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Are invalid rules valid?

From time to time there are various misgivings regarding the assumed integrity / reliability of the rules of some sectional title schemes as filed at Deeds Registries, due to a number of reasons.

The following is a fictitious example which illustrates another perspective on the reliability of the rules. Unfortunately it is something which, I suspect, happens fairly often in the real world in one form or another:

At a general meeting of Swan Lake body corporate a member proposes the amendment of a particular management rule. The proposal seems a sensible one and is enthusiastically supported by the other members at the meeting. The chairman puts the item to the vote and it is ‘unanimously’ resolved to adopt the proposed amendment.

Although no notice of a proposed unanimous resolution had been given and the requisite 80% quorum was not present, the trustees proceed to complete Form V and to file the ‘amended’ rule at the Deeds Registry.

invalid rules

Subsequently the validity of the rule is questioned by a member who was not present at the general meeting.

Upon considering the matter the trustees reach a conclusion that the proper procedures have in fact not been followed and distribute a notice to all members that, due to incorrect procedures, the resolution cannot be regarded as a unanimous resolution and accordingly that the proposed amendment had not been adopted and that the rule should be ignored.

Another owner, who was also not present at the meeting, objects and claims that the amendment, which affects him favourably, is valid and insists that the trustees apply the rule. The trustees refuse and the aggrieved member refers the dispute for arbitration, asking that the amendment be ratified by the arbitrator.

In my view an arbitrator does not have the power to ‘ratify’ an amendment, or to be more correct, to ratify a unanimous resolution. Notwithstanding the use of the controversial word ‘may’ in section 1(3A), I submit that only a High Court has the jurisdiction to do so.

But the essence of the dispute and the issue which should be arbitrated is whether the amended rule, despite incorrect procedures having been followed, is binding or not. A pre-arbitration meeting should serve to clarify the true issue and the arbitration could then proceed on the basis thereof. What would a correct award be?

In my view the amended rule, accompanied by Form V signed by the trustees, filed at the Deeds Registry, is prima facie evidence of the amendment having been correctly adopted and that it may be relied upon by third parties, despite the formal defects in the procedures. Accordingly the amendment will stand unless it is (a) rescinded by the members by unanimous resolution in the prescribed manner, or (b) set aside by a court order.

Written by Tertius Maree, MCS Courier Issue No 43

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