Landmark Place [2002] QBCCMCmr 619 (10 October 2002)

C G YOUNGREFERENCE: 0475-2002

ORDER OF AN ADJUDICATOR

MADE UNDER PART 10 OF CHAPTER 6

BODY CORPORATE AND COMMUNITY MANAGEMENT ACT 1997

Number of Scheme:	15649
Name of Scheme:	Landmark Place
Address of Scheme:	495 Boundary Street SPRING HILL QLD 4000

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

Mark James HALL, as the owner of Lot 27,



C G YOUNGI hereby order that -

a) the body corporate must on the authority of this order consent and give effect to the proposals contained in Motions 2 and 3 considered at the extraordinary general meeting held on 4 July 2002, namely for the imposition of a penalty interest of 2.5% per month on unpaid and due contributions as provided for under section 80 of the Body Corporate and Community Management (Commercial Module) Regulation 1997 (“the Commercial Module”), and a discount of 20% on contributions paid before the date for payment as provided for under section 79 of the Commercial Module, respectively.

b) the body corporate must incorporate the discount penalty into the budgets and contribution amounts prepared for the forthcoming body corporate financial year to be considered at the annual general meeting scheduled to be held on 13 November 2002, and the interest penalty must be applied to any unpaid and due contributions after that date.

I further order that the body corporate secretary, or chairperson in the absence of or default by the secretary, must serve a copy of this order and the accompanying reasons on each lot owner, with the notice for the annual general meeting.
STATEMENT OF ADJUDICATOR’S REASONS FOR DECISION - REF 0475-2002

“Landmark Place” CTS 15649

The applicant, Mark Hall of Lot 27, has sought the following order of an adjudicator under the Body Corporate and Community Management Act 1997 (“the Act”) -

“For reversal of decision of motions 2 & 3 of EGM dated 4/7/02.”

The motions referred to in the order sought read as follows –

Motion 2 Penalty Interest on Overdue Contributions (Submitted by M Hall).

That pursuant to Regulation 80(1)(2) of the Body Corporate and Community Management (Commercial Module) Regulation 1997, penalty interest of 2.5% (30% per annum) be charged for each month a contribution (levy) or instalment is in arrears.

Motion 3 Discounts for Timely Payments (Submitted by M Hall).

That pursuant to Regulation 79(1)(2) of the Body Corporate and Community Management (Commercial Module) Regulation 1997, fix a discount of 205 on a gross budget to apply to both the Administration & Sinking Funds and that all levies from 1/10/2002 be adjusted to allow for this.

JURISDICTION:
This is a dispute between an owner, the applicant owner Hall, and the body corporate, the respondent, concerning the failure of two motions to be passed, being for the introduction of discount and penalty interest incentives for early payment of contributions. This is a matter that falls within the dispute resolution provisions of the legislation (see sections 182, 183 and 223 of the Act).

I note that the applicant has also shown under “Status” in the application form that he is the body corporate chairperson, however his clear intention is to make application in his capacity as owner and I will regard it solely in that manner.

General powers:

Section 223(1) of the Act 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) of the Act). An adjudicator’s order may contain ancillary or consequential provisions the adjudicator considers necessary or appropriate (section 230(1) of the Act).

APPLICATION AND SUBMISSIONS:
Under section 194 of the Act, copies of the application were provided to all owners inviting them to make a submission to the matters raised by the applicant. Submissions were received from 10 owners supporting the application, and one owner against the application. The dissenting submission was lodged by Charles Ryman of Eagle Street Trading Pty Ltd, the owner (though sill registered as Allawarran Pty Ltd) whose late payment of body corporate contributions and whose dissenting vote on the penalty and discount motions, are the reasons for the lodgement of the application.

The applicant has attached copies of minutes of: the annual general meeting held on 15 November 2001; an extraordinary general meeting held on 8 March 2002; and an extraordinary general meeting held on 4 July 2002 (subject meeting of the orders sought).

At each of these meetings, penalty and discount motions have been proposed but have failed to pass in each instance. At the last two meetings, the poll vote recorded shows the sole dissenting vote was by Eagle Street Trading Pty Ltd (“EST”) with an aggregate lot entitlement of 906 for the 14 lots owned (Lots 1 to 4, 6, 8 to 14, 67 and 68). The company’s dissenting vote at the 2001 meeting was 906 of the 955 lot entitlements recorded.

The applicant complains that EST does not pay its contributions until just before a meeting is held, only paying in order to retain its voting rights in respect of its lots (see section 38(10) of the Body corporate and Community Management (Commercial Module) Regulation 1997 (“the Commercial Module”), the regulatory module adopted by the scheme). As the amount represents a large portion of the annual receipts of the body corporate, the body corporate has frequently found itself unable to pay accounts. The lack of funds has been an ongoing problem for some time and has been a continual source of frustration to the committee in meeting its commitments.

The copy of the accounts ledger included with the application, bears out the complaint by showing that EST paid its (overdue) contributions on 15 November 2001, 7 March 2002 and 4 July 2002, all payments being made just prior to the holding the meetings on 15 November 2002, 8 March 2002 and 4 July 2002.

In his response to the application, EST (Ryman) states that the outcomes of the motions are the result of the democratic voting process. What’s more, it does not have a majority of votes or lot entitlements and therefore other owners could, if they wished to, outvote it to pass the motions.


DETERMINATION:
The legislation certainly provides at section 79 of the Commercial Module that a body corporate in general meeting may decide, by ordinary resolution, that it applies a discount of up to 20% on contributions that are paid by the date for payment (at least 30 days after notice of a contribution is given – see section 78). Under section 80 of the Commercial Module, it may similarly decide to impose a penalty of up to 2.5% per month for each month a contribution remains unpaid after the date for payment.

The obvious purpose of the discount provision in the legislation is as an incentive to owners to pay contributions by the due date. This form of incentive was also available under the previous legislation governing community title schemes, the Building Units and Group Titles Act 1980, however its usefulness as an incentive ends once an owner has not paid by the due date – that is, whether the owner pays the next week or the next year, there is no further penalty other than the lost discount. It was for this reason that the interest penalty provision was introduced as it provides for a continuing penalty so long as the contribution remains unpaid, being calculated by applying the chosen interest penalty percentage to the outstanding contribution amount and levying that amount against the owner each month the contribution remains unpaid.

Most, if not all, schemes of the size of “Landmark Place” have introduced both incentive measures in order that the body corporate is in the best position to have contributions paid on time; the great majority of smaller schemes have also introduced these measures for the same reason. The measures introduced have almost invariably been for the maximum permitted of a 20% discount and 2.5% per month penalty interest. These are my observations from having dealt with a considerable number of disputes involving body corporate financial matters as adjudicator, and general experience involving community title schemes.

Despite the body corporate having rejected both measures on at least three occasions, I have determined that in the particular circumstances of this scheme, the decision should be overturned in favour of the introduction of both measures in the interests of the owners generally. My reasons for this decision follow.

Firstly, I will address the question of jurisdiction for my being able to make such an order. Section 223(1) of the Act, already referred to generally under the heading “Jurisdiction” above, provides that an adjudicator,

“may make an order that is just and equitable in the circumstances (including a declaratory order) to resolve a dispute”, concerning, amongst other things, “the exercise of rights or powers. Or the performance of duties, under this Act or the community management statement”.

Section 223(3) then sets out in paragraphs (a) to (v) a series of examples of the types of orders that can be made to resolve a variety of disputes. The examples are not an exhaustive list, but an indication of how the wide powers of an adjudicator may be exercised in determining disputes in a manner that is just and equitable in the circumstances.

For instance: paragraph (a) allows an adjudicator to overturn a special resolution refusing an owner to make an improvement for his lot; (b) allows a body corporate to be ordered to acquire or dispose of certain property; (g) allows a general by-law to be revoked if it is not in the interests of owners and occupiers as being oppressive or unreasonable; allows the body corporate to be ordered to consent to a resolution without dissent which failed because of unreasonable opposition.

Given the wide jurisdiction of adjudicators under the dispute resolution provisions, as evidenced by the examples given, including those of relevance here of being able to overturn decisions of the body corporate in appropriate circumstances, I have no doubt that it is within power for an adjudicator to overturn a failed discount or penalty motion and order the body corporate to give effect to them.

Secondly, the following particular circumstances of this dispute support the order made -

• Section 87 of the Act imposes on a body corporate the duty to act reasonably in carrying out its functions, including to administer the common property and assets for the benefit of the owners and in carrying out its general functions under the Act and its community management statement. Part of its administrative function is to properly determine owners’ contributions necessary to meet its expected obligations for both administrative and sinking fund expenditures, to levy and gather those payments in, and with those funds meet its financial obligations. This body corporate has not been able to do that because of the actions of EST in not making payments until absolutely necessary for voting purposes. The result has been, because EST contributes well in excess of a third of budget moneys, that the body corporate is more often than not unable to meet its accounts when due. In my opinion, this situation does not permit the body corporate to carry out its statutory functions in the manner that it should for the benefit of owners, for the reasons following.

• The defence raised by EST in opposing the application is that its dissent to the motions is merely the exercise of its democratic right to vote as it wishes, and therefore the failure of the motions to pass are the result of the democratic process. From the body corporate ledger it is apparent that EST deliberately chooses not to pay its contributions by the due date and further, not to pay them until a general meeting is called when it does so in order not to lose its voting rights. While it may be good business practice not to pay commercial accounts until absolutely necessary, and I am subscribing to that view, the body corporate is not a business entity but a collective of scheme owners who need to contribute to a common fund in order to meet the necessary expenses for the preservation of their rights and property, such as insurance, electricity, maintenance, security, etc. A policy of not paying contributions jeopardises the provision of services to the scheme, contributes to a poor financial reputation with all the ramifications that can bring, and, I suspect, has resulted in the body corporate losing out on discounts available for early payment of various accounts. As to the argument that if all other owners, or a considerable number, voted in favour of the motion then EST’s dissent would not prevail, this is true. However it does not take into account the apathy of community title owners many of whom do not bother to vote on any matter, a feature common to all large schemes for a variety of reasons, mostly because many such owners are remote investors who are solely concerned with rentals and not body corporate government. However, even though EST is correct in its statement, I consider that the issue of the continuing frailty of the body corporate because of EST’s decision to withhold its considerable contributions, is so much to the detriment of the body corporate (owners) that my order is necessary regardless.

• Section 81(5) of the Commercial Module provides that an owner may apply to the body corporate committee to allow a discount out of time, or the waiver of a penalty, where the committee is satisfied that special reasons exist. That is, if EST has good reason for not paying on time, then it may, like any other owner, apply to the committee for consideration that it not be disadvantaged.

• The necessity of the body corporate to convene a general meeting of the body corporate, as was the case for the latest July meeting, for the express purpose of having EST pay its overdue contributions so that certain body corporate accounts could be paid, is a ridiculous state of affairs and one that cannot be allowed to continue, which it will unless there is intervention.

In all the circumstances, I consider that it is both reasonable and for the benefit of owners generally that I issue an order to give effect to both Motion 2 and Motion 3 considered at the meeting on 4 July 2002.

In order that all owners are aware of this decision and the reasons for it, I have ordered the body corporate secretary serve a copy of this order and these accompanying reasons on all lot owners with the notice of meeting due to be distributed shortly for the annual general meeting scheduled to be held on 13 November 2002. The body corporate should also write a covering letter emphasising to owners the effect the order will have on contributions not paid by the due date (date for payment).

I have also ordered that the discount provision should be incorporated into the budgets and contributions for the forthcoming body corporate financial year, to be considered at the impending annual general meeting, and that the interest penalty be applied to any unpaid and due contributions after that date.