Bayview Shores [2003] QBCCMCmr 259 (28 November 2003)

Last Updated: 17 May 2005

REFERENCE: 0370-2003

ORDER OF AN ADJUDICATOR

MADE UNDER PART 9 OF CHAPTER 6

BODY CORPORATE AND COMMUNITY MANAGEMENT ACT 1997

Number of Scheme:	4078
Name of Scheme:	Bayview Shores
Address of Scheme:	5 Bayview Street RUNAWAY BAY QLD 4216

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

Allan James LANE, as a co-owner of Lot 53,

I hereby order that the contributions levied and paid by owners for the sinking fund projects identified as Gymnasium and Water Feature to Lobby must be refunded to the relevant owners, except that the moneys may be used by the body corporate to meet any shortfall in funds levied as against the current required level of funds in the sinking fund forecast, but not in reduction of the scheduled contribution required by the forecast for the forthcoming body corporate financial year period which must still be levied on owners. I further order that the above order is subject to any motions passed at any extraordinary general meeting held before the forthcoming 2004 annual general meeting, or at the annual general meeting, to expend moneys on the mentioned respective projects, in which case any remainder of the contributions levied for the respective projects may be used by the body corporate in the same manner. I further order that where funds are used in the above manner, and/or refunded, the body corporate committee must show brief details on the account or invoice for each owner, and also provide a comprehensive explanation to the owners in an accompanying letter.

STATEMENT OF ADJUDICATOR’S REASONS FOR DECISION - REF 0370-2003

"Bayview Shores" CTS 4078

The applicant, Allan Lane of Lot 53, has sought the following orders of an adjudicator under the Body Corporate and Community Management Act 1997 ("the Act") -

1. That direction be given with relation to the sequence of budgeting and "in principal" approval by the body corporate, for items which require body corporate approval to comply with the schedule of committee spending, and are predominantly not of a simple repair and maintenance nature.

2. That the body corporate deducts the amounts of $18,000 and $24,000 budgeted and levied for two projects which were subsequently disapproved, at the same AGM, from the current CTS 4078 annual sinking fund levy (Motions 12/13).

3. That the adjudicator makes any other order which may assist the body corporate in its attempt to smooth the passage of processes under consideration.

JURISDICTION:
This is a dispute between an owner (the applicant Lane) and the body corporate (the respondent) concerning unexpended funds accumulated for two budgeted projects for which motions to expend the moneys have been defeated in general meeting. This is a matter falling within the disputes resolution provisions of the legislation (see sections 227, 228 and 276 of the Act).

General powers of an Adjudicator in making an order:
Section 276(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 contractual matter about –
(i)	the engagement of a person as a body corporate manager or service contractor for a community titles scheme; or
(ii)	the authorisation of a person as a letting agent for a community titles scheme.

An order may require a person to act, or prohibit a person from acting, in a way stated in the order (section 276(2) of the Act). An adjudicator’s order may contain ancillary or consequential provisions the adjudicator considers necessary or appropriate (section 284(1) of the Act).


APPLICATION AND SUBMISSIONS:
Under section 243 of the Act, a copy of the application was provided to the respondent body corporate (committee) and all other owners, with an invitation to each to respond to the matter of dispute raised in the application. A submission was made by the secretary (A Moffatt) on behalf of the committee, and the following owners made submissions: C & M Csabi of Lot 23; E Bermingham of Lot 53; N Harper of Lot 54; G & T Gresham of Lot 55; A & H Shigaki; K & H Smith; and A & G Gilchrist. The applicant viewed the submissions and subsequently lodged a reply (see sections 244 and 246 of the Act).

This is one of two applications lodged by the applicant Lane, both of which concern project funding, the other being Application 283-2003. Because of the commonality of subject matter for both applications, some of the comments and reasons given in each also have relevance to the other. As Application 283-2003 was the first application lodged, I have related most of the relevant facts in the statement of reasons to the order for that application, and by reference adopt here those facts and reasons as are appropriate to the circumstances and dispute in this application, however, I will generally repeat here those reasons that are particularly relevant. Orders for both applications are being issued together.

I do not intend to set out the facts under this heading, or make reference to information contained in the applications and submissions, but to consider all of these in the course of my determination of the application under the following heading "Determination" to avoid unnecessary duplication in a dispute that involves many parts.


DETERMINATION:
"Bayview Shores" was registered as a building unit plan (now termed a building format plan) in December 1991 and comprises 101 lots. The scheme is regulated by the Body Corporate and Community Management (Standard Module) Regulation 1997 ("the Standard Module").

This dispute concerns the purpose and use of the body corporate sinking fund and it may assist owners if I describe generally what the legislation requires concerning budgets and funds.

Part 7 of the Standard Module provides for the financial management of bodies corporate. Briefly, it requires that an administrative fund budget be compiled according to estimates of reasonable and necessary "recurrent expenditure" to be incurred by the body corporate in the forthcoming financial year (see section 94(2)). The body corporate must also compile a sinking fund budget based on its estimates of reasonable and necessary "non-recurrent/capital" expenditure to fund its intended expenditure for the financial year ahead, and to proportionately accumulate funds to meet expected expenditure over the following 9 year period. Only a systematic investigation and analysis of the scheme’s future major maintenance requirements can achieve this – the legislation gives a simple example of this concept following section 94(3). Basically, it is a system of identifying future major/capital repairs (eg painting, road re-surfacing) and accumulating moneys over the intervening years so that when the repair/replacement becomes due, there are earmarked funds available to make the repair. Generally, it operates like a trust fund (eg a Solicitors Trust Fund) where moneys for separate purposes/projects are kept separately in an individual ledger, even though the funds for the various projects are usually held in the one bank account. Contributions paid by owners in respect of a particular project, and expenditure for that project, are accounted for by recording the transactions in the relevant ledger.

However, the mere accumulation of moneys in the sinking fund does not authorise the committee to spend it without first considering the implications of section 103 (spending limit of the committee), section 104 (major spending requirement for tenders) and section 113 of the Standard Module (improvements – cost limit determining whether authorised by committee, ordinary or special resolution).

Accordingly, the sinking fund is in the nature of a trust account with funds accumulated for a variety of projects/purposes which can only be used for those purposes. That is, by accumulating $1,000 a year for 5 years to meet an expected painting cost of $5,000 (though in reality the contribution would be increased each year to meet a revised total painting cost), those funds cannot be used for another purpose. If a projected work becomes necessary before the estimated date, meaning there is a shortfall in funds, then a special contribution would be struck for the shortfall amount ( see section 95(2)(a) of the Standard Module). Of course a special contribution can be struck for any unexpected or once-only cost.

I consider this latter course best fits the circumstance of the $25,000 main entrance renovation (water feature), as the sum represented the total cost of the renovation and therefore required no accumulation of moneys in the sinking fund before the work was to be carried out. In these circumstances the project would not appear in the sinking fund. The project would then have either stood or fell on the vote for Motion 13 (which was specifically for the renovation). Because the project was also included in the sinking fund budget, which was passed, and Motion 13 failed, the body corporate is now in a situation where owners have rejected the specific project but are nevertheless being levied for the project!

The apparent inconsistency in the voting means one of two things: either owners wish to have a water feature in the main entrance but not the particular one proposed in Motion 13 and displayed on the notice board; or they did not want a water feature but felt that to reject the budget would have severe financial implications for the body corporate (ie no funds to pay insurance, maintenance etc.) until a further meeting could be held to pass an amended budget. The latter reason, if it was the reason for the manner of voting, should not have been as owners should not have been placed in the position of making the choice. It was unnecessary.

In consideration that the former may be the reason for owners rejecting Motion 13, I do not intend to accede to the applicant’s request for a order that the body corporate immediately repay the $25,000 to owners, but an appropriate order would be that it must be repaid if there is no motion passed before or at the annual general meeting due early next year (between 1 February and 30 April 2004), for a water feature (but see later in these reasons).

Of course there was another satisfactory alternative to the special contribution means explained above, that would also have avoided the situation of a budget approval and an implementation motion rejection. The alternative provides for a motion such as Motion 13 but with a condition included in the motion that if passed, the item and cost would be automatically included in the sinking fund budget. That is, if the motion fails then the item would not appear in the budget; if it passes it is included in the budget and becomes part of the normal sinking fund contribution levied on owners.

From the committee’s submission, neither of the two alternatives explained above appear to have been considered. It would be a matter of concern if they were not considered, despite having professional assistance, because the committee was unaware of them.

In regard to the gymnasium, the situation is somewhat similar. In the 2002-2003 budget an amount of $18,000 against the line item "Gymnasium" was included and the budget was passed. The subsequent events concerning expenditure and proposals have been comprehensively covered in the statement of reasons to Order 283-2003 and I will not repeat them here. This application shows that the budget for the 2003-2004 year also contains a line item "Gymnasium" for $18,000. Given the initial $18,000 was levied, out of which $4,627 was expended (see reasons to Order 283-2003) leaving a balance of $13,373, the levying of the additional $18,000 gives a levied balance of $31,373. Nowhere in either the submissions to Application 283-2003 or this application, has it been proposed that this further amount is to be spent on the gymnasium upgrade. The Motion 12 proposal which failed was for $17,360 plus GST (say around $19,000 in total) and this was purportedly the final stage of the upgrade. Even if that had passed it seems the additional $18,000 was overstated by some $12,373.

The situation for the gymnasium is similar to that for the water feature – there is an amount in the budget for spending but owners have rejected the particular proposal put that purpose. Again, on the basis that owners may be inclined to pass a motion for an alternative equipment proposal to that contained in Motion 12, the most appropriate order in the circumstances would be that the total levies paid must be repaid to the relevant owners unless there is a motion passed either before or at the annual general meeting for another equipment proposal (but see later in these reasons).

The sinking fund balances for Gymnasium would be $31,373 if all of the two $18,000 amounts has been collected – that may well not be the case because the final year’s contribution may not have been levied, or, as is likely, all the contributions have not been paid. The sinking fund balance for Water Feature to Lobby would be $25,000 if all contributions have been levied and paid – again unlikely.

As I have stated above, the appropriate order both in respect of the gymnasium and the water feature moneys is for them to be repaid to owners. However, the committee has submitted that the total sinking fund contributions levied on owners has not been at a level sufficient for the funds to reach the amount required under the body corporate’s 10-year forecast. This shortfall cannot, of course, relate to amounts levied on owners and unpaid, which is a matter of collection for the body corporate to pursue, but to a shortfall resulting from inadequate contributions levied to match the current required level of funds in the forecast. Nor can it be used to off-set the scheduled sinking fund contribution required by the forecast for the forthcoming body corporate financial year.

Obviously the body corporate has to reach its target forecast level for the body corporate to comply with the legislation (see section 94(3) of the Standard Module), and to use some or all of these funds for that purpose is a practical solution in the circumstances. However, as I have already stated, the body corporate may wish to put motions for both purposes (gymnasium and water feature) to an extraordinary general meeting between now and the annual general meeting, or at the annual general meeting itself. However, if that is not done, or a motion or motions are put and lost, then all of the levied funds may be set-off against any shortfall of the nature discussed above with any remainder being refunded to owners (where paid, or deleted if unpaid). If a motion or motions are properly put and passed, then any balance remaining may be dealt with in the same way.