Surfers Plaza Resort [2002] QBCCMCmr 19 (17 January 2002)

RA MeekREFERENCE: 0573-2001

ORDER OF AN ADJUDICATOR

MADE UNDER PART 10 OF CHAPTER 6

BODY CORPORATE AND COMMUNITY MANAGEMENT ACT 1997

Number of Scheme:	6388
Name of Scheme:	Surfers Plaza Resort
Address of Scheme:	No 4 Remembrance Drive SURFERS PARADISE QLD 4217

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

Surfers Paradise Bowls Club Incorporated, the owner of lot 2



RA MeekI hereby order that the liability of Surfers Paradise Bowls Club Incorporated, the owner of lot 2, for administrative and sinking fund contributions for the period 1 September 2001 to 31 December 2001 inclusive shall be $3150.08.

I further order that the body corporate shall accept the sum of $3150.08 paid by Surfers Paradise Bowls Club Incorporated, the owner of lot 2, on 3 September 2001 in full and final satisfaction of that owner’s indebtedness for contributions for this period, and shall make no further claim or demand upon the owner for any further or other amount, in respect of contributions payable for the period 1 September 2001 to 31 December 2001 inclusive.
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STATEMENT OF ADJUDICATOR’S REASONS FOR DECISION - REF 0573-2001

“Surfers Plaza Resort” CTS 6388

The applicant, Surfers Paradise Bowls Club Incorporated, the owner of lot 2, has sought the following order of an adjudicator under the Body Corporate and Community Management Act 1997 (the Act), quote -

An order that the body corporate carry out the terms of a District Court order made on the 8^th June 2001 in respect to the adjustment of the levies for the building.

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)).

I do not intend to restate the applicant’s grounds in any detail. These are known to the other party, the body corporate, which has responded by way of submission. The grounds are not in dispute. Rather what is in dispute is whether, in consequence of the Court ordered adjustment of lot entitlements, and the recording of a CMS reflecting the Court ordered adjustment, the body corporate is then required to adjust or calculate the administrative and sinking fund contributions owing for the lot for the one third year (01/09/01 to 31/12/01) on the basis of the reduced lot entitlement (which would result in a substantial reduction in the applicant’s outstanding contributions for the period), or whether, as the body corporate has argued, that as the contributions have already been struck (at the AGM in March), then that the body corporate is entitled to calculate the contributions for the final one third year for lots on the basis of the original lot entitlements contributions schedule.

It is relevant to state a chronology of events –

• 26/02/01 – applicant commenced proceedings for adjustment of lot entitlement schedule;

• 30/03/01 – AGM held at which administrative and sinking fund contributions (on a per lot entitlement basis) were approved, and the number and issue date for contribution notices determined;

• 01/05/01 – second contribution notice issued (the validity of which the applicant does not dispute);

• 08/06/01 – District Court order to effect that the contributions schedule lot entitlement for lot 2 be reduced substantially (3496 to 184) and the contributions schedule lot entitlements for all other lots were reduced proportionally to reflect an adjusted aggregate lot entitlement of 10,000 (down from 36,500 originally);

• 08/08/01 – Body Corporate lodged new CMS for recording;

• 14/08/01 – new CMS was recorded;

• 01/09/01 –contribution notice issued for final one third year (01/09/01 to 31/12/01).

The applicant argues that the final contribution notice should have been calculated on the basis of the (Court) adjusted lot entitlement schedule, and not the former schedule. The body corporate argues that it was entitled to issue the final contribution notice on the basis of the former schedule as the contributions had originally been struck prior to the date of the recording of the new CMS. The difference to the applicant I calculate to be in the vicinity of $13,000 (based on gross figures) depending on which method of calculation adopted.

An aside is that the body corporate has proposed to the applicant that an EGM be convened to resolve an adjustment of contributions for the final one third year. This has been rejected by the applicant, it seems for the reason that the body corporate has made the meeting conditional on the applicant contributing “a one half share to the cost of an EGM to consider the order and to pay the expenses of accountants for the purpose of preparing the necessary adjustment spread sheet to give effect to the new contributions ...”. Given that there are 146 lots in the scheme, I conclude that the benefit of any reduction in the applicant’s contributions would be significantly offset by the cost of the meeting and associated costs. I consider that this approach is fraught with uncertainty in any event given that there is no certainty whatsoever that the body corporate in general meeting would accept the recalculation. That is, any resolution proposing a re-calculation might fail leaving the applicant further out of pocket. In the circumstances, I can understand the applicant’s rejection of the proposal to call a meeting to consider the court order.

I conclude there is a practical difficulty with what the applicant is proposing. If contributions for all lots were adjusted for the period in accordance with the new schedule, there will be an enormous shortfall for the body corporate, given that the aggregate lot entitlement has been reduced from 36500 to 10000. This would result in a reduction in excess of 2/3’s of the body corporate’s income for the period, based on the approved amount of “contribution per lot entitlement” remaining unchanged. I estimate there would be a shortfall of approximately $123,000 in the body corporate’s finances if the order which the applicant apparently seeks, were made. The applicant does not acknowledge this, or suggest how it might be avoided. It would be unacceptable in my view, for a body corporate to have to operate on such a reduced income. The body corporate would in all probability have to raise a special contribution to cover the shortfall.

In contrast though, I accept that this is a matter of significant importance to the applicant. The applicant has initiated court proceedings to achieve a result, and seemingly is being denied the benefit of the favourable outcome for a further period. The difference is in excess of $13000 to the applicant for the one third year alone. I have considered also in this context, the difficulties and inequities which the body corporate states it, and other owners, will incur if the order as sought by the applicant is made.

The first question for determination is when is the applicant entitled to the benefit of the Court ordered adjustment. The legislation is silent on the question. The applicant believes that its entitlement arises upon recording of the CMS, whereas, the body corporate is arguing that the new schedule should not be used to calculate contributions until presumably contributions are next resolved at an AGM.
I accept there will be considerable practical (ie. the shortfall) and logistical (ie. the adjustment of contributions for 146 lots, and the accompanying difficulties of notifying and collecting same) difficulties for this body corporate in adopting the applicant’s proposal, which I consider are such as to rule against such proposal being adopted. However, I am also cognisant of the measures which the applicant has gone to to achieve the adjustment, and can understand why the applicant would seek to have the adjustment implemented (in a practical way) as soon as possible. In this regard, I consider section 46(8) of the Act to be of some relevance. That subsection states –

If the court orders an adjustment of a lot entitlement schedule, the body corporate must, as quickly as practicable, lodge with the registrar a request to record a new CMS reflecting the adjustment ordered.

Whilst this is not specifically relevant to the point being considered, it does indicate a clear intention on the part of the legislature that effect be given to the terms of the Court order “as quickly as practicable”. I consider a parallel intention that an owner receive the benefit of a favourable (Court ordered) adjustment “as quickly as practicable” might be assumed. Further, I am aware that in one instance of a Court ordered adjustment, the judge determining the matter went so far as to order the retrospective adjustment of contributions. This approach would appear to negate the body corporate’s contention that contributions, once struck or determined, were final and could not be subsequently adjusted by the occurrence of this type of scenario.

I consider that it is just and equitable (see section 223(1) of the Act) that the applicant receive the benefit of the adjustment as soon as possible. In the circumstances, I consider that the contribution be adjusted for the applicant’s lot only. The basis of the adjustment shall be 184/10000 of $169,823.55, and will replace the current basis of adjustment of 3496/36500 of $169,823.55. This adjustment is on the gross figures, and is exclusive of discount if applicable. I calculate that the applicant’s contribution for the final one third year should have been $3124.75. I note from the body corporate’s material that the applicant has paid “a sum of $3150.08”. I cannot account for the variation, but consider that it is insubstantial.

What I propose to order is that the liability of the applicant, the owner of lot 2, for administrative and sinking fund contributions for the period 1 September 2001 to 31 December 2001 inclusive shall be $3150.08; that the body corporate shall accept the sum of $3150.08 paid by the applicant on 3 September 2001 in full and final satisfaction of the applicant’s indebtedness for contributions for this period, and shall make no further claim or demand upon the applicant for any further or other amount, in respect of contributions payable for the period 1 September 2001 to 31 December 2001 inclusive.

I acknowledge that this will leave a shortfall in the body corporate’s income for the year. I estimate this shortfall to be approximately $13,000 (or 2.7%) of its expected gross receipts from contributions of $488,370. I consider that this slight reduction in expected income will not unreasonably affect the operation of this body corporate during the period. Depending how the year has gone, the body corporate might even be able to absorb the shortfall without any adjustment. Alternatively, the body corporate will be able to adjust for the shortfall in the budget and motions for the forthcoming 2002 AGM which I assume will be held around the same time as last year (ie. March 31).

Finally, I note that at the 2001 AGM, the body corporate also resolved an interim contribution for the first period of the 2002 financial year (resolutions 9 and 12) with the due date for payment of the contributions being 01/01/02. In relation to this contribution, I would expect the body corporate to have adjusted on the contributions for all lots on the basis of the (Court ordered) lot entitlement contributions schedule, and not the former. If the body corporate has not done this, then I consider that it should revoke all notices and issue amended ones.
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