Reef Terraces [2000] QBCCMCmr 549 (25 October 2000)

P G DanielsREFERENCE: 0342-2000

ORDER OF AN ADJUDICATOR

MADE UNDER PART 10 OF CHAPTER 6

BODY CORPORATE AND COMMUNITY MANAGEMENT ACT 1997

Number of Scheme:	888
Name of Scheme:	Reef Terraces
Address of Scheme:	Radisson Reef Villas Port Douglas Road PORT DOUGLAS QLD 4871

TAKE NOTICE that pursuant to an application made under the abovementioned Act by

Mr David Coates the owner of lot 136



P G DanielsI hereby order that a resolution of the Body Corporate for Reef Terraces community titles scheme 888 passed at an extraordinary general meeting on 20 May 2000 in respect of motion 2 that provides “RESOLVED that members who have not contributed to the Owners Committee fighting fund be required to pay $200.00 per 13 interest component unit, and pro rata for units with higher interest components. This amount to be paid to Dr Fung for lease negotiations or for Legal expenses already incurred.” is invalid and of no effect.

I further order that a resolution of the Body Corporate for Reef Terraces community titles scheme 888 passed at an extraordinary general meeting on 20 May 2000 in respect of motion 3 that provides “RESOLVED that members who have not contributed to the end of lease inspections, common area inspections and AGM fee that they be required to contribute $100.00 per 13 interest component, expecting PDRR who are required to pay $50.00 per 13 interest component.” is invalid and of no effect.1n
STATEMENT OF ADJUDICATOR’S REASONS FOR DECISION - REF 0342-2000

“Reef Terraces” CTS 888

The applicant, David Coates, the owner of lot 136, has sought the following orders of an adjudicator under the Body Corporate and Community Management Act 1997 (the Act):

To overturn the resolution for the motion recorded as “Motion 2 Owner’s Committee Fighting Fund”.

To overturn the resolution for the motion recorded as “Motion 3 Contributions to Owner’s Service”.

For the repayment of all monies that may have already changed hands as a result of either of these resolutions.

Section 223(1) provides that an adjudicator may make an order that is just and equitable in the circumstances (including a declaratory order) to resolve a dispute, in the context of a community titles scheme, about –

a) a claimed or anticipated contravention of the Act or the community management statement; or

b) the exercise of rights or powers, or the performance of duties, under this Act or the community management statement; or

c) a claimed or anticipated contravention of the terms, or the termination of, or the exercise of rights or powers under the terms of, or the performance of duties under the terms of an engagement contract or an authorisation contract.

An order may require a person to act, or prohibit a person from acting, in a way stated in the order (section 223(2)). An adjudicator’s order may contain ancillary or consequential provisions the adjudicator considers necessary or appropriate (section 230(1)).

The Body Corporate for Reef Terraces (Reef Terraces) held an extraordinary general meeting on 20 May 2000 (the meeting). It was held pursuant to an order I made in application 455-1999.

The applicant challenges the validity of two motions passed at the meeting.

A previous extraordinary general meeting of Reef Terraces was held on 27 July 1999. Reef Terraces considered motions to reappoint the existing caretaker and letting agent, Port Douglas Reef Resorts Ltd. The motions were not carried.

Since that time, a lot owner Dr Fung (lot 110 owned by Narith Pty Ltd), has done substantial work to negotiate new commercial arrangements for Reef Terraces. This has involved negotiations about the individual leases to be entered into between owners and an on-site letting agent.

It is against that background that I will separately consider the two motions that have been challenged. The applicant challenges resolutions passed in respect of the motions on the basis that they are outside the authority of Reef Terraces.

1. Motion 2

The minutes of the meeting record the following about motion 2:

“Dr Fung presented motion 2 to the meeting. He indicated that when the fund was established, there was not a functioning body corporate. Money was required to assist in negotiating with Port Douglas Reef Resorts collectively.

Dr Fung said that he understood that there were no specific items or agendas that could be excluded from a body corporate meeting. He felt that the members of the body corporate could decide what was or was not item that could be considered by a meeting. A number of owners supported Dr Fung on this matter.

Mr Shaw objected to the motion indicating that the matter related to the leasing of units and so it was not a function of the body corporate to consider such a motion.

Dr Fung said that it was his belief that any matters that concerned owners can be raised especially when every owner had entered into a lease.

Mr Davis indicated that as no previous body corporate meetings had been validly held the correct procedures for raising money from owners was not in place. He felt that because the majority of owners had supported the $200.00 levy, he felt that it had become a decision of the body corporate.

The Chairperson ruled Motion 2 out of order on the grounds that the motion was unenforceable because it sought to raise payments from owners that were not sanctioned by either sections 95, 119 or 123 of the Standard Module Regulation.

[The Body Corporate overruled the Chairperson’s ruling.]

Dr Fung indicated that he had kept details of expenses which had been drawn from the Fighting Fund however he had not kept an itiniary on the number of hours spent in meetings in Sydney, Brisbane and Port Douglas. The fund presently contains approximately $30,000.00.

The meeting heard that the $200.00 had been paid voluntarily by most owners.

Motion 2 was then put to the meeting as under:-

RESOLVED that members who have not contributed to the Owners Committee fighting fund be required to pay $200.00 per 13 interest component unit, and pro rata for units with higher interest components. This amount to be paid to Dr Fung for lease negotiations or for legal expenses already incurred.

For : 63 [Lot numbers specified]

Against : 9 [Lot numbers specified]

Abstain : 3 [Lot numbers specified]”

It will be observed that the $200 payment relates to various expenses of Dr Fung in respect of the lease negotiations.

Dr Fung states in his submission the work he did:

“I organised and attended and presented at meetings in Melbourne, Sydney and Brisbane to outline the situation and options, and travelled to Port Douglas for the EGM on behalf of all owners. In addition I sought alternative operators and negotiated contracts with these operators for the operation of the entire complex. Considerable legal expense was also incurred in challenging the above situation and dealing with the agreements/contracts.

As the owners had no funds to make this challenge, I requested that they contribute $200 towards costs of expenses and my time. Some 80% of all owners have contributed.

.........

As there was no functioning body corporate and no sinking fund or other financial resource the only way to levy funds was via the owners fighting fund which has been established for the benefit of all owners in May 1999. In the EGM meeting of May 20 2000, the meeting sought to have those that had not contributed to the fund, contribute, as it was regarded as inequitable that some owners bear the cost of the legal and other action whilst some owners paid nothing and received the benefit by taking no action.”

A submission has been received in respect of the application from Lesley Scott and Brian Donohoe, unit 96. They are one of the minority group of owners who voted against motions 2 and 3. They relevantly state in their submission about motion 2:

“When the action and proposed payment was 1^st raised it was described as voluntary. We wrote to Dr Fung stating we did not wish to participate, however now, retrospectively, this motion seeks to make our participation and contribution compulsory;

.........

Dr Fung stated just prior to the vote that “every owner had entered into a lease”; the implication being that everyone had entered into the lease he negotiated (, and should therefore pay for his negotiations).

Yes, we have a lease with PDRR, but it is not like the one Dr Fung negotiated; others also have different leases, different from ours and from Dr Fung’s;

.........

Leasing agreements are between lot owners and their chosen leasing operator and not between the Body Corporate and a leasing operator and thus not the responsibility of the Body Corporate. In fact, one lot is used as an owner residence – why should they pay?”

In my view, the resolution in respect of motion 2 is invalid.

There is no power in the Act or the Body Corporate and Community Management (Standard Module) Regulation 1997 (the Regulation) that allows a Body Corporate to levy contributions for the purpose of negotiations for leases of individual lots.

If such a power did exist it may become relevant to determine the applicability of section 26(f) of the Regulation that provides as follows:

Restricted issues for committee—Act, s 92

26. A decision is a decision on a restricted issue for the committee if it is

a decision—

.........

(f) to pay remuneration, allowances or expenses to a member of the

committee, unless the decision—

(i) is made under the authority of an ordinary resolution of the

body corporate; or

(ii) is for the reimbursement of expenses of not more than $50.

Even if it were necessary to consider the applicability of section 26, I would still invalidate the resolution. It seems unfair to me to initially indicate that the payment of the $200 is voluntary and then require the payment.

I will make an order that the resolution passed in respect of motion 2 is invalid. I will not make an order that any money that has been paid in purported reliance on the resolution that passed the motion be repaid. There is no evidence before me that substantiates that such money has been paid nor that the relevant persons want the money repaid. However, if there are persons in this position, I suggest that they initially attempt to resolve the matter with Dr Fung and Reef Terraces. If resolution is not possible, it may be the subject of a future application.

2. Motion 3

The minutes of the meeting record the following about motion 3:

“Dr Fung informed the meeting that each owner’s contribution of $100.00 had been sought to pay for the report by Mr Parsons, for the holding of this meeting by Barard Management Pty Ltd and for inspections of the common property.

Mr Shaw objected to the motion being considered by the meeting as he felt that this matter was not a function of the body corporate.

Dr Fung felt that the motion dealt with maintenance of the common property and for the expenses of this meeting.

The Chairperson said that because the motion referred to inspections of the internal areas of units at the end of leases the motion was outside the power of the body corporate to consider Motion 3. He said that a body corporate was only responsible for the administration of the common property and the assets.

The Chairperson ruled Motion 3 out of order on the grounds that the motion was unenforceable because it sought to raise payments from owners that had not contributed to end of lease inspections of their units. As such an inspection is not a function of a body corporate the motion conflicts with section 87 and 95 of the Standard Module Regulation.

[The Body Corporate overruled the Chairperson’s ruling.]

Motion 3 was then put to the meeting as under:-

RESOLVED that members who have not contributed to the end of lease inspections, common areas inspections and AGM fee that they be required to contribute $100.00 per 13 interest component, expecting PDRR who are required to pay $50.00 per 13 interest component.

For : 61 [Lot numbers specified]

Against : 9 [Lot numbers specified]
Abstain : 5 [Lot numbers specified]”

It will be observed that there are three components to the $100 contribution. Lot inspection, common area inspection and the fee charged by Richard Holmes of Barard Management to call the meeting. I set Mr Homes' fee at $3,620 in application 455-1999. The fee works out at approximately $25 per lot for convening the meeting. I consider motion 3 levies a special contribution in terms of section 95(2) of the Regulation.

In respect of the inspections, an e-mail is attached to the application from Dr Fung to owners. It relevantly states:

“Minutes of Committee Meeting 24 October 1999

Via Telephone Conference Present William Fung (chairman), Neil Fenwick, Jane Bell, Owen Carrington Smith, Gary Kurzer.

1.Committee unanimously approved the appointment of Mr Parson, building inspector to inspect villas on our behalf at the cost of $25 per unit? To be paid by PDRR,? By owners, and for the amount of $30-40 for the second inspection once the repair works have taken place. (1/2 to be paid by PDRR) Moved – N Fenwick, seconded O. C-Smith.

2. Committee unanimously approved the appointment of Mr Parson to inspect the exterior of units, driveways and common property to ascertain their condition which under the current administration and caretaking agreement PDRR is responsible for maintenance. Cost of inspection not to exceed $25 per unit for each inspection, there are to be two inspections, before and after repairs – total $50. Half of the cost to be borne by PDRR (to be negotiated) Moved J. Bell, seconded G. Kurzer.”

The above e-mail explains the inspection fees.

The fees relate to inspection of lots and the common property.

Reef Terraces certainly has power to inspect the common property and if necessary and reasonable pay a person to inspect the property for the purpose of discharging its maintenance obligation.

However, Reef Terraces has no duty to maintain lots. That duty vests in individual lot owners: see section 120 of the Regulation. Consequently, it has no power to levy contributions to pay inspection fees of lots (although in special circumstances not applicable to this case it may be possible to charge an inspection fee to a defaulting owner). To that extent motion 3 has invalidly raised a levy.

The question that needs to be determined is whether the resolution passing the motion should be invalidated or whether another order should be made.

I have decided to invalidate the resolution.

The resolution is valid to the extent that it raises a levy to pay for the convening of the meeting and to pay for the inspection fees of the common property. That represents a large part of the $100 fee.

However, the resolution must be invalidated due to the inclusion of the inspection fee of lots. There are other problems with the resolution. Firstly, no date has been fixed on which the respective contributions must be paid: section 95(2)(c) of the Regulation. It is not possible to enforce the contribution as section 96 provides that a Body Corporate must give a notice of contribution to an owner “At least 30 days before the payment of a contribution, or instalment of a contribution, is required,” Secondly, unlike motion 2, motion 3 does not refer to payment of the amount on a pro rata basis for units with higher interest components.
Additionally, PDRR are allowed to pay a smaller sum than other owners. I do not know why that is the case, however, section 95(5) of the Regulation requires that contributions levied on owners “must be proportionate to the contribution schedule lot entitlement of the lot.”

As with motion 2, I will not make an order that any money that has been paid in purported reliance on the resolution that passed the motion be repaid. There is no evidence before me that substantiates that such money has been paid nor that the relevant persons want the money repaid. However, if there are persons in this position, I suggest that they initially attempt to resolve the matter with Reef Terraces. If resolution is not possible, it may be the subject of a future application.

I do wish to state that it would be in the best interests of Reef Terraces and those involved in its management to seek the assistance of a professional body corporate manager. It seems to me that there is substantial motivation to make Reef Terraces profitable and successful. That motivation needs to be channelled such that there is compliance with the Act and the Regulation. This will ensure the actions of Reef Terraces are valid and cannot be successfully challenged.