
On 13 January 2022, Mr Nathan Newmarch of Fresh Strata sent an email to Ms Newstead which stated:
"With regards the outstanding debt on the other two lots, I have spoken to the shareholder and she is willing to pay the outstanding levies on 1/21 Quinten Rd immediately - however without the financial information from Ben, I cannot calculate what the levy arrears are or what the opening balances for each lot should be.
She is still disputing the levies for lot 2/21 Quinton Rd as she does not have a share certificate. The ownership of this lot is in question currently.
If the company states she is not the shareholder of 2/21 Quinton Rd and the records reflect as such then we would be able to commence debt recovery proceedings against the registered shareholder, i.e. the person she claims to have bought the shares from."
Ms Newstead's reply to Mr Newmarch on 13 January 2022, which was copied to Mr Hendy, stated:
"Tracy Blumentals has moved into apartment 2/21, renovated it, and structurally joined it to unit 1/21 so I am surprised she draws the line at paying the levies for it as she had done until recently! Having said that the unit is held through share ownership to Frances Clarice Pope and there is no evidence to the contrary, either in the company's Agreement share transfer (which has been unanimously voted against) or in legal conveyancing paperwork. Frances Pope is liable for the outstanding levies and a letter of demand including Lien should be sent through to her.
There is no legal dispute over who owns the shares to 2/21. Tracy Blumentals quotes fatuous details of the company's constitution with the hope that shareholders will be fazed and agree to a transfer of 2/21 to her ownership."
In cross-examination, Ms Newstead confirmed that she expected Ms Blumentals to pay levies in respect of Unit 2/21, notwithstanding the suggestion in her 13 January 2022 email to Mr Newmarch that a letter of demand be issued to Ms Pope. There is no evidence that the Company ever acted on Ms Newstead's suggestion to issue a letter of demand to Ms Pope.
Consistently with what she had told Mr Newmarch, Ms Blumentals did pay the outstanding levies for Unit 1/21 in January 2022, and continued paying the levies for that Unit going forward.
On 21 January 2022, the directors of the Company resolved to raise a special levy of $28,000 payable by shareholders in accordance with their shareholdings in two instalments to fund the costs of outstanding overdue invoices to Sydney Water, insurance costs, managing agent fees, and the day-to-day running of the Company. The first instalment was payable on 22 January 2022 and the second instalment was payable on 10 February 2022.
On 22 January 2022, Ms Heather Byrne - an accountant acting for Ms Blumentals - followed up on her request made to Ms Newstead and Mr Hendy as the directors of the Company on 1 December 2021 for "a Share Transfer Certificate". Ms Byrne's email to Ms Newstead on 22 January 2022 (which Ms Newstead forwarded on to Mr Hendy, Ms Blumentals and Mr Newmarch) stated: "please just execute the share transfer or explain why it cannot be done". I infer that Ms Byrne was in fact requesting that the directors approve the registration of the share transfer that had been executed by Ms Pope and Ms Blumentals.
On 21 February 2022, solicitors acting for Ms Blumentals wrote to the directors of the Company referring to the transfer of the Unit 2/21 class of shares that had previously been sent to the directors for registration, and to the directors' refusal to register the transfer to date. The letter stated:
"… We consider that the grounds on which you have sought to justify your refusal to register the share transfer do not have a proper legal basis. We also consider that in view of the fact that our client has previously been approved as a member of your company, you do not have discretion under clause 34 of your company's constitution to refuse to register the share transfer. Accordingly, your refusal or failure to register the transfer of the shares is without just cause.
We request that you give this matter your urgent attention and that, in any case, you register the transfer of the shares and confirm such registration to us within ten (10) working days of the date of this letter.
… if the transfer of the shares has not been registered within the time stipulated in this letter then our client will be at liberty to take whatever action she may be advised. This would likely include making an application to the Court against you personally and your company for orders pursuant to Section 1071F of the Corporations Act 2001 (Cth) and for costs."
There is no evidence that the directors met - either in person or by a meeting conducted on the papers - to consider and make a decision under Article 34 about the registration of the Unit 2/21 share transfer after receiving the correspondence from Ms Blumentals' accountant in December and January 2022, and after receiving the correspondence from Ms Blumentals' solicitors in February 2022. By taking no action in response to those requests, the directors constructively refused to revisit their earlier decision made on 17 January 2019, and thereby continued to decline to register the share transfer to Ms Blumentals. There is no evidence of any response sent on behalf of the Company to the correspondence received from Ms Blumentals' accountant and solicitors.
At 3:51pm on 26 April 2022, Ms Blumentals' solicitor sent an email to the directors of the Company attaching a letter in the following terms (emphasis in original):
"We refer to the letter dated 24 December 2018 sent by Ms Alexandra Chisari on behalf of the Norton Law Group to the director of Meglo-Yowrie Flat Units Pty Ltd (the Company) which enclosed the following documents:
1. Original Share Certificate from Frances Pope;
2. Direction from Frances Pope to register the shares to Tracy Blumentals; and
3. Stamped and executed Share Transfer.
We note that the Company minutes dated 17 January 2019 record those documents as having been received by the Board.
We note, that the Board meeting, on 17 January 2019 formally considered the exercise of the directors' power to decline the transfer of shares under Article 34 of the Company articles of association and a formal resolution was passed rejecting the transfer of shares.
We remind you of several attempts initiated by our client between 2018 and 2021 to resolve this dispute through negotiation.
We refer to further correspondence from Schweizer Kobras dated 21 February 2022 in which Ms Newstead (purportedly on behalf of the Board) refused once again to register the share transfer.
The purpose of this letter is to make a final formal request to the Board to register the share transfer from Frances Pope to Tracy Blumentals.
If this has not taken place within 10 days of the date of this letter, namely by Friday, 6 May 2022, then we have instructions to commence proceedings in the Equity Division (Corporations List) of the Supreme Court of New South Wales without further notice to the Board.
Please be advised that we will rely on this letter in an application for the award of our client's costs on the indemnity basis against the Company.
We look forward to receiving your confirmation that the share transfer has been registered."
Ms Newstead replied to Ms Blumentals' solicitor at 4:10pm - just 20 minutes after receiving the email - stating: "I will see you in the Supreme Court if that is the action your client takes".
In May 2022, Fresh Strata undertook a "bank reconciliation/levy record rebuild" for the Company, concluding that Ms Newstead owed an amount of $702 in levies for Unit 1/19, Mr Hendy and Ms Jewell were $575 in credit in respect of Unit 2/19 levies, Ms Blumentals was $3,255 in credit in respect of levies for Unit 1/21, and that administrative levies of $2,300 and special levies of $7,000 were owing in respect of Unit 2/21. I infer from this that the special levy raised in January 2022 had been paid for Unit 1/21, but had not been paid for Unit 2/21.
On 9 June 2022, Ms Katherine Tipper of Fresh Strata sent an email to the directors of the Company stating that the awning at the front of the building had been damaged, and that quotes to restore the awning and re-install it at the front of the building had been received in amounts ranging from $1,250 to $5,995. Ms Newstead replied, stating:
"There are a number of repairs required, some of an outstanding and pressing nature, already logged as priorities. Please organise an AGM so that projects requiring funding can be voted on."
Mr Hendy and Ms Jewell commenced work on renovations to the bathroom of Unit 2/19 on 21 June 2022 without prior approval from the directors of the Company to carry out those works. Approval was required under the House Rules because the work involved moving plumbing outlets. Approval was given at a hastily convened meeting on the morning of 21 June 2022, after the works had already commenced.
On or about 21 June 2022, Fresh Strata, on behalf of the Company, issued the following statement:
I reject the submissions made on behalf of Ms Newstead that this statement was issued to Ms Pope rather than to Ms Blumentals, or that it was sent to Ms Blumentals in the expectation that it would be paid by Ms Pope. The notice was not sent to the address of Ms Pope. The address list under Ms Pope's name on the notice was Unit 2/21, where Ms Blumentals and her family had been living since December 2018, as all directors and shareholders of the Company were well aware. The reference to Ms Pope on the right-hand side of the page merely identifies Ms Pope as the person whom the Company recognised as the registered holder of the Unit 2/21 shares. The only conceivable reason for the statement to be addressed and sent to Ms Blumentals was that the Company looked to Ms Blumentals, and to her alone, to pay the Unit 2/21 levies. That is consistent with the contemporaneous documents and conduct of Mr Hendy and Ms Newstead referred to above. [7]
These proceedings were commenced on 14 June 2022.
On 24 June 2022, the majority of directors voted on the papers to defend the proceedings.
On 13 July 2022, a directors meeting was conducted on the papers, with voting by email. Mr Hendy and Ms Newstead resolved for the Company to commence and prosecute a cross-summons against Ms Blumentals, and to appoint Grace Lawyers to act for the Company in defending the proceedings and in prosecuting the cross-summons. At that stage, the proceedings were not an oppression suit. [8] The minutes record that Ms Blumentals abstained from voting due to a conflict of interest, in circumstances where she was the plaintiff suing the Company in these proceedings and the prospective cross-defendant to the cross-summons.
On 29 August 2022, Ms Blumentals followed up with Ms Tipper of Fresh Strata about repairs to the front window of Unit 1/21 about which Ms Blumentals had first contacted Ms Tipper on 19 April 2022. Ms Blumentals had told Ms Tipper that there was water coming in through the front window as the timbers had rotted through, that there was a hole in the timber, and that the glass panel was about to fall out. On 29 August 2022, Ms Blumentals told Ms Tipper that the window was deteriorating further and that a lot of water enters through the window. Ms Blumentals reiterated that the glass panels were about to fall out due to rotting of the timber window frame.
At a directors' meeting attended by Ms Newstead and Mr Hendy on 1 September 2022, it was resolved to raise a special levy of $40,000, payable on 5 September 2022 "by shareholders in accordance with their shareholdings". The minutes record that the funds raised by the levy were to be used for repairs and maintenance, for legal fees, and to fund the ordinary operational costs of the building. The minutes record that the directors declined to accept any of the quotes to rebuild/repair the awning.
Ms Blumentals corresponded with Ms Tipper after becoming aware of the directors' decision not to rebuild or repair the awning, inquiring as to whether the cost might be covered by the Company's insurance. Ms Blumentals described the two holes that had been left in the brickwork where the awning came down in a storm, the water that was penetrating through the brickwork, and the resulting damage to the timber floorboards.
It is not clear from the evidence whether the Company took any steps to call for and enforce the special levy resolved at the 1 September 2022 meeting.
On 9 September 2022, Ms Blumentals sent an email to Ms Tipper of Fresh Strata reporting damage from water leaking through the ceiling and requesting that Fresh Strata send someone to investigate where the leak was coming from. The email does not state whether the damage was to the ceiling of Unit 1/21 or Unit 2/21.
The most recent annual general meeting of the Company was held on 1 December 2022. Mr Hendy and Ms Jewell attended, Mr Blumentals attended as proxy for Ms Blumentals, and Ms Newstead sent her apologies.
The minutes record that it was resolved to adopt the financial statements for the year ended 30 June 2022, to appoint auditors for the Company, and to receive and adopt the budget tabled at the meeting for the forthcoming financial year. Neither the financial statements nor the budget were in evidence in these proceedings.
The minutes record that the shareholders identified the following list of repairs and maintenance required to the building:
"Front windows to 1/21 Quinton. Wind and rain coming in through the holes in the windows and under the frame from the rotting timbers. (Windows)
Side awning - Water coming in under the door causing the floorboards and timber underneath to deteriorate. (Awning)
Leak in ceiling. Water coming in from the rusty gully around the chimney above 21 Quinton (Roof)
Brick pointing - front and entrance foyer and tiles replaced due to water penetrating in through the walls causing rising damp and mould at 21 Quinton. (Pointing)
Rear laundry window and wall repair (Laundry)
Window sashes repairs/replacement - 3x windows 1/21 Quinton - unable to open due to broken sash cords (Sash cords)
Washing line repair/replacement (Washing line)
Unit 2 water ingress repairs - Brick mortar repair, gutter connection to drainpipe, sealing around windows, waterproofing and tiling to unit 1 entryway effecting unit 2, consequential damage repairs (Pointing)
Window repairs in 19 Quinton Rd (Windows)
Water ingress to the bathroom of 2/19 Quinton Road (Roof)
Windows throughout the property (repair/replacement) (Windows)
Water ingress to the porch areas of 19 and 21 Quinton Road (Roof/Pointing)."
The minutes record that the shareholders agreed to split that list into the following two categories (emphasis in original):
""Quick Hits" - works requiring access to individual units or common property
Side awning replacement (Awning)
Laundry Window and wall repairs (Laundry)
Washing line replacement (Washing line)
Sash Cord repairs (Sash cords)
"Larger works" - works effecting all units
Window repairs/replacement (Windows)
Roofing repairs - including chimney (Roof)
Re-pointing of the building (Pointing)
The Shareholders agreed that the Company Manager action the items in the quick hits list as soon as possible. The Company Manager will refresh quotes (as applicable) and/or seek new quotes for these works for approval by the Directors.
The Company Manager was instructed to obtain/refresh (as appropriate) quotes for the larger works for review by the Directors and instructions. Noting that should further funding be required (in addition to the proposed January special levy) a further special levy may be raised."
The reference to the January special levy appears to be a reference to a special levy of $35,000 that the shareholders resolved at the annual general meeting to raise immediately, in addition to the annual sinking fund levy of $35,000 to be paid in equal quarterly instalments.
The minutes also record that Ms Newstead retired from the board of directors in accordance with the Articles and did not seek re-election. Mr Hendy and Ms Blumentals were the only nominees for election as directors, and both were elected.
At the time of the annual general meeting on 1 December 2022, Mr and Ms Blumentals believed that they had reached an in-principle agreement with the other shareholders to resolve the disputes that are the subject of these proceedings following a mediation that had been conducted on 1 November 2022. Mr Hendy was of the same understanding. However, the in-principle agreement "fell through" after the annual general meeting, and the Company has not undertaken any work in respect of the repair and maintenance items listed in the minutes of the meeting. Mr Hendy gave evidence that the work is on hold pending the determination of these proceedings.
On 19 January 2023, Ms Blumentals sent an email to Ms Tipper and Mr Newmarch of Fresh Strata following up on the water leaking into the ceiling that she had first notified on 9 September 2022. Ms Blumentals recorded her understanding from the roofer who had inspected the problem on 19 October 2022 that the water was penetrating the ceiling through the rusty gully on the chimney.
On 24 January 2023, Mr Hendy and Ms Newstead carried out work to install an exhaust fan in the bathroom of Unit 2/19. The work included penetrating the external wall of the building. Mr Hendy and Ms Jewell did not seek or obtain approval for this work from the directors.
A directors' meeting was arranged for 7:00pm on Monday, 25 September 2023, with voting to be by email. On the afternoon of Friday, 22 September 2023, Ms Blumentals requested Mr Hendy as company secretary to add to the agenda for that meeting the following motion:
"Pursuant to Article 34 of the Articles, the directors decline to register the transfer of shares numbered 4503 to 6002 from Frances Pope to Tracy Blumentals contained in the instrument of transfer submitted to the company on 17 January 2019.
YES (decline registration).
NO (approve registration)."
Mr Hendy duly added the motion to the agenda. Ms Blumentals voted "NO (approve registration)". Mr Hendy abstained "[o]n the basis that I need legal advice regarding whether the resolution is in the best interests of Meglo-Yowrie, given the litigation that Meglo-Yowrie is involved in".
The outcome of this motion at the 25 September 2023 meeting is not part of Ms Blumentals' pleaded case. Ms Blumentals' claims for a declaration to the effect that the Company is required to register the transfer of the Unit 2/21 class of shares to Ms Blumentals, a declaration to the effect that Ms Newstead and Mr Hendy breached their duties as directors of the Company in failing to do so, and an order compelling the Company to register of the transfer, is based on the alleged oppression and/or Ms Blumentals' contentions that the resolutions passed by the directors on 17 January 2019, 22 January 2022, and 21 February 2022 declining to register the transfer of the Unit 2/21 class of shares to Ms Blumentals were invalid, involved a breach of the directors' duties, and involved a refusal or failure to register the transfer without just cause within the meaning of s 1071F of the Corporations Act. [9]
Mr Liam Bailey, registered liquidator, has consented to be appointed by the Court and to act as liquidator of the Company in the event that a winding up order is made in these proceedings.
Counsel for Ms Blumentals eschewed any suggestion that the Company is insolvent. I infer from this that Ms Blumentals accepts that the shareholders have sufficient means to pay the levies that need to be raised in order to undertake the repair works to the building that have been deferred during recent years in the circumstances described above (or, at least, that the Company will be able to raise those levies if the Unit 2/21 share transfer is registered, whereupon Ms Blumentals will pay the Unit 2/21 levies retrospectively and prospectively).
The current directors of the Company are Mr Hendy and Ms Blumentals. Mr Hendy has given evidence that he is prepared to continue in this role, to discharge his duties as a director, and to "work towards a harmonious relationship within the building and the Company". Ms Blumentals has not given evidence that she is unwilling to work towards the same objective. However, it was submitted on her behalf that there has been a complete breakdown in the relationship between the shareholders.
The terms of Article 34 are set out at [29] above.
It was submitted on behalf of Ms Blumentals that the power of the directors to decline to register a transfer of the Unit 2/21 class of shares was conditional on:
1. Ms Blumentals being a person of whom the directors do not approve as suitable to be a member of the Company; and
2. Ms Blumentals being a person of whom the directors have not previously resolved is approved as a suitable person to be a member of the Company.
Counsel for Ms Blumentals submitted that the second condition was not satisfied in this case, because the directors had previously resolved that Ms Blumentals was approved as a suitable person to be a member of the Company when they resolved to register the transfer of the Unit 1/21 class of shares to Ms Blumentals in April 2017. It was submitted that the directors therefore had no power under Article 34 to decline to register the transfer of the Unit 2/21 class of shares to Ms Blumentals on 17 January 2019, [14] or on 22 January 2022 [15] or 21 February 2022. [16] On that basis, it was submitted that Ms Blumentals was entitled to an order requiring the Company to register the transfer of the Unit 2/21 class of shares to her.
It was submitted on behalf of Ms Newstead and Mr Hendy that Article 34, properly construed, confers power on the directors to decline to register a transfer of shares to a transferee of whom they do not approve, and who they have not previously resolved to approve as a suitable member of the Company to hold the class of shares in question, which confer rights on the registered holder that are distinct from the rights conferred on the registered holders of the other classes of shares.
I accept that submission made on behalf of Ms Newstead and Mr Hendy for the following reasons.
The principal object of the Articles is to provide home units for occupation by members of the Company (or by their sub-tenants or licensees approved by the directors). There are four such units, located within close proximity of one another within the Property, and sharing a common party wall. Article 30(b) provides that the right of exclusive use of each unit rests with the owner of the class of shares identified in Article 30 referred to at [21] above. As I have mentioned earlier in these reasons, that right is a contractual licence, which carries with it a right to be free from substantial interference with each member's use and occupation of the unit to which they are entitled by reason of being the registered holder of the relevant class of shares. [17] That is not to say that each member has an entitlement to the complete exclusion of disturbance. As Bryson JA said in Wilson v Meudon: [18]
"People who live in a home unit with home units adjacent horizontally and vertically must expect some degree of interference from the normal activities of the occupants of other units. … The measure of give and take necessary to permit living together in a reasonable way involves tolerant acceptance of noises and other inconveniences associated with exercise by other shareholders of their rights, including from time to time noise and inconvenience arising from carrying out renovations and alterations in a reasonable way."
The construction of Article 34 for which Ms Blumentals contends reflects the literal meaning of the words in that Article. However, that construction would have the consequence that, if the directors approve a person as suitable to become a member of the Company by taking a transfer of one of the four classes of shares referred to in Article 30(g), the directors have no power under Article 34 to decline to register any future transfer of another class of shares to that person, irrespective of events that may have occurred or circumstances that may have arisen since the initial approval that may have changed the directors' view of the person's suitability to be a member of the Company, and notwithstanding that the registration of the transfer to that person of a further class of shares in the Company will entitle that person to additional rights, being a licence entitling them to exclusive use of an additional unit in the Property.
The likelihood that the conduct of a person after first acquiring a class of shares (and thereby becoming the licensee of a unit) will affect the opinion of directors about the person's suitability to be a member of the Company - favourably or adversely to the person - is obvious. For example, if the person engages in conduct that damages the Company's property, or that substantially interferes with other members' enjoyment of their rights attached to their classes of shares, this would be likely to adversely affect the directors' opinion about the person's suitability. It is my opinion that a reasonable businessperson would have understood the reference to "a member of the Company" in Article 34 to have a meaning connected to the proposed transfer of the class of shares that is the subject of the decision being made by the directors under Article 34 at any given time. That is to say, a reasonable businessperson would have understood Article 34 to confer power on the directors of the Company to decline to register a transfer of a class of shares to a person of whom the directors to do not approve, and of whom they have not previously approved, to become a member of the Company in respect of that class of shares. The reference to previous approval would have been understood by the reasonable businessperson as meaning a previous approval in connection with the proposed transfer of that class of shares. As was submitted on behalf of Mr Hendy and Ms Newstead, that reflects the reality that a prospective transferee and transferor of a class of shares may take the prudent step of seeking the directors' approval for the transfer before completing a contract for sale of those shares and presenting the executed transfer to the Company for registration.
In my opinion, that is a businesslike construction of Article 34. By contrast, the construction propounded by Ms Blumentals would significantly undermine the directors' ability to effectively protect the property of the Company for the benefit of all of its members, and to protect enjoyment by each member of the Company of the rights conferred on them as registered holder of their class of shares. That would produce significant commercial inconvenience for all of the members of the Company, each of whom has acquired their shares with the object of obtaining and enjoying the rights to the exclusive use of the units associated with their class of shares.
For those reasons, the directors' registration of the transfer of the Unit 1/21 class of shares to Ms Blumentals in April 2017 did not deprive the directors of the power under Article 34 to decline to register the transfer of the Unit 2/21 class of shares to Ms Blumentals on 17 January 2019. The directors had a discretion under Article 34 to decline to register the transfer of the Unit 2/21 class of shares to Ms Blumentals if they did not approve her as a suitable person to become a member of the Company as the registered holder of that class of shares.
Having reached that conclusion, it is not necessary to address the further submissions made on behalf of Mr Hendy to the effect that Ms Blumentals had not previously been the subject of any resolution by the directors that she was "suitable to be a member of the Company" because there are no minutes of a meeting of directors evidencing a resolution of the directors to that effect. Nor is it necessary to address the further submission made on behalf of Ms Newstead to the effect that Articles 30(d) and/or 34 contain implied terms that permit the Company or its directors to withdraw any previous approval of a person as suitable to be a member of the Company, and that the directors had informally resolved "in and since the second half of 2018" that Ms Blumentals was no longer a suitable person to be a member of the Company.
Provided that the directors exercised the power under Article 34 to decline to register the transfer of the Unit 2/21 class of shares to Ms Blumentals honestly and consistently with their statutory and fiduciary duties as directors of the Company, their decision is not reviewable in the courts, [19] save in the exercise of the jurisdiction under s 1071F of the Corporations Act and the jurisdiction under ss 232 and 233 of the Corporations Act to grant relief in respect of oppression.
The Court of Appeal went on to say: [23]
"75 It is well settled that the expression "oppressive to, unfairly prejudicial to, or unfairly discriminatory against", is a compound expression and is concerned with "commercial unfairness" (see Joint v Stephens [2008] VSCA 210; (2008) 26 ACLC 1467 at [134] and BAM Property Group Pty Ltd as trustee for BAM Property Trust v Imoda Group Holdings Pty Ltd [2019] FCA 1192 at [49] per Derrington J).
76 As the primary judge acknowledged at PJ[102], it is also relevant in a case such as the present, when dealing with a family situation, that "fairness must be considered against the background of the fair treatment of the whole body of shareholders, in the light of the history of the company and the family and the purpose for which the company was formed", citing In the matter of Ledir Enterprises Pty Ltd [2013] NSWSC 1332; (2013) 96 ACSR 1 at [178] per Black J."
These far-reaching effects must be borne in mind, although there is no presumption against winding up a solvent company. Whether or not it is just and equitable to do so depends on all the circumstances of the case.
Section 467(4) of the Corporations Act provides:
"Where the application [for winding up] is made by members as contributories on the ground that it is just and equitable that the company should be wound up or that the directors have acted in a manner that appears to be unfair or unjust to other members, the Court, if it is of the opinion that:
(a) the applicants are entitled to relief either by winding up or by some other means; and
(b) in the absence of any other remedy it would be just and equitable that the company should be wound up;
must make a winding up order unless it is also of the opinion that some other remedy is available to the applicants and that they are acting unreasonably in seeking to have the company wound up instead of pursuing that other remedy."
If the Court forms the opinions in sub-ss 467(4)(a) and (b), the party opposing winding up bears the onus of establishing that the applicant is acting unreasonably in seeking to have the company wound up rather than pursuing the "other remedy". [30]
The reasonableness or otherwise of the applicant's pursuit of a winding up order is to be assessed objectively by reference to the consequences of the events and circumstances upon which the application for winding up is founded, what is necessary to redress those consequences, and whether there is a remedy alternative to winding up that is both available and appropriate to redress those consequences. That is another way of saying that winding up is to be regarded as a remedy of last resort. [31] The "other remedy" referred to in s 467(4) is not limited to a legal remedy in the sense of a cause of action, but extends to any course of action that is both available and appropriate to redress the relevant consequences. [32]
It was submitted on behalf of Ms Newstead and Mr Hendy that these two discrepancies between the terms of the instrument of transfer and the terms prescribed in Article 33 were "fatal" to the whole of Ms Blumentals' case because she had not even submitted a valid instrument of transfer for consideration by the directors for registration under Article 34.
Those discrepancies were not relied on by the directors in declining to register the transfer of the Unit 2/21 shares to Ms Blumentals on 17 January 2019. [38] As I have already mentioned, the directors made no decision in response to Ms Blumentals' renewed requests for registration of the transfer on 22 January 2022 and 21 February 2022. [39] On those two occasions, the directors' inaction amounted to a constructive refusal to register the transfer, which had the effect of perpetuating the operation of the decision made on 17 January 2019 to decline to register the transfer.
The misstatement of the Company's name is not a matter of any substance. The instrument of transfer specifies the Australian Company Number of the Company. Notwithstanding the misdescription of the Company's name by the omission of the word "Units", there is no doubt that the instrument of transfer relates to shares numbered 4503 to 6002 in the Company.
The omission of the words "his executors administrators and assigns" from the transfer of the Unit 2/21 class of shares is also not a matter of any substance. Any executor, administrator, assignee, or transferee to whom the shares were transmitted, assigned, or transferred by Ms Blumentals would be bound by the Articles pursuant to s 140 of the Corporations Act upon becoming a member of the Company, irrespective of the omission of those words from the form of transfer executed by Ms Pope and Ms Blumentals.
I have already mentioned that the omitted words formed no part of the reasons for the decision recorded in the minutes of the 17 January 2019 meeting to decline to approve the registration of the transfer. I also note that the words "his executors administrators and assigns" were omitted from the transfer of the Unit 1/21 class of shares to Ms Blumentals, which the directors of the Company had approved for registration in 2017. There is no evidence that the omission of those words caused the directors any concern when it came to the decision to register the transfer of the Unit 1/21 class of shares to Ms Blumentals. In January 2019, there was no basis for the directors to doubt that Ms Blumentals was bound by the Articles as the registered shareholder of the Unit 1/21 class of shares, that she would continue to be bound by the Articles if she were to be registered as the holder of the Unit 2/21 class of shares, and that any person to whom those shares may subsequently be transmitted, assigned, or transferred, would also be bound by the Articles.
Accordingly, the instrument of transfer that Ms Blumentals presented for registration on about 20 December 2018 complied with the Articles in all material respects and was therefore a valid instrument of transfer.
Even if I had formed the view that the immaterial discrepancies between the wording of the instrument of transfer and the terms of Article 33 deprived the instrument of validity, I would have held that any reliance on those inconsequential discrepancies as basis for the continuing failure or refusal to register the Unit 2/21 share transfer in and from January 2022 was oppressive for the reasons explained below.
I now turn to the question of whether the directors' decision to decline to approve the registration of that transfer under Article 34 made on 17 January 2019 was made in order to cause harm to Ms Blumentals, and to benefit Mr Hendy and Ms Newstead, was made in breach of the directors' fiduciary and statutory duties owed to the Company, was made without just cause within the meaning of s 1071F of the Corporations Act, and/or was oppressive to, unfairly prejudicial to, and unfairly discriminatory against Ms Blumentals.
In seeking to impugn the 17 January 2019 decision on one or more of those grounds, counsel for Ms Blumentals submitted that the directors had had no power - or, alternatively, no good reason - to refuse approval for the kitchen relocation and associated renovations and plumbing changes in Unit 1/21, that Ms Blumentals had been required to undertake investigations and provide information about that proposed renovation over and above any requirement that the directors had applied to renovations by Mr Hendy and Ms Jewell, and that the decision refusing to approve the registration of the transfer of the Unit 2/21 class of shares to Ms Blumentals was made in order to teach Ms Blumentals a lesson.
I reject those submissions.
For the reasons I have already explained at [73] and [84]-[85] above, the House Rules did require Ms Blumentals to obtain the Board's approval for the Unit 1/21 kitchen relocation and associated works - both as originally proposed in mid-late 2017, and as ultimately carried out in early 2018. It follows that the Board did have power to refuse that approval. The merits of that decision are questionable for the reasons explained at [74] above. However, the merits of that decision concerning the Unit 1/21 kitchen works are not relevant to the issues raised for determination in these proceedings concerning the 17 January 2019 decision declining to register the transfer of the Unit 2/21 class of shares to Ms Blumentals. The decision to refuse approval for the kitchen works is outside the scope of Ms Blumentals' pleaded case, including the oppression case. As noted at [86] above, that decision had no impact on Ms Blumentals, who ignored the decision and proceeded to relocate the kitchen and alter the plumbing in any event, intruding into the roof cavity of the building in doing so. As I have said at [85] above, that conduct demonstrated an utter disregard for the principles and processes of corporate governance. It is plain from the minutes of the directors' meeting held on 17 January 2019 that this was of central importance to the Board's decision to decline to approve Ms Blumentals as suitable to be a member of the Company in respect of the Unit 2/21 class of shares, which would entitle her to occupy an additional unit in the building, and to therefore decline to register the transfer of those shares from Ms Pope to Ms Blumentals. The minutes state that Ms Blumentals had "ignored" the Board's decision refusing approval for the Unit 1/21 kitchen works, and had "embarked on a covert operation" to relocate the kitchen. [40] The description of the works as a "covert operation" may be unnecessarily dramatic, but there is no evidence that Mr or Ms Blumentals informed the directors and/or the other shareholders that they were proceeding with the work. Nor is there any evidence that the directors and/or the other shareholders were aware that Ms Blumentals was carrying out the work for which approval had been refused by running pipes to new gas and water outlets through the roof cavity rather than up the outside of the building. [41]
I reject Ms Blumentals' submissions that the directors acted in breach of their fiduciary and statutory duties owed to the Company, acted without "just cause" within the meaning of s 1071F of the Corporations Act, and/or acted in a manner that was oppressive to, unfairly prejudicial to, and unfairly discriminatory against Ms Blumentals, by declining to approve her as suitable to be a member of the Company in respect of the Unit 2/21 class of shares, and therefore declining to register the transfer of those shares to her. Ms Blumentals had deliberately and knowingly acted contrary to the kitchen works decision made by the directors of the Company in relation to the Property, rather than challenging that decision by one of the legitimate means available to her. [42] On any objective view, that conduct, and the attitude that it displayed, was a highly relevant matter for directors of the Company to take into account in determining whether Ms Blumentals was a suitable person to be a member of the Company in respect of an additional class of shares with additional rights. I am not persuaded that the directors acted otherwise than in good faith and in the best interests of the Company as a whole, and for a proper purpose, in taking that conduct and attitude into account in declining to approve the registration of the share transfer. Nor am I persuaded that the directors breached any other statutory or fiduciary duty, or that they declined to register the share transfer without just cause, or that they acted in a manner that was objectively unfair.
For completeness, and without limiting the foregoing, I reject Ms Blumentals' contentions that Ms Newstead and Mr Hendy exercised their power to decline to register the transfer of the Unit 2/21 class of shares to her in order to cause harm to Ms Blumentals and her family, or in order to benefit themselves. Counsel for Ms Blumentals did not identify any benefit that Ms Newstead or Mr Hendy derived from the decision to decline to register the share transfer, other than by alleging that they sought and achieved the satisfaction of teaching Ms Blumentals a lesson or of "reining her in". I have already rejected Ms Blumentals' evidence about this alleged motivation of Mr Hendy and Ms Newstead. [43] Considering the evidence as a whole, I am not persuaded that any harm caused to Ms Blumentals by the directors declining to register the share transfer was anything more than a product of the decision that was made for the reasons to which I have referred immediately above, which were consistent with their duties as directors of the Company, and which were not oppressive.
Counsel for Ms Newstead also submitted that there was nothing oppressive in the demands made of Ms Blumentals to pay the Unit 2/21 levies because she had a contractual obligation to Ms Pope to pay those levies. I reject that submission for two reasons. First, any contractual obligation owed by Ms Blumentals to Ms Pope in respect of levies was not for the Company to enforce. Second, the notion that the Company was demanding payment from Ms Blumentals merely by way of purporting to enforce a contractual obligation that she owed to Ms Pope bears no resemblance to the actual conduct of the Company, and of Mr Hendy and Ms Newstead as its directors, at the time the demands were made. I refer in particular to the evidence and to my findings of fact at [181]-[182] above.
From at least January 2022, the continued operation of the 17 January 2019 decision meant that the Company was demanding that Ms Blumentals bear all of the burdens of ownership of the Unit 2/21 class of shares, whilst at the same time depriving her of the benefit of registered ownership of those shares. Ms Blumentals' understandable refusal to pay the levies for the Unit 2/21 shares pending the registration of the share transfer - on the basis of advice of the Company's strata managing agent - meant that the Company lacked the funds required to maintain and repair the Property, and struggled even to raise the funds necessary to insure the Property. There is extensive evidence of the resulting deterioration of the condition of the building. This lamentable state of affairs was continuing at the time that these proceedings were commenced, and at the time of the final hearing. [50]
Irrespective of the difficulties in relations between Ms Blumentals, Ms Newstead and Mr Hendy, to which each of them had contributed by their conduct towards one another disclosed by the evidence summarised above, the state of affairs that I have described above was oppressive because it was objectively unfair to Ms Blumentals as a member of the Company. Ms Blumentals was being recognised as the holder of 25 per cent of the shares in the Company, but was being pressured to pay for levies as if she were the holder of 50 per cent of the shares. Her justifiable resistance to the demands that she pay levies in respect of Unit 2/21, unless and until she was registered as the holder of the Unit 2/21 class of shares, meant that the Company struggled to operate due to a shortage of funds to keep the Property in good repair, and even to pay utilities. The Property in which Ms Blumentals and her family had made their home, and in which she had invested the funds paid to purchase the Unit 1/21 and Unit 2/21 classes of shares, began to deteriorate. In addition to being unfair to Ms Blumentals as the registered owner of the Unit 1/21 class of shares, this was contrary to the interests of the members of the Company as a whole because it was prejudicing the value of each member's investment in their shares and undermining the Company's ability to achieve its object of providing home units and keeping those units suitable for occupation by members or their approved licensees. [51]
There is considerable force in Ms Blumentals' submissions that this conduct was also in breach of the directors' fiduciary and statutory duties to the Company. In particular, from about the end of 2019, [52] and by no later than January 2022, it is difficult to see what proper purpose was served by treating Ms Blumentals as the holder of the Unit 2/21 class of shares for the purpose of approving her renovations to that unit and demanding payment of levies, yet refusing to register the transfer of those shares to her. However, it is not necessary to determine the breach of duty claims in circumstances where I have accepted Ms Blumentals' oppression claim, and, for the reasons explained below, the appropriate relief for the oppression is an order requiring the Company to register the transfer of the Unit 2/21 class of shares to Ms Blumentals.
In relation to (2) above, the evidence discloses that the House Rules were not applied in a uniformly consistent manner. However, the evidence does not establish that they have been applied in a manner that has been unfair or oppressive to Ms Blumentals. For example, the Company hastily convened a meeting in June 2019 to approve works to Unit 2/21 that Ms Blumentals had already commenced, or was about to commence, without authorisation. The Company did authorise those works. [59] The approach taken to those works was similar to Company's hasty approval of the bathroom renovations carried out by Mr Hendy and Ms Jewell in Unit 2/19 in June 2022. [60]
In relation to (3) above, the evidence discloses that Ms Blumentals was excluded from some email correspondence about the appointment of strata managing agents and solicitors, but that she did receive notice of meetings at which votes were taken about these matters. In some instances, the majority of members voted in favour of resolutions that Ms Blumentals opposed. In other instances, Ms Blumentals did not vote. [61] I reject the submission that Ms Blumentals was excluded from making decisions about these matters.
Contrary to the submissions made on behalf of Ms Blumentals, the Company is not in a state of deadlock. The current directors are Ms Blumentals and Mr Hendy. There is no evidence that they are, or are likely to be, in a state of deadlock in relation to decisions concerning the management of the Property, or any other decisions. At a time when they believed that these proceedings had been resolved in principle, the shareholders of the Company were able to meet and agree on a budget, a program for repair works, and a special levy to fund those works and other matters. That work was subsequently deferred pending the outcome of these proceedings. There is no evidence of any reason to believe that the shareholders and directors will be unable to re-enliven or revisit that budget and works program, and to agree on the funds to be raised to implement the works program, once these proceedings are resolved by an order requiring the Company to register the transfer of the Unit 2/21 shares to Ms Blumentals. Contrary to the submissions made on behalf of Ms Blumentals, the present case bears no resemblance to O'Ryan v Golding, [64] in which the shareholders were in a "state or warfare" about works required to the building in circumstances where money was not the inhibiting factor.
I reject the submissions made on behalf of Ms Blumentals that the outcome of the 25 September 2023 meeting of the directors demonstrates that the Company is in a state of deadlock. At that meeting, Mr Hendy abstained from voting on a resolution that Ms Blumentals caused to be added to the agenda on very short notice, being a resolution that the directors decline to register the transfer of the Unit 2/21 class of shares to her. The minutes record that Mr Hendy abstained because he wished to obtain legal advice about whether the resolution was in the best interests of the Company. Mr Hendy was unable to obtain that advice promptly because, notwithstanding what I regard as a conflict of interest, Ms Blumentals had voted at that same meeting to prevent the Company from continuing to instruct and pay the fees of its solicitors in these proceedings. [65] I infer that Ms Blumentals caused the motion to decline to register the transfer of the Unit 2/21 class of shares to be added to the agenda on short notice, and that she voted against that resolution at the meeting on 25 September 2023, as a tactical step designed to produce an outcome that the motion failed to pass, so as to provide the basis for an argument that she was entitled to have the share transfer registered in circumstances where the directors (she would argue) had not declined to exercise their power to decline to register the transfer. [66] That tactic did not succeed. The proposed amendment by which Ms Blumentals sought to introduce this argument into her case on 4 October 2023 was drafted in a manner that was manifestly embarrassing. Leave to amend was refused for that reason. [67] Ms Blumentals did not subsequently seek leave in respect of any redrafted amendment. In any event, it is doubtful that a failure to pass a resolution declining to register the Unit 2/21 share transfer on 25 September 2023 would have the legal effect that Ms Blumentals apparently intended in circumstances where the directors had already resolved on 17 January 2019 to exercise their power to decline to register the transfer. Far from evidencing a state of deadlock between the directors, the 25 September 2023 meeting demonstrates Mr Hendy's preparedness to withstand any pressure created by tactical manoeuvring on the part of Ms Blumentals, and to abstain from voting in circumstances where he requires advice about what is in the best interests of the Company.
Finally, I reject the submission made on behalf of Ms Blumentals that her preference not to speak with Ms Newstead directly is evidence of an irretrievable breakdown in the relationship between shareholders, or evidence of deadlock. Dysfunction in the personal relationship between Ms Blumentals and Ms Newstead - to which each of them has contributed in her own way by her conduct towards and correspondence with the other over the past five years - does not constitute a deadlock in the management of the affairs of this Company. Ms Newstead is not presently a director of the Company. Even if Ms Newstead and Ms Blumentals were to serve as directors concurrently in the future, they have the capacity to agree about matters concerning the Property and the conduct of the Company's affairs, as evidenced by the annual general meeting on 1 December 2022 to which I have referred above. [68] Moreover, the Company has a long-standing practice of directors attending meetings by videoconferencing software or by telephone, and of voting taking place by way of written resolution without meetings. If Ms Newstead and Ms Blumentals remain unwilling to meet in person or to have direct contact with one another, this need not lead to a state of deadlock for the Company.
For all of those reasons, I do not consider that an order winding up the Company is an appropriate remedy for the oppression that I have found in this case. The winding up order would have a drastic impact on this solvent company and its shareholders, which is not warranted in circumstances where an order for the transfer of the Unit 2/21 class of shares to Ms Blumentals will address that oppression.
For the same reasons, I do not consider that it is just and equitable to wind up the Company. The difficulties in the relationship between shareholders have frustrated the operations of the Company to some extent to date due to Ms Blumentals declining to pay levies for Unit 2/21 for so long as the Company continues to decline to register the transfer of those shares to her. The Company has managed to continue operating despite those circumstances, albeit with difficulty. Those circumstances will be resolved by the relief that is to be granted in respect of the oppression. Thus, the relationship between shareholders has not broken down in a manner and to an extent that can be said to materially frustrate the commercially viable and sensible operation of the Company in accordance with its objects, and there are no other features of this case that would render it just and equitable to wind up the Company.
It is doubtful that s 467(4) of the Corporations Act applies in circumstances where I am not of the opinion that Ms Blumentals is entitled to relief on the just and equitable ground in addition to the relief that I have found she is entitled to in respect of oppression. If and to the extent that s 467(4) does apply, I am of the opinion that Ms Blumentals' pursuit of a winding up order in addition to the order for registration of the share transfer is unreasonable in all the circumstances.
[2017] NSWSC 133 at [22].
Re Tzavaras at [75]-[76] (Gleeson and Adamson JJA, Griffiths AJA).
Re Catombal at [20] (Brereton J); In the matter of CNPR Limited [2018] NSWSC 989 (Re CNPR) at [8] (Black J); In the matter of Austral Alloys Pty Ltd [2017] NSWSC 1833 (Re Austral Alloys) at [30] (Brereton J); In the matter of Pure Nature Sydney Pty Ltd [2018] NSWSC 914 (Re Pure Nature) at [69] (Black J); Re Alon Pty Ltd [2022] NSWSC 64 at [13]-[15] (Gleeson J).
Ian Allan Byrne v A J Byrne Pty Limited [2012] NSWSC 667 at [81] (Black J).
[2021] NSWSC 98 at [170].
In the matter of Amazon Pest Control Pty Limited [2012] NSWSC 1568 at [19] (Black J); Re Austral Alloys at [24]-[30] (Brereton J) and the authorities there cited; Re Pure Nature at [70] (Black J) and the authorities there cited.
[2018] 3 Qd R 520; (2018) 125 ACSR 227; (2018) 36 ACLC 18-010; [2018] QCA 48 (APJM v Allways) at [46] (McMurdo JA, Gotterson JA and Jackson J agreeing).
APJM v Allways at [43] (McMurdo JA, Gotterson JA and Jackson J agreeing).
APJM v Allways at [45]-[47] (McMurdo JA, Gotterson JA and Jackson J agreeing).
Host-Plus Pty Ltd v Australian Hotels Association [2003] VSC 145 at [67] (Hansen J).
Further Amended Statement of Claim, paragraphs 25-28, 32(b)-(c), 34, and 36.
See [174]-[176] above.
See [200]-[202] above.
See [90]-[93] and [104] above.
See [221] above.
See [111] above.
See [173]-[175] above.
See [111] above.
See [74]-[84] above.
See [85] above in relation to legitimate means of challenging the Unit 1/21 kitchen works decision.
See [112] and [252]-[253] above.
See [173]-[175] above.
See [117]-[123] and [127] above.
See [109] and [143] above.
See [145] above.
See [154]-[156], [165], [167]-[170], [178], [181]-[182] above.
See [137] above.
See, for example, [91], [128], and [131]-[140] above in relation to the Company's inability to repair or replace the brick pointing on the building; see [124]-[125] and [154]-[156] in relation to insurance premiums; see [160], [172], and [177] in relation to the Company's lack of funds generally; see [193]-[196] in relation to the extensive list of repairs and other building works that the Company has been unable to carry out since at least 1 December 2022.
See [19] above.
See [132] above.
Further Amended Statement of Claim, paragraphs 32(d)-(g) and 36.
See [114], [128], [131], [137] and [143] above.
See [142] above.
See [124]-[125], [129], [154]-[155], [160], [172], and [178] above.
See above at [191]-[197].
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Decision last updated: 21 December 2023