No.9 Port Douglas Road [2003] QBCCMCmr 367 (5 February 2003)

Last Updated: 7 September 2007

P J HANLYREFERENCE: 0576-2002

ORDER OF AN ADJUDICATOR

MADE UNDER PART 10 OF CHAPTER 6

BODY CORPORATE AND COMMUNITY MANAGEMENT ACT 1997

Number of Scheme:	24368
Name of Scheme:	No. 9 Port Douglas Road
Address of Scheme:	9 Port Douglas Road PORT DOUGLAS QLD 4870

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

Tecelec (Qld) Pty Ltd, the owner of lot 4



I hereby order that motions 3, 4, and 5 carried at the extraordinary general meeting held on 22 August 2002 were at all times void.

I further order that the application for an order to declare motion 6 void, is dismissed.

I further order that the application for an order to remove the chairperson, secretary, treasurer and committee members elected at the extraordinary general meeting held on 22 August 2002 and to reinstate the previous chairperson, secretary, treasurer and committee members removed at that same meeting, is dismissed.

STATEMENT OF ADJUDICATOR’S REASONS FOR DECISION - REF 0576-2002

"No. 9 Port Douglas Road" CTS 24368

The applicant, Tecelec (Qld) Pty Ltd, has sought the following order of an adjudicator under the Body Corporate and Community Management Act 1997 (the Act), quote -
In relation to EGM held on 22/8/02:-

1. Dismiss motion 3 of EGM

2. Dismiss Motion 4 of EGM

3. Dismiss Motion 5 of EGM

4. Dismiss Motion 6 of EGM

5. Removal of the new Chairman

6. Removal of the new Treasurer

7. Removal of the new Secretary

8. Removal of all new Committee members

9. Reinstatement of the old Chairman

10. Reinstatement of the old Treasurer

11. Reinstatement of the old Secretary

12. Reinstatement of old Committee

13. Recorrect the minutes to report what actually transpired.

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

In the supporting grounds, the applicant states that Michael McEvoy, Christina McEvoy and Mark McEvoy are directors and or employees of Famestock Pty Ltd. The applicant further states that the body corporate and Famestock entered into a caretaking and letting agreement on 27 February 1998, which agreements have subsequently been terminated by the body corporate on 7 February 2002. The applicant further states that Famestock and the McEvoys own 7 of the 18 lots in the scheme. Essentially the applicant is concerned that the McEvoys, who now also control the body corporate committee, have a conflict of interest, because, it is alleged, the decisions that they have made, and are likely to make in the future, will not be made in the best interests of all owners, but only of themselves. In support of this contention, the applicant refers to the motions proposed at the extraordinary general meeting, the subject of this dispute application. The applicant asserts that the McEvoys are not, in fact, fit and proper persons to serve on the committee. The applicant cites various examples of alleged wrongdoing by the McEvoys to support the assertion.

Submissions were sought from all owners. Three owners provided submissions, and a comprehensive submission was also received from solicitors Freestone & Kumnick, acting on behalf of the body corporate committee. I note that the same firm of solicitors has previously acted in other matters for Famestock and the McEvoys in their personal capacity. I have not been informed as to whether there was a committee decision to instruct these solicitors to act on behalf of the committee in this matter.

The three owners’ submissions supported the application, and all expressed concern that the McEvoys would not act in the best interests of the body corporate if they were allowed to continue to serve on the committee.

The submission lodged on behalf of the committee noted:

• that the McEvoys and Famestock were entitled to requisition an extraordinary general meeting; that the proposed motions for the extraordinary general meeting were submitted to the body corporate manager prior to the request for meeting and the body corporate manager stated that the motions were in order;

• that Famestock and the McEvoys legitimately controlled 10 votes out of a possible 18 (and 30 lot entitlements out of a possible 54 lot entitlements) at the extraordinary general meeting;

• that the director of the applicant is the previous chairperson of the body corporate;

• that the previous committee have in the past made various attempts to remove Famestock as caretaker, restrict Famestock and the McEvoys’ rights to vote and financially cripple Famestock and its directors through personal dislike;

• that in purporting to terminate the caretaking agreement the applicant and another company, the director of which was also on the previous committee, were nominated as the buyers of Famestock’s lot in the scheme.

•

The essence of the submission, based on this background information, was that the termination of the caretaking and letting agreement was invalid, and that in any event, one of the purported bases for termination was brought about as a result of the body corporate’s own breach of an implied term of the agreement, which was still in existence at the time of the breach. The submission further acknowledged that the amount claimed by Famestock in motion 4, carried at the extraordinary general meeting of 22 August 2002, included an amount for approximately 6 months salary from the date of the purported termination to the date of the meeting.

It was further submitted in relation to the waiver of legal fees and interest, (motions 2 and 3) that it was, firstly, unfair to charge interest on outstanding levies when at the same time the body corporate owed money to Famestock and the McEvoys, and, secondly, that the legal fees were greater than charged to other owners who had been pursued by the body corporate over outstanding levies.

It was further submitted in relation to motion 5, that although the wording of the motion was that the caretaking and letting agreement between Famestock and the body corporate be "reinstated" in the same terms as the previous agreement, the motion was not intended to overrule the earlier termination of the agreement.

In relation to motion 6, it was submitted that the motion did not conflict with the Act, regulations or by-laws, was not unlawful or unenforceable, and was not in conflict with the earlier dispute resolution application 0168-2002 as suggested by the applicant.

The submission then dealt with the election of the committee, contending that the previous committee had been legitimately removed from office, and the new committee lawfully elected.

Disputation between the body corporate, and the McEvoys and Famestock, appears to have commenced in approximately August 2001, at which time the chairperson of the body corporate became aware that Famestock and Christina McEvoy had been prosecuted on 18 June 2001 for breaches under the Auctioneers and Agents Act 1971, namely for acting as a real estate agent while not the holder of a real estate agent’s licence and for failing to cause a trust account to be audited within 2 months of ceasing to be a licensee.

The body corporate filed an application in September 2001 seeking a declaratory order that the caretaking and letting agreement between the body corporate and Famestock was void because of the above breaches. That application was subsequently withdrawn by the body corporate, which then purported to terminate the agreement with Famestock in February 2002. That action, in turn, brought about four applications over a 3-month period by Famestock and Michael McEvoy. The applications sought a variety of orders, the most critical of which was the order to invalidate the purported termination of the caretaking and letting agreement. In respect of that order, the Commissioner decided on 28 May 2002 to dismiss the application (0168-2002) under section 201 of the Act, on the basis that the dispute should be dealt with in a court of competent jurisdiction.

In application 0331-2002, Michael McEvoy and Famestock sought 3 orders, two of which were determined by the adjudicator to pertain to the contractual relationship between the applicants and the body corporate. On that basis, therefore, the adjudicator decided that the orders required determination by a court, and he dismissed that part of the application.

The solicitors for the McEvoys and Famestock, Freestone & Kumnick, (which solicitors are now acting on behalf of the committee) forwarded a copy of their clients’ claim and statement of claim to the body corporate’s solicitors on 16 August 2002, stating that the documents were "being filed in the Court today...". However, in the submission dated 31 October 2002 (on the first page) and 1 November 2002 (on the following 9 pages), the following passage appears on the bottom of page 9:

"No proceedings have been filed by Famestock in the Supreme Court to date. Famestock has made the decision to reserve that right but also to seek a new agreement by proposing a motion to appoint Famestock as caretaker at a general meeting of the body corporate, which motion was passed 30 lot entitlements to 24. Thus negating the need to proceed to expensive litigation."

I do not accept the argument advanced by Freestone & Kumnick that motion 5 was a motion to engage Famestock as caretaker pursuant to a new caretaking agreement, which was to commence upon the motion being successful. Firstly, the commencement of the agreement was stated in the motion to be 7 February 2002, which was the date on which the purported termination of the previous agreement took effect, not 22 August 2002, which was the date upon which the motion was successful. Secondly, the wording of the motion was that the caretaking and letting agreement be "reinstated" in the same terms as the previous agreement. Freestone & Kumnick submitted that the use of the word "reinstated" should not be construed as "unterminating" the purported termination of the previous agreement. The word "reinstate" is defined in The New Shorter Oxford English Dictionary (Thumb Index Edition) as being to "bring or put back (a person etc.) into a former position or condition; reinstall, re-establish, (in office etc.)". In my view, the plain reading of the words of motion 5 indicate that the motion was in fact intended to overturn the purported termination of the previous agreement.

As the validity of that purported termination remains in issue, following the Commissioner’s dismissal of application 0168-2002 under section 201 of the Act, it would be entirely inappropriate for an adjudicator to now effectively sanction the overturning of the purported termination by allowing motion 5 to stand.

Even if I am incorrect in this approach, I consider that motion 5 would otherwise be void for the following reasons.

Section 85 of the Body Corporate and Community Management (Accommodation Module) Regulation 1997 (Accommodation Module) provides:

85 Authority to make engagement or give authorisation [SM, s 87]

(1) The body corporate may engage a person as a body corporate

manager or service contractor, or authorise a person as a letting agent, only

if--

(a) the engagement or authorisation is approved by ordinary

resolution of the body corporate;19 and

(b) the terms of the engagement or authorisation are included in the

material forwarded to members of the body corporate for the

general meeting that considers the motion to approve the

engagement or authorisation.

(2) If subsection (1) is not complied with, the engagement or

authorisation is void.

(3) A body corporate may agree to the amendment of an engagement or

authorisation mentioned in subsection (1) only if the amendment is

approved by ordinary resolution of the body corporate.

(4) If subsection (3) is not complied with, the amendment of the

engagement or authorisation is void.

(emphasis added)

On 4 February 2003, the body corporate manager, Mr Dan Moy, advised a member of the Commissioner’s staff that no documents, and in particular no copies of caretaking /letting agreements either new or old, were sent out with the notice of meeting. The terms of the engagement comprise of more than the mere length of the engagement and the annual remuneration, (which were stated in motion 5), as evidenced by the 15 pages contained in the previous agreement. Accordingly, section 85(1)(b) of the Accommodation Module has not been complied with, and therefore the engagement is void.

The other motions in contention are motions 3, 4 and 6 (motion 2 having been defeated).

Section 87(1) of the Act provides:

87 Body corporate’s general functions

(1) The body corporate for a community titles scheme must--

(a) administer the common property and body corporate assets for

the benefit of the owners of the lots included in the scheme; and

(b) enforce the community management statement (including the

by-laws affecting the common property); and

(c) carry out the other functions given to the body corporate under

this Act and the community management statement.

(2) The body corporate must act reasonably in anything it does under

subsection (1).

Section 97(1) of the Accommodation Module provides:

97 Payment and recovery of contributions [SM, s 99]

(1) If a contribution, or instalment, is not paid by the date for payment,

the body corporate may recover the amount of the contribution or

instalment, together with any penalty, as a debt.

Famestock and the McEvoys failed to pay their levies for a considerable period of time, resulting in action being taken by the body corporate to recover those levies. Legal fees were incurred in that recovery process. The argument mounted on behalf of Famestock and the McEvoys is that the body corporate owed monies to them, which should have been offset against the outstanding levies. There is no provision in the Act or the regulations for owners to offset allegedly outstanding monies against outstanding levies. There can be a multitude of reasons for monies to be outstanding. Sometimes the issue can only be resolved by a court. However, bodies corporate must be able to meet on-going liabilities for items such as insurance, repairs and maintenance, common property electricity, pool cleaning and gardening. The failure of owners to pay levies can have a serious financial impact, and when bodies corporate are forced to take legal action for recovery, those legal fees are quite properly payable by the non-paying owner.

If motion 3 were allowed to stand, the legal fees which have been incurred would have to be met from body corporate funds accumulated from other owners’ levies, and that would obviously be inequitable. Furthermore, it is acknowledged that legal fees, albeit of a lesser amount, were recovered from other owners whose levies had not been paid. Motion 3 does not seek to relieve those other owners of their legal fees, only the McEvoys and Famestock, which is a further reason why the motion is inequitable and should not be allowed to stand.

Motion 4 provides for payment to Famestock of $39,854.00, which Freestone & Kumnick has stated in its submission includes a sum of $18,146.00 for approximately 6 months salary for Famestock continuing to manage the property from the date of the purported termination of the previous agreement. It appears that the other items included in this sum have now been paid to Famestock. It is my view that, to the extent of this salary payment, this is also an issue related to the purported termination of the previous agreement, and the court therefore should consider it. However, I note that on 30 April 2002, and as a result of the lodgement of dispute application 0168-2002, the body corporate considered it the "duty" of Famestock to continue carrying out its caretaking duties "until such time as a decision is made by the Department of Natural Resources for the above dispute". On 2 May 2002, Famestock confirmed that it would continue in its role as caretaker. The Commissioner’s decision to dismiss the application under section 201 of the Act was made on 28 May 2002. The body corporate cannot expect Famestock to have carried out that caretaking role without remuneration. However, given that the application was dismissed on 28 May 2002, the agreed period of caretaking was certainly less than 6 months.

Motion 6 requires the body corporate committee to cease taking steps to sell the management rights and the managers unit, being lot 1 in the scheme. Given that Famestock has challenged the purported termination of the caretaking and letting agreement, and, further, given that the Commissioner has dismissed application 0168-2002 on the basis that the issue should be determined in a Court of competent jurisdiction, I consider that this motion should be allowed to stand. If it were to be overturned, then the body corporate could feasibly enter into a new management agreement and dispose of lot 1 before the Court finally decided the matter. In practical terms this is unlikely to happen, given that the McEvoys and Famestock control the committee, however, the protection should still remain.

I shall now turn to a consideration of the committee. The applicant wants the previous committee reinstated, on the basis that the McEvoys are not fit and proper persons to be on the committee, and are therefore unlikely to make decisions for the benefit of all owners. The applicant also contends that the committee election was not conducted in accordance with the Act and the regulations, and should be overturned.

I do not propose to overturn the motions removing the previous committee and electing the new committee. All owners were represented at the extraordinary general meeting held on 22 August 2002. Section 23(2)(f) of the Accommodation Module allows for committee members to be removed by ordinary resolution of the body corporate. In such circumstances, the resultant vacancies can be filled in the manner in which they have been, that is, through a motion carried at a general meeting. Although the McEvoys might dominate the new committee, section 32 of the Accommodation Module makes provision for issues of conflict of interest in relation to committee decisions. Matters decided at general meetings are subject to the overarching requirements of section 87 of the Act. All owners retain the right to seek an order from this office to redress issues of concern. I consider that there are sufficient safety mechanisms in place in the Act and the regulations to ensure that the affairs of the body corporate are administered appropriately. The situation simply requires all owners to be vigilant, to remain financial and to exercise their democratic rights at meetings.

Finally, I am not persuaded that the minutes of the extraordinary general meeting require correction.

I have made appropriate orders to reflect my findings, as set out at the commencement of this document.