No quorum at annual meetings? How this affects resolutions and decision-making by the Body Corporate

Recently there was an interesting question on the Facebook Sectional Title Living in SA group. It read as follows: Simply put, the question is: Can you take resolutions with no quorum at annual meetings?

“Assuming the quorum for an AGM is 20 owners and 20 owners attend and sign the attendance register. One or more owners leave before the end of the meeting. Does this mean the meeting must be abandoned after they leave (or that any voting after this is invalid)?”

What does “quorum” mean?

A quorum is the minimum number of members that must be present (or represented by proxy) at the meeting to make proceedings at that meeting valid.

is the minimum number of members that must be present (or represented by proxy) at the meeting to make proceedings at that meeting valid.

What does the legislation say regarding no quorum at an annual meeting?

PMR 19 is the provision that deals with the quorum requirements. It states that business must not be transacted at any general meeting unless a quorum is present or represented. The use of the word “must” here is pre-emptive. It does not mean that a quorum must initially be present, but does not need to be maintained. The quorum must be maintained for the duration of dealing with and voting on all items of business (or put differently, for all resolutions to be taken).

PMR 17(6) sets out the order of business (otherwise known as the “agenda” or the resolutions to be voted on) at general meetings. PMR 17(6)(a) and (b) provides that the agenda includes proxies, nominees, and other persons representing members and issuing voting cards; and to determine that there is a quorum. The rest of the agenda items are listed in PMR 17(6). Each resolution is discussed and voted on, and the outcome of each vote, including the number of votes for and against the resolution, must be announced by the chairperson and recorded in the minutes of the meeting. It would obviously be absurd to expect the quorum to be checked for each resolution, but that does not mean that the quorum does not need to be maintained for the duration of the meeting while resolutions are being taken.

The importance of having all resolutions approved is illustrated in PMR 17(8) where it is stated that if any of the items of business that require member approval are not approved at an AGM or any adjournment of the meeting; the resolution not to approve the relevant document must include the reasons for non-approval and the body corporate must have the document revised and submitted to another general meeting for approval as soon as reasonably possible until it is approved. The resolutions are not just adopted – they have to be submitted to the general meeting(s) for approval until it is approved.

What is the minimum number of members that must be present (or represented by proxy) at the meeting?

PMR 19(2) sets out that a quorum for a general meeting is constituted:

(a) for a scheme with less than four (4) primary sections or a body corporate with less than four (4) members, by members entitled to vote and holding two-thirds of the total votes of members in value;

(b) for any other scheme, by members entitled to vote and holding one-third of the total votes of members in value, provided that at least two persons must be present unless all the sections in the scheme are registered in the name of one person, and provided further that in calculating the value of votes required to constitute a quorum, the value of votes of the developer must not be taken into account.

It is important to note that PMR 19(3) states that, for the purpose of establishing a quorum the value of votes of any sections registered in the name of the body corporate must not be taken into account and the body corporate must not be considered to be a member. PMR 20(3) takes this further and provides that, for the purposes of any vote, the values of votes of any sections registered in the name of the body corporate are considered abstentions.

The distinction between quorum and voting requirements

Different types of decisions require different levels of consensus in sectional title schemes. The general principle is that the more the decision affects the members of the body corporate (from a financial perspective for example), the higher the level of consensus is required.

Taking ordinary resolutions with no quorum at annual meetings

PMR 20(1) states that a motion at a general meeting:

(a) does not need to be seconded; and

(b) except for a special or unanimous resolution, must be adopted by resolution of the majority of the votes, calculated in (PQ) value, of the members present and voting.

There is not a raised quorum requirement for ordinary resolutions taken at an AGM.

Taking special resolutions with no quorum at annual meetings

Special resolutions are defined in section 1 of the STSM Act as:

“Special resolutions means a resolution  passed by at least seventy-five percent (75%) calculated both in value and in number, of the votes of the members of a body corporate who are represented at a general meeting.”

There is no raised quorum requirement for special resolutions taken at an AGM, but if a special resolution is taken at a meeting by members holding less than fifty percent (50%) of the total value of votes, then PMR 20(9) states that the special resolution does not become effective immediately. Should a special resolution be passed at an AGM by seventy-five percent (75%), calculated in number and value, of a quorum representing less than fifty percent (50%) of the total value of all members in the scheme, the body corporate must not implement the special resolution for one week following the meeting where the special resolution was passed.

The trustees can take a resolution to implement the special resolution in circumstances where there are reasonable grounds to believe that immediate action is necessary to ensure safety or prevent significant loss or damage to the scheme. Within seven (7) days from the passing of the special resolution, the members who hold at least twenty-five percent (25%) of the total votes (calculated in value) may, by written and signed request delivered to the body corporate, require that the body corporate hold an SGM to reconsider the special resolution. In terms of PMR 20(10), the trustees must not implement the special resolution, unless it is again passed by special resolution, or a quorum is not present within thirty (30) minutes of the time set for the second SGM.

Taking unanimous resolutions with no quorum at annual meetings

Unanimous resolutions are defined in section 1 of the STSM Act as:

“Unanimous resolutions means a resolution passed unanimously by all the members of the body corporate at a meeting at which i) at least 80% calculated in both value and number, of the votes of all the members of the body corporate are present or represented; and ii) all the members who cast their votes do so in favour of the resolution.”

There is a raised quorum requirement for unanimous resolutions taken at an AGM. There must be a quorum of at least eighty percent (80%) calculated in both value and number, of the votes of all the members of the body corporate present or represented.

What happens if the quorum requirement is not met?

PMR 19(4) states that, if within thirty (30) minutes from the time appointed for a general meeting a quorum is not present, the meeting stands adjourned to the same day in the next week at the same place and time. If on the day to which the meeting has adjourned, a quorum is not present within thirty (30) minutes from the time appointed for the meeting, the members entitled to vote and present in person or by proxy constitute a quorum.

Conclusion

When interpreting legislation the golden rule is applicable. This means that the text read, as a whole and taken in context, must be given its ordinary, literal, and grammatical meaning. Simply put, the text must be given its plain meaning. In this regard, PMR 19(1) is clear: Business must not be transacted at any general meeting unless a quorum is present or represented.

In interpreting the legislation it is important to establish the intentions of the legislator. The quorum requirement ensures that the democratic nature of inclusiveness of bodies corporate is maintained. If the quorum is not maintained throughout the meeting, then any resolutions taken will not be taken by a sufficiently member-represented group of voters. This cannot be the intention of the legislative requirement for a quorum. Again, in this regard, it is my opinion that the intention is clear from a reading of the text of the legislation.

Another principle of interpretation that must be used is the mischief rule. Legislation must be considered to be designed to achieve a particular purpose. This interpretative tool looks at what mischief the law or rule is meant to remedy, and prefers a meaning that achieves that objective. In regard to the mischief that the quorum requirement is meant to remedy, it is clear that the legislature intended for there to be a minimum requirement for representation when voting on resolutions before those resolutions can be validly taken. Any interpretation where a resolution can be taken without the meeting being quorate cannot be sustained.

There are also a number of additional presumptions in regard to the intention that underlies a rule. It is presumed, for example, that the rule is intended to advance the community’s best interests. Adequate member representation at meetings is an important aspect of advancing all of the member’s interests. There are also presumptions against absurd results; as well as harsh, onerous, unjust, inequitable, or discriminatory treatment.

Another important point to make is that the quorum and voting provisions are distinct requirements set out in the legislation that, applied together, ensure that democratic principles of sectional title bodies corporate are maintained. So, for example, the taking of a unanimous resolution requires both a raised quorum requirement as well as a higher voting requirement. It would have absurd results if it is stated that a unanimous resolution can be validly taken at a meeting where there was originally a heightened quorum as set out in the register, but where the meeting no longer fulfilled that heightened quorum requirement at the time that the resolution was taken. This is also illustrated by the fact that sections 39(4)(b) and (c) of the Community Schemes Ombud Service Act 9 of 2011 respectively provide separate orders for meetings not being validly convened, and that a resolution purportedly passed was void or is invalid. This clearly shows that the quorum and voting requirements are distinct and must both be fulfilled for resolutions to be validly taken.

In conclusion, it is my opinion that in interpreting the legislated quorum requirement it is clear that the quorum must be maintained for the duration of the meeting such that resolutions can be validly taken.

Written by Dr. Carryn Melissa Durham of Stratafin