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[2018] ZAKZPHC 69
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Extra Dimensions 121 (Pty) Limited v Body Corporate of Marine Sands and Another (AR121/2017) [2018] ZAKZPHC 69 (24 August 2018)
IN
THE HIGH COURT OF SOUTH AFRICA
KWAZULU-NATAL
DIVISION, PIETERMARITZBURG
CASE
NO. AR121/2017
In
the matter between:
EXTRA
DIMENSIONS 121 (PTY)
LIMITED APPELLANT
and
BODY
CORPORATE OF MARINE SANDS FIRST
RESPONDENT
REGISTRAR
OF DEEDS, PIETERMARITZBURG SECOND
RESPONDENT
J U D G M E N T
STEYN
J (VAN ZÿL et PLOOS VAN AMSTEL JJ concurring)
[1]
This appeal is against the judgment of Masipa AJ. Leave to the
full court of this division was granted by the Supreme
Court of
Appeal on 10 November 2016.
[1]
[2]
In the court a quo the appellant sought an order declaring invalid a
resolution passed by the first respondent
[2]
on 23 August 2012 which changed the way in which levies are imposed
on the members of the scheme.
[3]
The following facts were presented to the court a quo. The
appellant, the owner of six units in the Marine Sands Sectional
Scheme, obtained these non-residential units in 2002. The
participation quota for these non-residential units was determined
by
the developer when the sectional title register was opened. The
non-residential units at that time
[3]
constituted 6% of the whole scheme. The quota for each unit in
the non-residential component was determined by dividing the
6%
allocated to the non-residential units between each non-residential
section in proportion to their respective floor areas. The
Surveyor-General approved the participation quota in the scheme,
which resulted in a participation quota of 5.4979% for the appellant
for all of its units. An extension to the non-residential
section resulted in an amendment to the sectional plan in 1997
and
caused an adjustment to the participation quota percentage allocated
to each non-residential owner. After the aforesaid
extension
the appellant’s revised participation quota was 4.8409%.
In 2011, the managing agent became aware of the
fact that the
non-residential units’ levies were incorrectly charged and the
appellant’s levy was then revised and
reduced from R16 201.36
to R9 134.15.
[4]
The court a quo held that the fact that the resolution increased the
appellant’s liability for levies did not mean that
the
appellant was adversely affected thereby. The court inter alia
found that the resolution was passed to remedy an inequitable
levy
dispensation and relied on the unreported case of
Algar
v Body Corporate of Thistledown & others
.
[4]
[5]
The appellant challenged the court’s decision on the following
grounds:
(a) The court erred in placing
reliance on the unreported decision of Theron J in
Algar v Body
Corporate of Thistledown.
(b) The court erred when it found that
it is equitable to expect of members to pay levies proportional to
the floor area ratio.
(c) The court erred in its finding
that the appellant was not adversely affected by the resolution and
should not have relied on
the contextual and purposive approach to
the interpretation of s 32(4) of the Act.
[5]
(d) The court ought to have held that
the special resolution adopted was invalid and issued such a
declaration.
[6]
Central to this appeal is the special resolution passed by the body
corporate on 23 August 2012 at its general meeting.
The
aforesaid resolution resulted in the modification of the conduct
rules of the scheme and the levy contributions. As a
result
each owner would be charged according to the ratio of the floor area
of his/her unit compared to the total floor area of
the scheme.
In terms of this resolution the levies of the appellant amounted to
10.5349% of the total levies raised whilst
its participation quota
remained 4.8409%.
[7]
Section 32(4) of the Act provides as follows:
‘
Subject
to the provisions of section 37(1)(
b
),
the developer may, when submitting an application for the opening of
a sectional title register, or the members of the body corporate
may
by special resolution, make rules under section 35 by which a
different value is attached to the vote of the owner of any section,
or the liability of the owner of any section to make contributions
for the purposes of section 37(1)(
a
)
or 47(1) is modified: Provided that where an owner is adversely
affected by such a decision of the body corporate, his written
consent must be obtained: Provided further that no such change may be
made by a special resolution of the body corporate until
such time as
there are owners, other than the developer, of at least 30 percent of
the units in the scheme: Provided further that,
in the case where the
developer alienates a unit before submitting an application for the
opening of a sectional title register,
no exercise of power to make a
change conferred on the developer by this subsection shall be valid
unless the intended change is
disclosed in the deed of alienation in
question.’
[6]
[8]
It was submitted on behalf of the appellant that the appellant was
adversely affected by the said resolution and since there
was no
compliance with s 32(4) of the Act, the resolution was
ultra vires
and void. Counsel in argument relied on the literal meaning of
the words used by the legislature in the provision and contended
that
the decision in
Algar supra
was wrong.
[9]
It was submitted on behalf of the body corporate that the appellant’s
interpretation is narrow and fails to consider the
context of the
provision and the purpose of the Act. In amplification of this
submission it was submitted that this court
ought to take into
account the following factors:
(a) the purpose of the legislation;
(b) the legislative developments; and
(c) interpret the provision in a
manner that would not render it absurd.
[10]
After hearing the appeal and upon reflection of the oral submissions
made to the court, it was directed that both parties needed
to
supplement their heads of argument. By way of email on 24 April
2018, the parties were invited to deal with the following
issues:
‘
(a)
In terms of
s 32(4)
of the
Sectional Titles Act 95 of 1986
the body
corporate had the power to make a rule under
s 35
by which the
liability of an owner to make contributions to the levy fund is
modified.
(b)
The special resolution at page 55 of the papers includes the
following: ‘… and that the new conduct rule would
allow
levies to be based on the new Participation Quota Schedule based on
the area of each section.’ Annexure B to
the new conduct
rules reflects a ‘Modified Participation Quota Percentage’
in respect of each section in the scheme.
(c)
The following references to the answering affidavit suggest that the
trustees intended to modify the participation quotas: page
68 para
16; page 82 para 46, 47; page 83 para 54.
(d)
What the trustees could have done was to make a rule to the effect
that in future the liability of owners to make contributions
to the
levy fund would be based on the floor areas and not on their
participation quotas. However, according to the special
resolution they appear to have amended the participation quotas.
Did the body corporate have the power under
s 32(4)
to modify the
participation quotas? If not, is the special resolution ultra
vires and invalid?
(e)
The liability of owners to make contributions, and the proportions in
which the owners shall make contributions for the purposes
of
s
37(1)
, was prescribed by
rule 31
of the management rules referred to
in
s 35(2)(a).
Was it competent for the body corporate to
modify the liability of owners to make contributions by amending the
conduct rules
as opposed to the management rules? If not, is
the special resolution not also invalid for this reason?’
[11]
In response both parties filed supplementary heads and dealt with the
issues raised. The body corporate submitted that
it is
impermissible for this court to identify new issues not raised by the
parties and relied on
Fischer
& another v Ramahlele & others
[7]
paras 13-15 in support of its argument. It reads:
‘
[13]
Turning then to the nature of civil litigation in our adversarial
system, it is for the parties, either in the pleadings or
affidavits
(which serve the function of both pleadings and evidence), to set out
and define the nature of their dispute, and it
is for the court to
adjudicate upon those issues. That is so even where the dispute
involves an issue pertaining to the basic
human rights guaranteed by
our Constitution, for “(i)t is impermissible for a party to
rely on a constitutional complaint
that was not pleaded”.
There are cases where the parties may expand those issued by the way
in which they conduct the
proceedings. There may also be
instances where the court may mero motu raise a question of law that
emerges fully from the
evidence and is necessary for the decision of
the case. That is subject to the proviso that no prejudice will
be caused to
any party by its being decided. Beyond that it is
for the parties to identify the dispute and for the court to
determine
that dispute and that dispute alone.
[14]
It is not for the court to raise new issues not traversed in the
pleadings or affidavits, however interesting or important
they may
seem to it, and to insist that the parties deal with them. The
parties may have their own reasons for not raising
those issues.
A court may sometimes suggest a line of argument or an approach to a
case that has not previously occurred
to the parties. However,
it is then for the parties to determine whether they wish to adopt
the new point. They may
choose not to do so because of its
implications for the further conduct of the proceedings, such as an
adjournment or the need
to amend pleadings or call additional
evidence. They may feel that their case is sufficiently strong
as it stands to require
no supplementation. They may simply
wish the issues already identified to be determined because they are
relevant to future
matters and the relationship between the parties.
That is for them to decide and not the court. If they wish to
stand
by the issues they have formulated, the court may not raise new
ones or compel them to deal with matters other than those they have
formulated in the pleadings or affidavits.
[15]
This last point is of great importance because it calls for judicial
restraint. As already mentioned Gamble J “required”
the parties to argue as a preliminary issue what he described as two
issues of legality. Although he added that the parties
were
amenable to these proposals, counsel who appeared in this court and
in the court below confirmed that the judge’s own
description,
that he “required” the points to be argued, was
accurate. They were not asked for their submissions
on whether
this was an appropriate approach to the matter, or even (which was
more pertinent) whether either question was in issue
in the case.
Nor were they asked whether their clients agreed to broaden the
issues to encompass these points. The
authority on which the
judge relied in adopting this approach was not in point. That
was a case where the court,
on the application of one of the
parties
, held that it could dispense with the hearing of oral
evidence, notwithstanding the case having been referred for the
hearing of
such evidence, because the questions raised on the papers
could be determined without hearing such evidence and the evidence
could
not affect the resolution of those issues. It is a far
cry from that for a court to raise issues that do not emerge from the
papers and have not been canvassed in the affidavits and require that
those be argued instead of hearing oral evidence and deciding
the
issues raised by the parties.’
(Footnotes
omitted.)
It
was also submitted that the only way to give meaning to the right
conferred by s 32(4) is to construe that the section allows
for the
right to introduce a conduct rule.
[12]
The appellant, on the other hand, submitted to us that the resolution
passed purports to amend the participation quota schedule,
which
appears from the following facts:
(a) it introduces a new conduct rule
providing that owners will contribute to levies according to the
percentages set out in annexure
‘B’;
(b) annexure ‘B’ sets out
changed participation quota percentages in a column headed ‘modified
participation quota
percentage’;
(c) the minutes of the meeting state
that a ‘new participation quota schedule’ is introduced.
The
appellant persisted in its contention that the resolution was
ultra
vires
and not in accordance
with the Act and remained void. Lastly, in reply to the body
corporate’s contention that a point
of law cannot be raised for
the first time on appeal if it is not foreshadowed in the pleadings,
it submitted that it was permissible.
[8]
[13]
The central issue on which this court was tasked to decide is whether
the resolution passed modifying the owner’s liability
for
levies, was
ultra vires
the Act and therefore void. This
issue is not a new issue that was raised, it was the appellant’s
case throughout the
proceedings that the resolution is invalid.
The invitation to both parties to consider the distinction between
conduct rules
and management rules was based on the established facts
on record and since both parties had been given an opportunity to
file
supplementary heads, there could not be any unfairness in the
procedure adopted.
[14]
In order to decide on the grounds raised by the appellant, it is
necessary to decide firstly, on the powers of a body corporate
and
secondly, on the rationale for participation quotas in a sectional
title scheme and measure the conduct of the body corporate
against
the various empowering provisions.
[15]
The body corporate of every scheme is essential and necessary for the
management of a sectional scheme.
[9]
Body corporates derive their powers from the Act, the regulations and
the rules that either expressly or impliedly grant
them authority to
perform their duties.
[10]
[16]
The most significant purpose of the participation quota in my view is
that it determines a sectional owner’s contribution
to
maintenance and administrative expenses and his proportional
liability for the debts of the body corporate.
[11]
Scholars like Silberberg
et
al
, define participation
quote as:
‘
[T]he
numerical quantification of a sectional owner’s share in common
property, and determines the extent of a sectional owner’s
financial obligations regarding administration and maintenance costs
within the scheme, and the influence that the respective sectional
owners have in the scheme’s management.’
[12]
(Original
footnotes omitted.)
From
the definition it is evident that the participation quota is pivotal
to investors who want to invest in a scheme since it impacts
on a
number of important rights.
[13]
The participation quota schedule forms part of any sectional plan and
when the scheme is registered, the participation quota
schedule must
be endorsed on or annexed to the draft sectional plan submitted to
the Surveyor-General for approval. In addition
to all of the
functions fulfilled by the participation quota, it determines the
part played by a sectional owner in the administration
of the
scheme.
[14]
[17]
In terms of the 1986 Act, the determination of the participation
quota of non-residential sections is left solely to the discretion
of
the developer.
[15]
The developer is obliged to indicate the total quotas allocated to
the residential sections and the quota must then be divided
amongst
those sections in accordance with the floor area method.
[16]
The
resolution
[18]
If the special resolution passed by the body corporate amended the
participation quota, then it impacted on the validity of
the adopted
resolution. It is for this very reason that the body
corporate’s conduct should be evaluated in terms of
s 32(4) of
the Act. The minutes of the annual general meeting of the
owners of Marine Sands reads as follows:
‘
Special
Resolution
–
Substitution of Conduct Rules including Modification of
Contributions:
It
was noted that –
-
The Trustees were having difficulty in enforcing the Rules, hence the
proposed Conduct Rules, which included fines.
-
The modification of the contributions was as a result of the
Participation Quota schedule having previously been structured for
the non-residential (commercial) owners to pay levies at a lesser
rate than the residential owners,
and that the new
Conduct
Rule would allow levies to be based on the new Participation Quota
Schedule based on the area of each section
.
-
The Commercial owners objected to the passing of the Special
Resolution in respect of the proposed Conduct Rules including the
Modification of Contributions as it was felt that the resolution was
inadequate in its current form and that they reserved their
rights.
-
The Special Resolution was passed with the required 75% approval (51
(86.44%) in favour and 8 (13.56%) against as follows:
RESOLVED
AS A SPECIAL RESOLUTION
:
THAT
in
terms of and by virtue of the authority of Sections 32(4) and
35(2)(
b
)
of the
Sectional Titles Act No. 95/1986, the
Conduct Rules of the
Scheme be repealed and substituted by Rules numbered 1 to 26 and
Annexures “A” and “B”.’
[17]
(My
emphasis.)
[19]
Could the aforementioned special resolution be lawfully adopted in
terms of ss 32(4) and 35(2)(
b
)
of the Act as averred by the first respondent? Section 32(4) of
the Act provides that where an owner has been adversely
affected his
written consent must be obtained.
[18]
Section
35(2)(
b
) of the Act provides:
‘
(2)
The rules shall provide for the control, management, administration,
use and enjoyment of the sections and the common property,
and shall
comprise –
(
b
)
conduct rules, prescribed by regulation, which rules may be
substituted, added to, amended or repealed by the developer when
submitting an application for the opening of a sectional title
register, and which rules may be substituted, added to, amended or
repealed from time to time by special resolution of the body
corporate: Provided that any conduct rule substituted, added
to
or amended by the developer, or any substitution, addition to or
amendment of the conduct rules by the body corporate, may not
be
irreconcilable with any prescribed management rule in paragraph (
a
).’
The
nature of the rule modified
[20]
The answer to the aforesaid question can only be answered when
consideration is given to the nature of the rule that was adopted.
It is necessary to distinguish between conduct rules and management
rules. Conduct rules
[19]
in general restrict unit owners’ use and enjoyment of the unit
in pursuance of a greater good, namely peace and harmony in
the
complex or scheme. It is therefore important that any breach of
any conduct rule be sanctioned in an appropriate manner
so as to
restore the peace in the complex. Scholars like Maree, argue
that there is a clear distinction in the nature and
content of
management rules and conduct rules and to insert provisions about
levies in the conduct rules would ignore such distinction.
[20]
The SCA in
Body Corporate
Pinewood Park v Dellis (Pty) Ltd
[21]
when it considered the nature of management rules, stated the
following:
‘
[15]
In
Wiljay Investments
(Pty) Ltd v Body Corporate, Bryanston Crescent and Another
1984 (2) SA 722
(T) Spoelstra J had occasion to consider the status
and nature of rules governing bodies corporate under the Act’s
predecessor.
Section 27(2)(
a
)(ii)
of that Act stipulated that the rules-
“
shall
provide for the control, management, administration, use and
enjoyment of sections and the common property, and shall include
…
the rules contained in Schedule 2 which may be added to, amended or
repealed by special resolution of the members of the
body corporate”.
Spoelstra
J said the following:
“
These
rules are clearly not intended to define or limit the ownership of
individual owners of sections, units or common property.
The
rules, read with the provisions of the Act, contain a constitution or
the domestic statutes of the body corporate. In
this sense it
could properly be construed as containing the terms of an agreement
between owners inter se and between owners on
the one hand and the
body corporate on the other hand.”
I
agree with these dicta, which are equally valid in respect of the
management rules made in terms of the regulations, read with
the
provisions of s 35 of the Act.
It is a matter of pure logic
that, when a purchaser purchases a unit in a sectional title scheme
after a sectional title register
has been opened, he or she would be
deemed to have consented, or agreed, to be bound by the existing
rules relating to that scheme
and to future changes to them
introduced by unanimous resolution of that scheme’s body
corporate
.’
(My
emphasis, footnotes omitted.)
[21]
In terms of regulation 30(1) of the Act, the management rules as
stipulated in terms of s 35(2)(
a
)
of the Act are those rules set out in Annexure 8 to the
regulations.
[22]
[22]
An analysis of the resolution passed reveals that the body corporate,
in my view, was not amending the conduct rules but introduced
a rule
that impacts on the manner in which the owners make financial
contributions to the scheme.
[23]
The table in annexure ‘B’ contains the section number,
the floor area in square metres and the modified participation
quota
percentage.
[23]
The first respondent did not only alter or amend the conduct rules by
passing the resolution, it amended the owner’s
liability to
contribute to the scheme by paying levies. Section 35(2)(
a
)
of the Act requires that a management rule may be passed by a
unanimous resolution.
[24]
Such resolution is defined in s 1 of the Act as:
‘“
unanimous
resolution”
means, subject to subsection (3), a resolution-
(
a
)
passed unanimously by all the members of a body corporate who are
present or represented by proxy or by a representative
recognized by
law at a general meeting of the body corporate of which at least 30
days’ written notice, specifying the proposed
unanimous
resolution, has been given, and at which meeting at least 80% of all
the members of a body corporate (reckoned in number)
and at least 80%
of all the members (reckoned in value) are present or so
represented: Provided that in circumstances determined
in the
rules, a meeting of the body corporate may be convened for a date 30
days or less after notice of the proposed resolution
has been given
to all the members of the body corporate; or
(
b
)
agreed to in writing by all the members of the body personally or by
proxy or by a representative of any such member recognized
by
law;’
[25]
The
fact that there was no unanimous resolution at the first respondent’s
meeting is fatal to the body corporate’s case.
The scheme
could not have two different schedules of participation quotas, i.e.
one as per the sectional plan and one as per annexure
‘B’.
[24]
Accordingly, the ‘conduct rule’ introduced by the body
corporate which modified the liability of the sectional
owners to
contribute towards the levies of the scheme is not in accordance with
the statutory powers of the body corporate in terms
of the Act.
It is in conflict with s 37(1)(
d
) and accordingly invalid. In
light of the conclusion reached it is not necessary for this court to
determine whether the resolution
passed affected the appellant
adversely.
Order
[25]
Accordingly, I make the following order:
(a) The appeal be upheld with costs.
(b) The order of the court a quo be
set aside and substituted with the following order:
‘
1. The special resolution
passed by the first respondent on 23 August 2012 that modified the
members’ liability for levy contributions
of the Marine Sands
Sectional Scheme is declared invalid.
2. The amendments to the conduct rule
of the scheme effected pursuant to the resolution referred to above
are declared invalid and
of no force and effect, being:
(i) Conduct Rule 26 in its entirety;
(ii) Annexure ‘B’ to the
amended conduct rules;
3. The first respondent is to pay the
costs of this application.’
…………………………
..
STEYN
J
Appeal
heard on : 9 March 2018
Supplementary
heads filed : Respondent : 17 May 2018
Appellant
: 2 May 2018 and 28 May 2018.
Counsel
for the appellant : Ms LM Mills
Instructed
by : Austen Smith Attorneys
c/o
Richard Evans & Associates
Counsel
for the respondent : Mr AJ Boulle
Instructed
by : BES Agar & Associates
c/o
John Hudson & Company
Judgment
handed down on : 24 August 2018
[1]
The order issued by Pillay and Van der Merwe JJA reads:
‘
1) Leave to appeal is granted
to the Full Court of the KwaZulu-Natal division of the High Court,
Pietermaritzburg.
2) The costs order of the court a quo
in dismissing the application for leave to appeal is set aside AND
the costs of the application
for leave to appeal in this court and
the court a quo are costs in the appeal. If the applicant does
not proceed with the
appeal, the applicant is to pay these costs.’
[2]
Hereinafter referred to as the ‘body corporate’.
[3]
The scheme was registered in 1992.
[4]
Algar v Body Corporate of
Thistledown & others
[2010] JOL 26140 (N).
[5]
Sectional Titles Act 95 of 1986
hereinafter referred to as ‘the
Act’.
[6]
This section has been repealed by the Sectional Titles Schemes
Management Act 8 of 2011, see s 11 that is substantially the same.
[7]
Fischer & another v
Ramahlele & others
2014 (4) SA 614 (SCA).
[8]
See
Maphango & others v
Aengus Lifestyle Properties (Pty) Ltd
2012
(3) SA 531
(CC) para 109 and
Barkhuizen
v Napier
[2007] ZACC 5
;
2007 (5) SA 323
(CC).
Barkhuizen
para 39 reads:
‘
The mere fact that a point of
law is raised for the first time on appeal is not in itself
sufficient reason or refusing to consider
it. If the point is
covered by the pleadings, and if its consideration on appeal
involves no unfairness to the other party
against whom it is
directed, this Court may in the exercise of its discretion consider
the point. Unfairness may arise
where, for example, a party
would not have agreed on material facts, or on only those facts
stated in the agreed statement of
facts had the party been aware
that there were other legal issues involved. It would
similarly be unfair to the other party
if the law point and all its
ramifications were not canvassed and investigated at trial.’
(Footnotes
omitted.)
[9]
For a discussion of this legal entity see CG van der Merwe
Sectional
Titles, Share Blocks and Time Sharing
Vol 1 at 14-16
et seq
.
[10]
See para 435 for a discussion of the various important powers of a
body corporate
Lawsa
Vol 24 (2 ed).
[11]
See van der Merwe
Sectional
Titles
at 4-10.
[12]
See
Silberberg and
Schoeman’s The Law of Property
,
5 ed (2016), at 459-460.
[13]
These rights would inter alia include voting rights, financial
participation and the usage of the common property.
[14]
See van der Merwe
Sectional
Titles
at 4-9. Also
J Booysen
A critical
analysis of the Financial and Social Obligations imposed on
Sectional Owners in Sectional Title Schemes,
as well as their
enforcement
(unpublished
doctoral thesis, Stellenbosch University) 2014.
[15]
See s 32(2) that reads:
‘
Subject to the provisions of
section 48, in the case of a scheme other than a scheme referred to
in subsection (1), the participation
quota of a section shall be a
percentage expressed to four decimal places, as determined by the
developer: Provided that-
(a)
where a scheme is
partly residential as defined in any applicable operative town
planning scheme, statutory plan or conditions
subject to which a
development was approved in terms of any law, the total of the
quotas allocated by the developer to the residential
sections shall
be divided among them in proportion to a calculation of their quotas
made in terms of subsection (1);
(b)
where a developer
alienates a unit in such a scheme before the sectional title
register is opened, the total of the quotas allocated
to the
respective sections and the participation quota of that unit must be
disclosed in the deed of alienation; and
(c)
where such
disclosure is not made, the deed of alienation shall be voidable at
the option of the purchaser and that the provisions
of section 25
(15) (
b)
shall
mutatis mutandis
apply in respect of
any such alienation.’
[16]
Section 32(2)(
a
).
For a further discussion of the participation quota, see 24 Lawsa 2
ed para 319.
[17]
See annexure ‘J’ at 55 lines 13 to 41.
[18]
See para 7
supra.
[19]
See Annexure 9 to the Regulations.
[20]
See T Maree ‘MCS Courier’ Issue 47 (July 2014) page 6.
See also page 7 where it is concluded that all rules
relating to
levies which may be adopted by the body corporate belong in
management rules. Also see
De
Lange v Bell and Others
[2013] ZAKZDHC (6 August 2013) para 8.
[21]
2013 (1) SA 296 (SCA).
[22]
Since 7 October 2016 the management and conduct rules are dealt with
in s 10(2) of The Sectional Titles Schemes Management Act.
[23]
See annexure ‘B’ at 52 of the record.
[24]
See s 35(2)(
a
)
and (
b
)
of the Act.
[25]
See s 1 of the Act.