Maria Creek Estate [2002] QBCCMCmr 664 (8 November 2002)

C G YOUNGREFERENCE: 0171-2002

ORDER OF AN ADJUDICATOR

MADE UNDER PART 10 OF CHAPTER 6

BODY CORPORATE AND COMMUNITY MANAGEMENT ACT 1997

Number of Scheme:	25253
Name of Scheme:	Maria Creek Estate
Address of Scheme:	51 Rebecca Jane Parade KURRIMINE BEACH QLD 4871

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

Michael John TAIFALOS and Shirley MATTHEWS, the co-owners of Lot 1; MELIVAN PTY LTD, the owner of Lot 4; and Claude Humphrey MARSH and Shirley Joy MARSH, the co-owners of Lot 5;

C G YOUNGI hereby order that –

1.

Patricia KITE of Body Corporate Services Pty Limited, 109-113 Spence Street, Cairns Qld 4870, is appointed Administrator (“the Administrator”) to the Body Corporate for “Maria Creek Estate” CTS 25253 with all of the powers of chairperson, secretary, treasurer and of the committee, and as Administrator –

(a) will hold the appointment for the period beginning from the date of this order until the close of the annual general meeting (“the meeting”) required under the legislation to be held between 1 March 2004 and 31 May 2004;

(b) will hold those powers exclusively for the period of administration;

(c) cannot delegate those powers to any other person;

(d) must under the authority of this order make arrangements to be the sole signatory for all bank and other financial institution accounts of the body corporate; and

(e) shall be paid: remuneration by the body corporate at the rate of $154 per lot per annum (inclusive of GST) on a pro rata basis, with the first year’s fee to be increased in proportion to any increase in the Consumer Price Index; disbursements and fees for additional services, in accordance with those rates set out in Items 3 and 4 of Schedule A of the attached Administration Agreement for Body Corporate Services Pty Limited; and such other financial arrangements as may be agreed between the Administrator and the body corporate.

2.	In consequence of 1(b) –

(f) the powers of all members of both the body corporate committee and the agriculture and garden review (sub) committee, and of the committees themselves, are by this order withdrawn, and all rights and responsibilities given under the Act and the community management statement to the members and the committees, no longer apply for the relevant period; and

(g) committee members will next be elected at the annual general meeting to be held at the meeting referred to in 1(a) but will only assume office with their respective powers under the legislation, only after the close of the meeting.

I further order that Peter Alfred George and Marcia Heather HABLETHWAITE, the co-owners of Lots 2, 3, 6, 7, 8 and 9, must –

(1)

within two (2) weeks of the date of this order make available for collection by the Administrator, or her agent, all of the records and assets of the body corporate held by them or under their control, including but not limited to: all bank statements, accounting and other financial records; common seal; roll; minutes of general meetings and both committee meetings (including “flying minute” resolutions); and general correspondence.

(2)	co-operate with the Administrator in all matters relating to the body corporate, including giving explanations or information concerning the body corporate records, past actions of the body corporate, and any matters in progress.

2n
STATEMENT OF ADJUDICATOR’S REASONS FOR DECISION - REF 0171-2002

“Maria Creek Estate” CTS 25253

The applicants: Michael Taifalos and Shirley Matthews of Lot 1; Melivan Pty Ltd (represented by Ivan and Carmel Andrijevic) of Lot 4; and (Claude) Humphrey and Shirley Marsh of Lot 5, have sought the following order of an adjudicator under the Body Corporate and Community Management Act 1997 (“the Act”) -

“That an administrator be appointed for a period of one year ”

On 28 August 2002 I issued the following Interim Order 171-2002 –

I hereby order that the body corporate must cancel the extraordinary general meeting of the body corporate called under notice of 12 August 2002 to be held on 3 September 2002, nor can the motions, nor motions of the same or similar substance and intent, be put to an alternative general meeting of the body corporate pending determination of this application by final order.

I further order that if the meeting is held on 3 September 2002, or a subsequent meeting is held and the same or similar motions are decided before the final order to this application is made, then all motions passed at any such meeting are void and of no effect

In the accompanying Statement of Adjudicator’s Reasons for Decision, I explained why I issued the interim order. The following is the relevant extract from those reasons –

The applicants are seeking the appointment of an administrator to manage the body corporate for a year to ensure that the legislation is complied with in the calling and conduct of meetings, in the establishment of the books and records of the body corporate, and in the decision making of the body corporate. Under section 248 of the Act, such an appointment, if made, can be accompanied by a suspension of the powers of committee members and the committee as an entity, or a restriction on those powers. It also provides for the withdrawal of all or particular powers of a delegate of the body corporate, such as a Body Corporate Manager with the delegation of the committee and/or executive committee members under section 106 of the Act.

While the withdrawal or restriction of powers from the committee and its members will not result in a financial detriment to the body corporate (ie the owners), if the body corporate has engaged a Body Corporate Manager for a periodic flat fee and variable fees (almost invariably the manner of contracted payment), then the appointment of an administrator with likely identical powers to administer the body corporate, does not affect the liability of the body corporate to pay the fees under its agreement with the Body Corporate Manager. That is, while the administrator will be doing all the work normally carried out by the Body Corporate Manager and the committee, owners will still be liable to pay the Body Corporate Manager’s fees for no work in return.

Accordingly, what I am concerned about, and which has prompted me to make this interim order, is Motion 4 for the appointment of a Body Corporate Manager appearing in the agenda for the extraordinary general meeting to be held on 3 September 2002. The agenda does not have an accompanying voting paper to show whether the motion was proposed by the Hablethwaites, as owners, or the committee.

While the question of the appointment of an administrator has not been determined, nor is it in anyway implied by this order, it is in the interests of all owners if prior to that determination the body corporate does not engage a Body Corporate Manager. Also, I have noted the absence of a voting paper and other aspects of meeting requirements, and that one other motion seeks confirmation by ordinary resolution of a committee membership elected at a meeting voided by Order 119-2002. While I am also not making any determination on these matters, it seems to me that the circumstances are such that the meeting rather than just Motion 4 should not proceed until at least such time as this application is determined by final order.

JURISDICTION:
There is an additional aspect of jurisdiction raised by Peter and Marcia Hablethwaite (co-owners of Lots 2, 3, 6, 7, and 8) through their solicitors Gadens Lawyers, which I shall consider after reiterating the jurisdictional grounds relied on in my interim order.

This is a dispute between a number of owners (the applicant owners of Lots 1, 4 and 5) and the body corporate (the respondent) for the appointment of an Administrator to the body corporate on the following ground, amongst others: the alleged failure of the body corporate to comply with certain legislative provisions in the calling and conduct of the annual general meeting held on 12 February 2002; the general conduct of the affairs of the body corporate by the dominant voting and committee members, Peter and Marcia Hablethwaite, as evidenced by Orders 321-98, 444-98, 515-99, 719-99, 30-02, 38-02 and 119-02. The appointment of an Administrator and the alleged behaviour concerning meeting procedure and general duties under the legislation, are matters that fall within the Dispute Resolution provisions of the legislation (see sections 182, 183, 223(3)(v), 224 and 248 of the Act).

The Hablethwaites raise an argument concerning the status and qualifications of any Administrator contemplated. They refer to the commentary of an authority on the legislation, Queensland Community Schemes Law & Practice, Gary Bugden, paragraph 58-200. Bugden suggests that, in the absence of any definition of the term “Administrator” in the Act, or qualifications, it would be prudent to appoint a person who meets the requirements of section 448B of the Corporations Act. This section provides that an Administrator appointed to a company must be a Registered Liquidator. The Hablethwaites go on to state that such an appointee would charge fees in accordance with the Insolvency Practitioner’s Scale; the fees for a year’s appointment would likely be between $10,000 and $15,000.

While Bugden is generally a reasonable authoritative source on the legislation, I do not agree at all with him regarding the appointment of a Registered Liquidator as Administrator for the following reasons.

Firstly, the Act explicitly provides at section 33 that The Corporations Law does not apply to a body corporate. This of course does not exclude appointing a Registered Liquidator, but it does show that company law has no application to the administration or operation of a body corporate. That is, a Registered Liquidator skilled in company affairs has little if any advantage in applying those skills in a community titles situation.

Secondly, following on from the first point, the legislation sets out in detail the rights and responsibilities of both the body corporate and owners, procedures for convening and conducting meetings, voting eligibility, property management, financial management, and a large number of other prescriptive requirements encompassing the whole control, management and administration of the scheme and body corporate. There is a class of professional persons, Body Corporate Managers, who have the necessary knowledge and skills to both advise the body corporate on the legislation and provide secretarial and treasury services. These are the same skills necessary for an Administrator who is appointed to generally administer a body corporate for a period of time.

Thirdly, in such circumstances as the situation existing in “Maria Creek Estate”, it has been the invariable practice of adjudicators to appoint a skilled Body Corporate Manager as Administrator. The experience is that these appointments have been successful. I know of no appointment of a Liquidator in such a role.

Fourthly, an alternative authoritative commentary on the legislation can be found in Body Corporate Law and Practice, Christensen and Wallace. At paragraph 223.500, no suggestion is made for the appointment of a Registered Liquidator, but that the appointee may be an owner or a professional Body Corporate Manager, as is appropriate to the circumstances. Which of these is appointed will depend on the circumstances of the case and the obligations that the administrator is expected to perform and the wishes of the members of the body corporate. As commented, owners are generally only appointed where a meeting is necessary to overcome a hiatus in the operation of the body corporate.

In summary, I reject the argument that an Administrator must be a registered Liquidator under the Corporations Law.

General powers of an adjudicator in making an order:

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:
2nIn my reasons to the interim order, I made the following comments which are still relevant –

Under the provisions of section 194 of the Act, a copy of the application was provided to the respondent body corporate committee with an invitation to respond to the matters raised in the application. A submission has been received from the committee, undated but faxed on 1 May 2002. I note that a submission was made personally by “P Hablethwaite” dated 20 June 2002. I also note that in a letter to Peter Hablethwaite dated 13 May 2002 from the Commissioner for Body Corporate and Community Management addressing a number of issues, she says, “I consider that as the other party to the dispute, it is the Body Corporate that has proper standing to make a written submission in response to the application. I note that the committee has made a submission in response to the application. I do not consider that it is necessary for me to invite you to make an individual written submission as an owner of a lot in the scheme.” That does not prevent me, as the Adjudicator for the matter, from accepting the submission in determining my final order to the application, or in determining this interim order, and I do so.

This is one of two applications lodged by the owners of Lots 1, 4 and 5, the other being Application Ref. No. 30-2002. The orders sought and the grounds relied on in the other application, concern the behaviour of the Hablethwaites in their position of dominance in voting at general meetings, on the committee, and on the agricultural and garden review committee (“AGRC”). This parallels the behaviour complained of in the present application, for which the appropriate remedy is the appointment of an Administrator. Accordingly, I propose to deal with the two applications together and to canvass the relevant issues relating to both applications in these reasons. All of the material contained in both applications (applications and submissions) will be considered in these reasons. Orders to both applications will be issued concurrently.

I would also comment that both applications were received early in the year but have not been dealt with earlier for a number of reasons. There have been 8 applications for this scheme during 2002, and the two relevant applications (30 and 171-2002) are only two of three that have not yet been determined. Apart from the volume of applications, the major reason for the delay lies with Hablethwaite either querying a procedural step by this office in dealing with the application, or seeking further information, with the enquiries being made either directly to this office or to a superior office. Such correspondence necessarily halts progress of the application.

On 9 October 2002 I gave notice to all parties by letter that, having read the material relating to both applications, I had formed the view that the appointment of an Administrator was necessary in the circumstances and that I intended an appointment for one year. That is still my view for the reasons set out under the heading Determination following. In that letter I asked all owners to nominate a suitable person for appointment. The Hablethwaites sought the appointment of Ian David Jessup of Jessup and Partners, a Registered Liquidator, in keeping with their view that a person with such a qualification should be appointed (see Jurisdiction). The owners of Lots 1, 4 and 5, have made a joint submission requesting that a Body Corporate Manager, namely Body Corporate Services Pty Limited, be appointed.


DETERMINATION:
Peter and Marcia Hablethwaite were the developers of the scheme established on 3 March 1998 and, having sold three of the lots, remain as owners of the remaining six lots. The applicants in both current applications (30 and 171-2002) are the owners of these three lots, that is, all of the owners other than the Hablethwaites.

Having 6 of the 9 votes, and 600/900 and 550/900 of the Contribution and Interest Schedule Lot entitlements respectively, the Hablethwaites are able to out-vote other owners in the determination of ordinary resolutions in general meetings, and dominate both the body corporate committee and the AGRC.

In his submission to this application, Peter Hablethwaite appears to accept the benefit of the appointment as being in everybody’s interests including your dept’s as it would stop the flow of lies. He goes on to state that the appointment would have to be subject to certain conditions to gain his approval, including unquestioned impartiality, be a lawyer, not act retrospectively and the cost be shared equally between the owners (ie Hablethwaites to contribute only one-quarter of the Administrator’s fees).

However, in their response to my letter made through Gadens Lawyers, the Hablethwaites object to the appointment on the following grounds –

a) They will have to bear 2/3 of the cost.

b) They are in the process of selling the remaining vacant lots and the presence of an Administrator will have a negative effect on sales.

c) The disputes within the scheme could be adequately managed by the engagement of a Body Corporate Manager.

d) Adopting the Corporations Law provisions (see previous), an Administrator should only be appointed if there is danger of insolvency, mismanagement or Directors are unable to carry out the affairs of the company. There is no evidence of any of these.

In regard to (a), I do not believe that I have discretion to vary the legislative provision that body corporate costs must be apportioned amongst owners according to whatever lot entitlement schedule is applicable for a particular cost item. Fees for a Body Corporate Manager come within the general running costs of the body corporate and therefore the Contribution Schedule applies – this would, in my view, therefore also apply in respect of Administrator’s fees.

In regard to (b), I would state that intending purchasers usually carry out a search of Adjudicator’s Orders through this office – also, orders are usually located as part of a general search of body corporate records prior to purchase. Both of these searches are recommended in the Information Sheet notice headed “Contract Warning” which section 163(5) of the Act requires to be the first page of every contract for the sale of a lot in a community titles scheme. Accordingly, potential purchasers will likely see the previous orders for this scheme, in which case the appointment of an Administrator may well be seen by them as a positive rather than a negative.

In regard to (c), it is my intention to appoint a Body Corporate Manager in the position of Administrator – no other professional in my view has the required knowledge, skills or experience. In reference to the condition that a lawyer be appointed contained in Hablethwaite’s previous submission, I would say that the cost itself would prohibit my appointing a lawyer, but as well, a Body Corporate Manager has the ready knowledge of the legislation and other skills that a lawyer does not have by virtue of his profession (knowledge of meeting procedure, finance, insurance, etc, plus software set-up). The difficulty with the body corporate itself engaging a Body Corporate Manager (as the Habletwaites have suggested) is that the Hablethwaites have the voting power to engage someone of their choice, not necessarily one that is impartial. The situation calls for a skilled person with no previous dealing with the scheme or the parties involved; it would not be best served, for instance, by the previous suggestion of the Hablethwairtes to employ a particular solicitor known to them.

In regard to (d), the criteria for appointment of an Administrator under the Corporations Law is not relevant here. The implications of sections 223(3)(v) 224 and 248 of the Act are that an Administrator should be appointed where a body corporate (including its committee) is not properly discharging its duties under either the Act, its community management statement or any other Act. The appointment is invariably done with the concurrent withdrawal of all powers from the body corporate committee, and is regarded by adjudicators as intervention that should only take place as a last resort. Evidence of that reluctance by adjudicators to impose such a solution can be found in the situation of “Maria Creek Estate” itself where the succession of applications before adjudicators has disclosed an increasing worsening of relations between the Hablethwaites and other owners, and in the poor management of the scheme by the committee, the AGRC, and in general meeting decisions.

Orders have in the past been issued in an attempt to remedy the situation, without resort to the imposition of an Administrator. The applicants have themselves referred to the disputes and circumstances existing in seven applications to the date of lodging this application. I do not intend to extract from these past applications the circumstances which verify the mismanagement and ill-feeling which has existed since establishment of the scheme, however, I do have regard to those matters in reaching the decision to appoint an Administrator. I will refer to a number of more recent instances which show that the problems continue and require remedial action. They follow, numbered 1 to 4.

1. In my Interim Order 171-2002 of 28 August 2002 (see preliminary comments in these reasons) to this application, I ordered that the meeting scheduled for 3 September 2002 be cancelled. Both the body corporate (addressed for attention of “Mr P Hablethwaite”, and sent to the Hablethwaites fax number) and Melivan Pty Ltd (for all applicants) were faxed a copy of the order on 28 September 2002. The Chairman, Marsh, has written to this office that, after having received the interim order, he did not attend the venue assuming it would not be held in compliance with the order.

I have before me a copy of the minutes (copies sent by Marsh and Hablethwaite) for that meeting which, despite my interim order, was held. The minutes show that the only persons present were Peter Hablethwaite, purporting to representing 4 of the 6 lots owned jointly with Marcia Hablethwaite, and Marcia Hablethwaite purporting to represent the other 2. No one else was present. I note in respect of Motion 4 the following comment in the minutes –

“It was resolved therefore to leave the appointment of a Manager in the hands of the secretary”.

The Act is quite prescriptive as to how a Body Corporate Manager may be engaged - see sections 78 and 87 of the Standard Module – and it does not include that a body corporate secretary may do so on the resolution of the body corporate. Any engagement so made by Hablethwaite will be void. There is a gratuitous comment in the minutes to Motion 4 that the applicants have been advised by the BCCM that they are better off without a mediator, which is, of course, untrue.

Of more serious concern is that the meeting proceeded in contravention of the interim order. The file copy shows that Hablethwaite received the fax of the order at 2.14pm on 28 August 2002. The hard copy was mailed that same day and also should have been received within the next 6 days.

2. There is considerable tension between the Hablethwaites and the other owners that has been ongoing from the time of their purchase. This office received applications in 1998 and 1999 which evidenced the growing ill-will between the Hablethwaites and the owners of Lots 1 and 4 (see Orders 321 –1998, and 515 and 719-1999). The division within the body corporate was extended when the most recent purchasers, the Marshs of Lot 5, were equally unable to accept the behaviour of the Hablethwaites. In his submissions, Humphrey Marsh complains that although he was the body corporate Chairperson, Hablethwaite, amongst other things, called meetings and dealt with outside parties in the name of the body corporate, without his approval or knowledge.

This situation is confirmed by the words of Peter Hablethwaite himself in his letter of 29 January 2002 to Humphrey Marsh where he says –

“You have obviously joined forces with the other faction, maybe this alleged complaint of yours is part of a conspiracy. In view of your comments, however, I will not attend the meeting you have asked for. The rest of your letter is not worthy of comment.”

Also, in his submission to 30-2002, Hablethwaite refers to apprehended violence towards him by one of the applicant owners, and attached copies of letters of complaint made to Silkwood Police. Although the complaints were made in 1999, the fact that they are raised now shows it is a continuing concern. I mention it here to emphasise the breakdown in relations between the two factions.

3. At pages 4 and 5 of the reasons to my Order 719-199 of 29 February 2000, I stated that it was not reasonable for Habblethwaite, purportedly acting on behalf of the AGRC (but without the authority of a resolution in the matter), from intervening to prevent an electrician engaged by the Andrijevics because only the “estate electrician” could be used on the scheme. It was made clear that owners could use an electrician of their choice. However, I note in a letter from the Hablethwaites to Marsh dated 16 October 2000, under the heading of Body Corporate Maria Creek, he is told that only the estate electrician, Ross Letitezia, can connect up their power.

That is, some eight months after notice that the body corporate cannot determine which electrician an owner must use to connect power, the Hablethwaites repeat the same demand to another owner. Apart from this, from the heading on their letter they are purporting to speak for the body corporate in giving the instruction.

4. A further instance concerns the wall erected on the common property access strip separating the exclusive use areas of Lots 3 and 4. This wall was erected by the body corporate upon the majority vote of the Hablethwaites, who raised the matter for decision. By Order 119-2002 issued on 4 June 2002, a fellow Adjudicator found the wall had been improperly approved by the body corporate in that the wall was not for the benefit of owners generally, but was for the personal benefit of the Hablethwaites (to block noise from a air-conditioner on Lot 4). The order required the Hablethwaites to remove the wall at their own cost. I note in the minutes of an extraordinary general meeting held on 7 June 2002, that the budget for the year ending 28 February 2003 contains the following item “Possible future inclusions-Cost of fence wall $2,200”.

I understand the wall has now been removed by the Hablethwaites, presumably at their own cost. I also assume that the cost of construction was not against the body corporate but was met, or reimbursed, by the Hablethwaites. Regardless, the proposal and construction of the wall, to be at the cost of the body corporate, indicates that the Hablethwaites are prepared to use their majority vote to obtain an unfair personal benefit at the expense of the body corporate.

In summary:
I am of the opinion that it is in the best interests of all owners that an Administrator is appointed, and that the powers of the members (executive and ordinary) of both the body corporate committee and the AGRC, are withdrawn. Although the latter is only a recommendatory body (see reasons to my Order 515-1999), the Hablethwaites have wrongly used it as a decision making body, and therefore, as a matter of prudence, I have also withdrawn its members’ powers.

Provision is made for this in section 248 of the Act. The Administrator has the powers given under the order (see section 248(2)) and section 248(3) provides that the order may –

(a) withdraw all or particular stated powers from the body corporate (and any delegate of the body corporate) or from stated officers of the body corporate until the Administrator has taken the necessary action to secure compliance with the obligations; and

(b) require officers or delegates of the body corporate to take stated action to help perform the work the Administrator is required to perform; and

(c) fix the Administrator’s remuneration.

Owners will still retain their individual voting power and collective decision making capacity under the appointment, however it will be the Administrator who calls meetings, prepares the notices, determines eligibility to vote, declares voting outcomes, and, as chairperson, controls the conduct of the meeting and determines whether motions are out of order. That is, a knowledgeable and impartial party with exclusive committee and executive member powers, will not only be calling and conducting meetings, but assisting the body corporate in making decisions and in carrying out its duties in accordance with the legislation. In time, I believe the Hablethwaites will also appreciate the benefits of the appointment and I urge them to allow the Administrator to carry out her duties in a spirit of co-operation. The Administrator will, of course, have recourse to this dispute resolution facility if necessary.

The appointee is that submitted by the applicants, Patricia Kite, an employee of Body Corporate Services Pty Limited which has been a body corporate management company for many years. She has declared that she has no interest in the scheme and does not know any of the owners personally. I am satisfied that she is capable of carrying out the appointment and to do so with impartiality.

As it is important that the Administrator completes a year’s administration by calling and conducting the annual general meeting (having prepared the budgets, reviewed the insurance, determined appropriate maintenance motions, etc), and as the scheme must hold its annual general meetings between 1 March and 31 May each year (see Order 515-1999), I have provided that the appointment shall extend over the balance of this financial year and for the whole of the next financial year. The appointment will therefore be until the close of the annual general meeting held between 1 March and 31 May 2004. This is more than the one-year foreshadowed in my letter to owners, but it is important that the Administrator conducts the annual general meeting where the period of administration has been in force for even part of the year – an appointment for a year would have overlapped into the 2003-2004 scheme’s financial year.

I have attached as part of my order, page 6 of the standard administration agreement of Body Corporate Services Pty Limited showing the work provided for the flat fee, and also pages 4 and 5 of a draft agreement which sets out the disbursement charges and fees for additional services.

This period of administration is an opportunity for all owners to put past differences behind them, put forward appropriate motions for both personal and community benefit, attend all meetings, and attempt to at least act civilly towards each other.