Gold Coast Central [2003] QBCCMCmr 53 (8 August 2003)

Last Updated: 17 May 2005

REFERENCE: 0753-2002

ORDER OF AN ADJUDICATOR

MADE UNDER PART 9 OF CHAPTER 6

BODY CORPORATE AND COMMUNITY MANAGEMENT ACT 1997

Number of Scheme:	16779
Name of Scheme:	Gold Coast Central
Address of Scheme:	Cnr Barney Street & Brighton Parade SOUTHPORT QLD 4215

TAKE NOTICE that pursuant to an application made under the abovementioned Act by Manufacturing & Management Systems Pty Ltd, as trustee, Frederick Anthony Brincat, Douglas Robert Newman and Charles Tabone, the owners of lots 32, 38, 49 and 56

I hereby order that, within 3 months of the date of this order, the body corporate shall call and hold an extraordinary general meeting at which the following matters shall be considered:

• The appointment of Clare Cauchi of Gold Coast Body Corporate Specialists as administrator of the scheme until such time as the body corporate obtains building, public liability and office bearers’ insurance
• The appointment of an onsite manager
• The consent of the body corporate to a new community management statement amending the existing community management statement in relation to certain exclusive use allocations and special privileges attaching to lot 3
• A programme for the maintenance and repair of common property
• Any other motions proposed by owners for consideration at the meeting provided that such motions are notified to the secretary within 21 days of the date of this order

STATEMENT OF ADJUDICATOR’S REASONS FOR DECISION - REF 0753-2002

"Gold Coast Central" CTS 16779

The applicants have sought an order of an adjudicator under the Body Corporate and Community Management Act 1997 (the Act) as follows:

We are seeking an adjudication that the body corporate is in breach of sections 114, 147 and 162 of the Act (and the corresponding sections of the regulation module) in relation to maintaining common property, insurance, and providing information to interested persons.

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 the 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)). An adjudicator's order may contain ancillary and consequential provisions the adjudicator considers necessary or appropriate (section 284(1)).

I have today also made orders in a related application, 0456-2003. I consider that the background set out in that application is of relevance to this application. The following statement of reasons for decision was made:

The applicant, the body corporate for Gold Coast Central CTS 16779, has sought an interim order of an adjudicator under the Body Corporate and Community Management Act 1997 (the Act) as follows:

A. That Clare Cauchi of Gold Coast Body Corporate Specialists be appointed as an administrator to the scheme pursuant to section 276(3) and Schedule 5 of the Body Corporate and Community Management Act 1997 to perform the obligations and have all of the powers of the body corporate, its committee, or a member of its committee under the Body Corporate and Community Titles (sic) Act 1997 and the community management statement of the scheme until such time as the body corporate obtains insurance coverage including public liability and office bearers coverage.
B. That a new community management statement in the form attached be recorded for the scheme.

The applicant also sought a final order of an adjudicator in identical terms.

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 the 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)). An adjudicator's order may contain ancillary and consequential provisions the adjudicator considers necessary or appropriate (section 284(1)).

Section 279(1) of the Act allows an adjudicator to make an interim order if satisfied, on reasonable grounds, that an interim order is necessary because of the nature or urgency of the circumstances of the application.

The scheme comprises 101 lots, and is regulated by the Body Corporate and Community Management (Accommodation Module) Regulation 1997 (the Accommodation Module).

The scheme has had a troubled history.

The body corporate has been without building and public liability insurance since May 2002 after the insurance was cancelled at the behest of the insurer, following an audit of the building earlier in that month. The insurer is alleged to have stated that the insurance will not be reinstated until the caretaker and letting agent is removed from the premises and all damaged common property is repaired.

The caretaking and letting agreement was terminated by the body corporate in July 2002. On 18 December 2002 an application (0782-2002) was lodged in this office by the caretaker and letting agent to overturn the purported termination. That application was dismissed by the Commissioner under section 241(1)(b) of the Act on 28 July 2003, when the applicant failed to provide information sought by the Commissioner.

On 9 December 2002, four owners lodged an application (0753-2002) against the body corporate, seeking orders declaring that the body corporate was in breach of the Act for failing to properly maintain common property and failing to insure. The application also sought an order appointing an administrator on the basis that the committee had failed in its responsibility. I have determined that application separately, although part of that resolution is reflected in the orders made in this application as well.

The annual general meeting was held on 10 January 2003, and a new committee was elected. Apart from the usual statutory motions, the caretaker and letting agent proposed motions to overturn the earlier motions by which the caretaking and letting agreement was terminated, and to confirm the previous assignment of the agreement from the original developer. Those motions were narrowly defeated.

The body corporate subsequently agreed to a compromise with the caretaker and letting agent, by which the body corporate would consent to an assignment of the caretaking and letting agreement to a third party, notwithstanding the earlier purported termination of that agreement, in order to give the caretaker and letting agent the opportunity of realising on its investment. Negotiations with a prospective purchaser apparently extended over several weeks, but have now fallen through. The body corporate has reached an impasse with the caretaker and letting agent, who is allegedly refusing to accept the termination, and continuing to carry out caretaking duties, although precisely what duties is not apparent on the material before me. The insurer still refuses to reinstate the insurance.

In addition to all of these problems, the body corporate committee has been faced with another dilemma, in relation to its obligation to maintain common property and body corporate assets coupled with the inability to insure and the refusal of the caretaker to accept the termination of the caretaking agreement. Put simply, the committee states that on-going maintenance has not been carried out because of the committee’s concerns that work which was carried out was being immediately undone as a result of vandalism and the lack of proper caretaking. The committee’s view was that such a course would be financially ruinous. The conundrum was that the absence of proper maintenance could leave the body corporate exposed to a large public liability claim.

Initially, the body corporate committee resisted the application to have an administrator appointed. Now the committee members have changed their minds, as evidenced by this application. The change of heart is best explained by the following extract from the supporting grounds:

"The fact that there is no insurance is a major risk for the committee members as they are not covered by any office bearers insurance. This risk is totally unacceptable. The committee were prepared to assume this risk as it appeared that they would be able to negotiate a solution to the insurance problem, which involved granting management rights to a purchaser of Mr Wills lots in the scheme. Mr Wills negotiated a sale of the management rights for $550,000.00 subsequent to the negotiations with the body corporate. Without the body corporate’s agreement Mr Wills would not have been able to sell the rights at all. The contract of sale for the management rights fell over and the body corporate were advised by the purchasers solicitor that the purchaser terminated the contract on account of Mr Wills general unwillingness to comply with the terms of the contract.

Mr Wills has made it clear that he has no intention of leaving the building.

This has left the body corporate in the impossible position where it cannot get insurance for the building and also office bearers liability insurance to protect the committee members because of the insurers refusal to consider insurance whilst Mr Wills is in occupation of the management lot and purports to operate a management business."

I should say at this point that this committee has had to operate under exceptionally difficult circumstances, and it is little wonder that it now seeks an alternative means of ensuring that the body corporate can continue to function.

I note that an informal meeting of owners was held on 6 June 2003. The minutes of the meeting record that the appointment of an administrator was discussed at the meeting, "and a resolution was passed, which was unopposed that an application should be made to an adjudicator...". As the meeting was informal, the "resolution" was clearly not made by the body corporate in general meeting, but it is not necessary for an application to this office to be authorised by ordinary resolution of the body corporate: a committee resolution is sufficient. Subsequently a flying minute was passed by 4 votes to 1 to lodge the present application.

The order seeking the appointment of an administrator is within the jurisdiction of an adjudicator (section 276(3) of the Act and section 23 of Schedule 5). Ordinarily, an application seeking such an order would either be accompanied by the written consents of a majority of owners, or in the absence of such consents, the application would be sent out to all owners to give them the opportunity to make a submission in relation to it. The application was not accompanied by written consents. A majority of owners did not attend the informal meeting on 6 June 2003. However, rather than send out the application to all owners, I propose to order that a meeting of owners be called, at which the proposal to appoint an administrator can be formally considered. I have decided to do this for a number of reasons. Firstly, I am mindful that expense would be incurred in sending out the application to all owners. Owners will not be disadvantaged by my order to hold a meeting, because it will give them a say in the outcome of this difficult matter. Given that I have already decided that a meeting must be held, it would simply waste body corporate funds and unnecessarily delay matters to circulate the application first.

Secondly, owners may wish to have a choice of administrator. I note that Ms Cauchi is the present body corporate manager, and has also agreed to postpone payment of her fees as administrator until such time as the body corporate is out of financial difficulty and can attend to such payment. This accommodation, her existing knowledge of the scheme, and more importantly its present difficulties, together with the fact that she already has all of the books and records in her possession may well make her the preferred appointee. On the other hand, owners are more likely to be accepting of an appointment if they are at least afforded the opportunity of proposing an alternative candidate for consideration.

In this regard, I note the comments of Mr Arthur Inglis, who wrote to the Commissioner on 30 July 2003 in application 0753-2002, and expressed his opposition to Ms Cauchi being appointed as administrator. The letter was prompted by this application, even though formal notice of it had not been given to owners. The fact that such an application was contemplated was foreshadowed by the body corporate’s solicitor, Mr Herd, in a teleconference with him, Mr Inglis and this adjudicator held on 16 May 2003. Mr Inglis stated that he had identified a possible candidate for appointment as administrator, but did not provide the written consent to appointment of the person so named. There are a number of other matters raised by Mr Inglis upon which I wish to comment.

Mr Inglis stated that Ms Cauchi would be unacceptable as administrator because he alleged that she is closely associated with the present committee. Ms Cauchi was elected unopposed to the position of secretary/treasurer (non-voting) at the annual general meeting held on 10 January 2003. It goes without saying that she would be closely associated with a committee of which she is a member. If Mr Inglis is implying anything untoward in Ms Cauchi’s "association" with the committee, then he should provide further details to substantiate his assertion that she is unacceptable. There is nothing in the material which has been placed before me in application 0753-2002, or this application, which would support such an assertion.

Mr Inglis also asserted that Ms Cauchi had failed to properly protect the interests of the members of the body corporate, because it had been brought to his attention that Gold Coast Central had recently been fined by the Fire Authority on at least two occasions for not complying with regulations, and that the Fire Authority was considering summonsing Gold Coast Central because the fines were ignored. Ms Cauchi is only one member of the committee, and can only proceed at the direction of the committee. If in fact fines were ignored, then there could be a multiplicity of reasons, not the least of which may be the parlous state of body corporate finances, of which Mr Inglis must be aware, given his comment that many owners are refusing to pay their levies. In any event, this is an issue that Ms Cauchi should be given the opportunity to explain. Furthermore, it should also be understood that in her role as body corporate manager, Ms Cauchi is also only able to act upon the instructions of the committee. Body corporate managers carry out an administrative function. They should not make unilateral decisions. They are not required to be maintenance supervisors, or to carry out building inspections. That role should be carried out by the committee, or by individual owners who should then propose appropriate motions for consideration at general meetings. This office regularly sees complaints levelled at body corporate managers over issues for which the owners themselves should be taking some responsibility. The complaints often stem from a basic misunderstanding of the role of a body corporate manager.

The other issue of importance is that any alternative proposed administrator should provide owners with details of the fees likely to be charged for the administration. For example, will fees be postponed as Ms Cauchi is proposing? In any event, the fees involved will fall into the category of an unbudgeted expense, no matter who is ultimately appointed. Therefore a special levy will be required, sooner or later, and owners should have full details of how much that levy will be, and when it will be payable.

It is also important for owners to be aware that Ms Cauchi has consented to the appointment to act as administrator conditional on the grounds that the body corporate indemnify her for any costs and claims (other than those that arise from her own negligence) that arise in the course of the administration. This is a perfectly reasonable condition to impose, however owners need to understand that the appointment would be made on this basis, so that they are not lulled into a false sense of security by thinking that passing over the present difficulties to an administrator will provide a panacea, or relieve them of potential liability in relation to the lack of insurance, for example. Furthermore, an administrator will still require the body corporate in general meeting to authorise or consent to any matters which require more than a mere committee resolution.

This leads me to the concluding paragraph of the grounds upon which this application is made, which states:

It is proposed that the administrator be given the poser in the order to sign the new CMS and appoint an onsite manager for the scheme and attend to all other matters for which the committee and the body corporate are required to attend until the insurance coverage is restored to the building.

Section 85(1)(a) of the Accommodation Module requires that the engagement of a person as a service contractor or the authorisation of a person as a letting agent must be approved by ordinary resolution of the body corporate. If an engagement or authorisation is made contrary to this requirement, then it will be void. The proposal for the appointment of an onsite manager must therefore be considered at the meeting which I shall order to be held.

Section 62 of the Act provides for the body corporate to consent to the recording of a new community management statement. In this application, it is proposed that the existing community management statement be amended by deleting certain areas of exclusive use presently allocated to lot 3, and by other amendments to the by-laws giving special privileges to lot 3. Because of the nature of these amendments, the body corporate can only give its consent to the proposed community management statement by resolution without dissent. A motion must therefore be proposed at the meeting which I shall order to be held. It is only after such a motion has been considered at a general meeting that an adjudicator might be requested to consider an application under section 10 of Schedule 5 of the Act.

For these reasons, I have made the orders set out above.

I note that the voter representation at the annual general meeting held in January 2003 was just under 64%, which was encouraging. This office receives minutes of many meetings in other schemes at which voter representation is far lower than that figure. However, given the escalating problems for this scheme, I would hope that there may be an even higher voter representation for the meeting I have ordered. Ultimately the solutions can only lie in the hands of owners.

Any owner currently in arrears with their levies should be aware that they will be unable to vote (except on any motion requiring a resolution without dissent) unless they are financial at the time of the meeting.

For the reasons stated above, I propose to make similar orders in this application. As can be seen these orders include an order that the body corporate shall place motions on the agenda of the meeting to deal with issues of maintenance and repair. I consider there to be little point in my making orders for repair and maintenance in isolation from the other issues relating to vandalism, lack of security, absence of caretaking, and arrears of levies. There is also no point in my ordering that the body corporate effect insurance if no insurer will provide cover in the prevailing circumstances. The body corporate committee is well aware that it has a duty to insure, and has, from all accounts, made every effort to effect that insurance, including seeking it off-shore. The problems facing this scheme can only be addressed by all owners having an input. I am of the view that the philosophy of sitting tight and waiting for things to improve, as was espoused by a representative of the original developer in the current affairs programme screened last year, is an absolutely ineffectual method of resolution. Inaction is likely to plunge this scheme into bankruptcy. I am of course aware that many owners do want to take action but are at a loss as to what that action should be. This is why a general meeting must be held.

In that regard, those owners who have not paid their levies need to consider the position into which they have placed the scheme, apart from disenfranchising themselves. A communication from the body corporate’s solicitor on 7 August 2003 in relation to application 0456-2003 stated that:
"The body corporate funds have been depleted to the extent where it only has enough funds to survive for two weeks.
There are substantial arrears of contributions for which all efforts have been made to collect, however some people are simply not in a position to pay on account of financial hardship (caused by the inability to let their lots out) and many others are simply refusing to pay and stalling the legal process in collection."