Il Centro [2002] QBCCMCmr 534 (28 August 2002)

RA MeekREFERENCE: 0308-2002

ORDER OF AN ADJUDICATOR

MADE UNDER PART 10 OF CHAPTER 6

BODY CORPORATE AND COMMUNITY MANAGEMENT ACT 1997

Number of Scheme:	17438
Name of Scheme:	IL CENTRO
Address of Scheme:	30 Sheridan Street, CAIRNS QLD 4870

TAKE NOTICE that pursuant to an application made under the abovementioned Act by HA Mellick (Investments) Pty Ltd, the owner of lot 18, and Thomas Oppermann, the owner of lot 38

RA MeekI hereby order that the application by HA Mellick (Investments) Pty Ltd, the owner of lot 18, and Thomas Oppermann, the owner of lot 38, for an order seeking rescission of motions 2 and 3 of the Ex. General Meeting of 25-2-02, is dismissed.

yn
STATEMENT OF ADJUDICATOR’S REASONS FOR DECISION - REF 0308-2002

“IL CENTRO” CTS 17438

The applicants, HA Mellick (Investments) Pty Ltd, the owner of lot 18, and Thomas Oppermann, the owner of lot 38, have sought the following order of an adjudicator under the Body Corporate and Community Management Act 1997 (the Act), quote -

Rescission of motions 2 and 3 of the Ex. General Meeting of 25-2-02.

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 applicants seek invalidation of two resolutions carried at the EGM of the body corporate held on 25 February 2002. Those resolutions were headed Deed of Variation – Caretaking Agreement and Letting Agreement respectively; were proposed by Afinar Pty Ltd, the owner of lot 2, and were stated to require ordinary resolutions. The minutes indicate that both motions were carried by clear majority vote.

The basis for invalidation are difficult to discern from the applicant’s original grounds. The basis was better explained in subsequent correspondence by the applicants to this office of 25 June 2002, quote –

... The chairman for the meeting insisted that he had received advice that he could both act as chairman for the meeting as well as vote on the motions in which he quite clearly had an interest and would receive an even greater benefit should they be passed.

Whilst Mr Eddie Veresis of Body Corporate Services advised by reading some extracts from the act that it was contrary to the law that the Body Corporate could receive any benefit as a result of granting the Manager an extension of those agreements as requested in motions 2 and 3 he failed to explain that the Body Corporate is fully entitled to ask for a premium payable on the transfer of the management rights business contract price as a condition of approving an assignment of the caretaking and letting agreements if they sold within 3 years of that time. Proceeds of which would go to the buildings sinking fund.

... When it was pointed that surely the granting of any extension would substantially go towards increasing the market value of Afinar’s asset and that to vote on such an issue through the use of personally held votes or proxies would constitute a major conflict of interest it was felt that he should stand aside and not exercise any votes he held. ...

I have noted the contents of submissions made in response to the application, most particularly the committee, and Mr Jonathon Noonan (Noonan), of Afinar Pty Ltd, the holder of the caretaking and letting agreements, the subject of motions 2 and 3. The effect of motions 2 and 3 was to grant Afinar Pty Ltd “an option for three further terms terminating on 1 March 2023” in respect of both agreements.

The application raises three issues in my view, namely –

1. Conflict of interest;

2. The entitlement of the body corporate to receive a financial benefit in consequence of the granting of the extension of the agreements;

3. The entitlement of the body corporate to ask for a premium payable on the transfer of the management rights business contract price as a condition to agreeing to the assignment thereof.

I intend to deal with these issues in turn.

1.	Conflict of interest.

The applicant alleges that the Noonan had a conflict of interest in chairing the meeting, and further, in exercising votes, both its own and by proxy, in respect of motions 2 and 3. Conflict of interest is dealt with in section 32 of the accommodation module, quote -

32 Conflict of interest [SM, s 34]
(1) A member of the committee must disclose to a meeting of the committee the member’s direct or indirect interest in an issue being considered, or about to be considered, by the committee if the interest could conflict with the appropriate performance of the member’s duties about the consideration of the issue.
(2) A member required under subsection (1) to disclose an issue must not, if the member is a voting member, vote on the issue.
(3) A person who holds the proxy of a member of the committee must disclose to a meeting of the committee the proxy holder’s direct or indirect interest in an issue being considered, or about to be considered, by the committee if the interest could conflict with the appropriate performance of
the proxy holder’s duties about the consideration of the issue.
(4) A proxy holder required under subsection (3) to disclose an issue must not vote as the proxy on the issue.
(5) A person who holds the proxy of a member of the committee must disclose to a meeting of the committee the member’s direct or indirect interest in an issue being considered, or about to be considered, by the committee if the proxy holder is aware that the member, if present, would
be required under subsection (2) not to vote on the issue.
(6) A proxy holder required under subsection (5) to disclose an issue must not vote as the proxy on the issue.

A conflict of interest can only arise in the context of a issue being considered by the committee. The committee has submitted that –

The substance of the matters voted on by the members in motions 2 and 3 had previously been the subject of separate consultation by the four committee members not associated with Afinar Pty Ltd, and only one committee member had dissented. Accordingly, the motions had the support of committee members excluding Afinar Pty Ltd.

I am satisfied that Noonan did not vote at committee meetings on the issue of the committee determining to submit motions 2 and 3 to the body corporate in general meeting for determination.

The concept of conflict of interest has no operation in the context of a general meeting. There is no prohibition or restriction on the fact that Noonan as chairperson chaired the meeting at which motions 2 and 3 were determined. Moreover, whilst the applicants believe that Noonan (on behalf of Afinar Pty Ltd) should have abstained from voting in any way in respect of motions 2 and 3, there is no legislation obligation to do so. An owner, or holder of a valid proxy, is entitled to vote in general meeting on any motion properly before the body corporate, provided all other requirements are satisfied (eg. the owner is financial; the proxy is valid; the exercise of the proxies does not offend the provisions regarding proxy use).

I conclude the applicants have not established any conflict of interest which would have affected the outcome of motions 2 and 3.

2. The entitlement of the body corporate to receive a financial benefit in consequence of the granting of the extension of the agreements.

The provisions of section 103 of the Accommodation module mean that the answer to this issue is a very definite “no”. Section 103 provides, quote -

103 Limitation on benefit to body corporate under service contractor engagement
(1) The engagement of a person as a service contractor for a community titles scheme must not include, whether directly or indirectly, a requirement for the payment of an amount to, or the conferral of a benefit (other than the services the service contractor is engaged to supply) on, the
body corporate.
(2) If an amount is paid to, or a benefit is accepted by, the body corporate under a requirement mentioned in subsection (1), the person who paid the amount or conferred the benefit may recover the amount, or the value of the benefit, as a debt.
(3) Subsection (1) does not apply to an amount or benefit representing fair market value for an entitlement conferred (not including the actual engagement as service contractor) by the body corporate under the engagement.
Examples of operation of subsection (3)—
1. If under the engagement the service contractor may make use of a body corporate asset, the engagement might include a requirement for the service contractor to pay an amount of rent for the asset’s use. To the extent that the amount is more than a fair rent, the amount would be recoverable under subsection (2).
2. If under the engagement the service contractor may use a part of the common property (for example, utility infrastructure), the engagement might include a requirement for the service contractor to pay an amount of rent for the use of the part of the common property. To the extent that the amount is more than a fair rent,
the amount would be recoverable under subsection (2).
(4) This section applies only to an engagement (including the extension, renewal or replacement of an engagement) the term of which starts after the commencement.

The terms of (4) clarifies that an “engagement” includes an extension of an engagement. The intention and effect of motions 2 and 3 were to extend the term of the engagement of Afinar under the Caretaking and Letting Agreements. Under section 103, the body corporate is not entitled to receive any benefit for the extension of the engagements.

3. The entitlement of the body corporate to ask for a premium payable on the transfer of the management rights business contract price as a condition to agreeing to the assignment thereof.

Under section 83 of the Accommodation Module, the body corporate is entitled to receive a fee in the event of transfer of the relevant engagement or authorization, in accordance with the terms of that section. However, the parties should note the provisions of section 82 (dealing with transfers of engagements and authorizations generally) and in particular section 82(6) which prevents a body corporate from requiring or receiving a fee or other consideration for approving the transfer. These sections are reproduced below for the benefit of the parties.

82 Transferring engagements and authorisations [SM, s 84]
(1) A person’s rights under an engagement as a body corporate manager or service contractor, or under an authorisation as a letting agent, may be transferred only if the body corporate under the engagement or authorisation approves the transfer.
(2) To avoid doubt, it is declared that the approval may be given by resolution of the committee (unless the decision on the approval is a decision on a restricted issue for the committee) or by ordinary resolution of the body corporate.
(3) In deciding whether to approve a proposed transfer, the body corporate may have regard to—
(a) the character of the proposed transferee and related persons of the proposed transferee; and
(b) the financial standing of the proposed transferee; and
(c) the proposed terms of the transfer; and
(d) the competence, qualifications and experience of the proposed transferee and any related persons of the proposed transferee, and the extent to which the transferee and any related persons have received or are likely to receive training; and
(e) matters to which, under the engagement or authorisation, the body corporate may have regard.
(4) The body corporate must decide whether to approve a proposed transfer within 30 days after it receives the information reasonably necessary to decide the application for approval.
(5) The approval may be given on condition that the transferee enters into a deed of covenant to comply with the terms of the engagement or authorisation.
(6) The body corporate must not—
(a) unreasonably withhold approval to the transfer; or
(b) require or receive a fee or other consideration for approving the transfer (other than reimbursement for legal expenses reasonably incurred by the body corporate in relation to the application for its approval).
(7) Subsection (6) applies subject to section 83.
(8) In this section—
“related persons”, of a proposed transferee, means—
(a) if the proposed transferee is a corporation—the corporation’s directors, substantial shareholders and principal staff; or
(b) if the proposed transferee is in partnership—the partners and principal staff of the partnership.

83 Payment of amount on transfer [SM, s 85]
(1) This section applies to an engagement of a person as a service contractor, or the authorisation of a person as a letting agent, if—
(a) section 107(3)17 of the Act applies to the engagement or authorisation; and
(b) the engagement or authorisation is not the result of the exercise of an option by the service contractor or letting agent under the terms of the engagement of the person as a service contractor, or the authorisation of the person as a letting agent, contained in a previous engagement or authorisation for the scheme; and
(c) the approval of the body corporate is sought to the transfer of a person’s rights under the engagement or authorisation.
(2) The body corporate may require, as a condition of approving the transfer, that the transferor under the transfer pay the body corporate an amount (the “relevant amount”).
(3) The body corporate may require the payment of the relevant amount only if the date (the “approval date”) on which the body corporate approves the transfer is not more than 3 years after the date (the “contract date”) on which the engagement or authorisation was entered into, or on which the term of the engagement or authorisation was extended.
(4) The relevant amount is the relevant percentage of the amount representing fair market value for the transfer.
(5) The relevant percentage is—
(a) if the approval date is not more than 1 year after the contract date—3%; or
(b) if the approval date is more than 1 year, but not more than 2 years, after the contract date—2%; or
(c) if the approval date is more than 2 years, but not more than 3 years, after the contract date—1%.
(6) The body corporate may not require the payment of the relevant amount if—
(a) the transferor is a financier under section 10918 of the Act who is acting under the provisions of the financier’s charge over the engagement or authorisation; or
(b) the transferor is seeking approval to the transfer on the basis of genuine hardship not reasonably foreseeable by the transferor at the contract date.
(7) The relevant amount must be paid into the body corporate’s sinking fund.

However, the question of a transfer fee is irrelevant to the question of the validity of motions 2 and 3. Motions 2 and 3 do not propose a transfer of the agreements, but rather an extension thereof.

I now propose to comment briefly on certain other aspects raised by the applicants. The applicants suggest discrepancies in the vote on the motions, however the applicants do not provide any material or evidence to substantiate this allegation. I consider that the motions were carried by clear majority vote, and that there is no justification for this allegation being investigated further.

The applicants further allege that the body corporate “has not acted in the best interests of all the respective lot owners by not fully explaining the motions and their implications to all and not just a few person in attendance”. The applicants further allege that the minutes produced do not “reflect the full and detailed discussions”. I consider these allegations have not been substantiated in any substantive respect, beyond the three issues which I have specifically addressed.

In the circumstances, I intend to dismiss the application as being without merit.
yn