Royal Palm [2003] QBCCMCmr 317 (8 January 2003)

Last Updated: 7 September 2007

DJ ReardonREFERENCE: 0489-2002

ORDER OF AN ADJUDICATOR

MADE UNDER PART 10 OF CHAPTER 6

BODY CORPORATE AND COMMUNITY MANAGEMENT ACT 1997

Number of Scheme:	9098
Name of Scheme:	Royal Palm
Address of Scheme:	973 Gold Coast Highway, PALM BEACH QLD 4221

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

Doreen Mather, the Owner of Lot 153

DJ ReardonI hereby order that the application for a declaration that the body corporate management agreement between the Body Corporate and Ricmar (Qld) Pty Ltd dated 25 August 2001 is void, is dismissed.
STATEMENT OF ADJUDICATOR’S REASONS FOR DECISION - REF 0489-2002

"Royal Palm" CTS 9098

1.	Orders sought

The Applicant, the Owner of Lot 153, has sought the following order of an adjudicator under the Body Corporate and Community Management Act 1997 ("the Act"), quote-

"That the Management Agreement dated 25^th August 2001, for the term of one year, between Ricmar Pty Ltd, and the Body Corporate be declared void."

The Applicant also sought the following interim order of an adjudicator, quote-

"That the Chairman not be allowed to declare motion 22 relating to the Appointment of a Body Corporate Manager Out of Order, for whatever reason, and that voting on the motion be allowed."

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 the Act or the community management statement; or
c)	a claimed or anticipated contravention of the terms of, 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 "Royal Palm" community titles scheme consists of 154 lots and common property. The community management statement for "Royal Palm" indicates that the Body Corporate and Community Management (Accommodation Module) Regulation 1997 ("the Accommodation Module") applies to the scheme.

2.	Application, submissions and interim order

This dispute resolution application was made on 19 August 2002. On 28 August 2002, I dismissed the application for an interim order in the terms sought by the Applicant. However, I did issue an interim order that "the Body Corporate must not enter into any new engagements of body corporate managers until this application is determined".

On 29 August 2002, the Commissioner for Body Corporate and Community Management ("the Commissioner") invited the Committee for the Body Corporate, and the Body Corporate Manager, to make a written submission about the application. The Body Corporate Manager has provided a written submission about the application on behalf of the Committee.

In accordance with section 196 of the Act, the Applicant requested, and was provided with a copy of the submission. The Applicant has provided a written reply to the submission.

On 7 October 2002, the Commissioner made an initial case management recommendation that the application should be the subject of departmental adjudication.

3.	Matters in dispute

From the material before me, I understand that at the annual general meeting held on 24 August 2001, the Body Corporate resolved to engage Ricmar (Qld) Pty Ltd ("the Body Corporate Manager") to provide body corporate management services to the Body Corporate.

The Applicant has presented a copy of an agreement between the Body Corporate and the Body Corporate Manager dated 25 August 2001. Item D of the agreement states that the term of the agreement is 1 year, commencing on 25 August 2001, and ending on 24 August 2002. Item D also makes reference to Clause 3(a), which seems to be a reference to part of the agreement titled Administration Agreement Engagement of a Body Corporate Manager Standard Conditions. Clause 3 of the agreement is titled "3. What is the term of this engagement?" and provides the following:

"(a) This engagement is for the Term.

(b) This engagement will be extended by the Body Corporate for one year from the end date stated in Item D unless the Body Corporate decides at a general meeting before that date not to extend this agreement with a further option of one year exercisable on the same conditions as the first option.

(c) However, this engagement (after allowing for renewals under clause 3(b) must not run for more that three years from the beginning date stated in item D."

From the material before me, I understand that the Body Corporate did not have a general meeting before 24 August 2002 for the purposes of deciding whether or not to extend the agreement. Therefore the purported effect of clause 3(b) is that the agreement is automatically extended for a further twelve months.

In the supporting grounds to the application, the Applicant states that owners had not been made aware of the potential that the agreement could be automatically extended for a further 12 months. The Applicant also makes the following comments:

"I contend that, in effect, the Committee will determine whether or not the Agreement be extended, as they are in the position to call a General Meeting prior to the termination date. The Owners should be confident that their Committee is representing their best interests at all times. By not doing anything, (ie not calling a General Meeting), they are binding the Owners to a Service Contract, valued at several thousand dollars for a further year. I further contend that the Committee are restricted from making a decision to accept such an option, given the contractual amount involved, and that Owners in General Meeting must approve an Agreement with a Body Corporate Manager."

It is also worth noting that the Body Corporate has held its 2002 annual general meeting on 29 August 2002. At the meeting, the Body Corporate considered a motion presented by the Applicant (motion 22), proposing that the Body Corporate engage an alternate Body Corporate Manager. The minutes of the meeting record that the motion was lost, with 63 votes against the motion, 39 votes in favour of the motion, and 9 voters abstaining from voting on the motion. It does not appear that any motion was proposed not to extend the agreement with the current Body Corporate Manager.

In the submission made by the Body Corporate Manager on behalf of the Committee, the Body Corporate Manager states among other things, that the Committee "was at all times aware of the provisions of the Agreement whereby, if the Agreement was not terminated prior to the anniversary date, the Agreement automatically extended by 1 year to a maximum of 3 years from the original commencement date".

In my view, the main question to be addressed in considering this application is the validity of the term structure of the agreement for body corporate management services dated 25 August 2001 between the Body Corporate and the Body Corporate Manager.

4.	Determination

The regulation modules of the Act impose maximum term limitations on engagements of body corporate managers. Section 78 of the Accommodation2n Module provides the following:

"78(1) The term of the engagement of a person as a body corporate manager (after allowing for any rights or options of extension or renewal) must not be longer than 3 years.

(2) If the term purports to be longer than 3 years, it is taken to be 3 years."

In this case, I do not consider that there is any question that the agreement complies with the above term limitation provision. The agreement purports to have a term of 1 year, with the possibility of two further extensions, each for a further year. Indeed, clause 3(c) of the conditions of the agreement appears to recognise this limitation be providing that "this engagement (after allowing for renewals under clause 3(b) must not run for more than 3 years from the beginning date stated in Item D".

Turning to the Applicant’s objections to the term structure of the agreement, I find the Applicant’s statement that owners were not aware of the potential automatic extension of the agreement to be fairly unpersuasive. Section 85(1)(b) of the Accommodation Module requires that the terms a proposed engagement of a body corporate manager must be provided to owners with the notice of the meeting that considers the motion to approve the engagement. It seems to me that the purpose of this requirement is to ensure that owners have an opportunity to peruse the terms of a proposed engagement before deciding whether to vote in favour, or against the relevant motion. While I accept that not all owners may appreciate, or understand all of the terms of a proposed agreement, in my view, it is the responsibility of owners to read the agreement, and seek clarification of particular points if necessary, before casting their vote to approve or not approve the proposed engagement.

I also do not agree with the Applicant’s argument that the extension of the agreement pursuant to clause 3(b) is tantamount to the Committee engaging a body corporate manager, which it is not entitled to do pursuant to section 85(1)(a) of the Accommodation Module. In supporting this argument, the Applicant points to the fact that it is the Committee that decides whether or not to call a general meeting prior to the anniversary date of the agreement to give owners an opportunity to resolve not to extend the agreement for a further term.

Firstly, I do not consider that the failure of the Committee to call a general meeting prior to the anniversary of the agreement is equivalent to the Committee engaging a body corporate manager on behalf of the Body Corporate. In my view, the Body Corporate resolved to engage the Body Corporate Manager at the annual general meeting of 24 August 2001 on particular terms, including the possibility of two 1-year extensions. The Committee has not purported to change or alter the arrangement approved by owners on 24 August 2001. Secondly, regardless of whether the Committee called a general meeting to consider not extending the agreement, section 59 of the Accommodation Module empowers the owners of 25% of lots included in the scheme to require the secretary to call a general meeting for particular purposes, which could include issues concerning the extension of a body corporate management agreement.

However, notwithstanding the above, I do consider that the Applicants’ concerns regarding the term structure of the agreement have significant merit for another reason. It seems to me that the term structure of the agreement has the potential to frustrate the spirit, if not the actual terms, of section 102 of the Accommodation Module, which imposes requirements concerning quotations for major spending.

In accordance with the Schedule of the Accommodation Module, the relevant limit for major spending for the "Royal Palm" community titles scheme is $30,800 (154 lots*$200). If a body corporate is considering carrying out work or acquiring property or services, and the cost of carrying out the work or acquiring the property or services exceeds the relevant limit for major spending for the scheme, owners must be given at least 2 quotations for carrying out the work or acquiring the property or services (section 102(2) of the Accommodation Module). Copies of these quotations must accompany the notice of meeting at which the relevant motion or motions are considered.

In this case, the fee for agreed services stated on the 25 August 2001 agreement is $139.59 per lot per annum, that is $21,496.86 for one year. Including a component for GST, the cost becomes $23,646.54. This amount is well within the relevant limit for major spending for the scheme, and therefore it would not be necessary to obtain 2 quotations. However, the basic cost of the agreement over 3 years (without allowing for any periodic increases), is over $70,000, which is well above the relevant limit for major spending.

If the term of the agreement purported to by 3 years, then I consider that section 102 would require that owners receive at least 2 quotations for the body corporate management services. However, this is not the case. The agreement has a term of 1 year, with a possibility of 2 extensions of the term of 1 year each. Unlike an agreement with a term of 3 years, the Body Corporate was free to end the agreement at the completion of the initial 1-year term, provided that proper notice was given in accordance with the agreement, with the result that the total cost of the engagement would likely be within the major spending limit. As such, while I do not believe that the arrangement is in the spirit of section 102, I do not consider that it actually breaches the terms of the legislation.

For these reasons, I intend to dismiss the application. I note that the agreement could be potentially extended for a further period of one year in 2003-2004. If owners wish to avoid the extension, it will be necessary to hold a general meeting prior to the new end date of the agreement to resolve not to extend the agreement. If the Committee refused to call a general meeting, owners could consider their rights to require a general meeting to be called and held pursuant to section 59 of the Accommodation Module.