Cleveland Terrace [2003] QBCCMCmr 9 (7 July 2003)

Last Updated: 17 May 2005

REFERENCE: 0014-2003

ORDER OF AN ADJUDICATOR

MADE UNDER PART 9 OF CHAPTER 6

BODY CORPORATE AND COMMUNITY MANAGEMENT ACT 1997

Number of Scheme:	20765
Name of Scheme:	Cleveland Terrace
Address of Scheme:	52 Island Street CLEVELAND QLD 4163

TAKE NOTICE that pursuant to an application made under the abovementioned Act by the Body Corporate for Cleveland Terrace

I hereby order that the application by the body corporate for Cleveland Terrace, for several orders of an Adjudicator under the Body Corporate and Community Management Act 1997, quote – 1. Forensic Audit of Accounts for the financial year 1999/2000, 2000/2001 and 2001/2002 – costs to be paid by B&D Body Corporate Management; 2. Corrected Financial Statements for 2000/2001 and 2001/2002 – costs to be paid by B&D Body Corporate Management; 3. Corrected Audit Reports for the years ending 31st July 2000, 2001 and 2002 – costs to be paid by B&D Body Corporate Management; 4. Reimbursement for any losses, administration fund expenses, and sinking fund expenditures that cannot be substantiated; 5. Reimbursement for costs of 2000 Audit Report - $1235.75; 6. Reimbursement for costs of 2001 and 2002 Audit Reports - $1760.00; 7. Forensic Audit of all invoices with Wayne Goninan Electrical Services and reimbursement for all charges, invoices, hours, duplication payments or overpayments that cannot be substantiated; 8. Reimbursement for all extra costs of the EGM held 10 July 2002 including phone, postage, and photocopying and BC manager’s fees; 9. Reimbursement for all extra costs of the EGM held 6 November 2002 including phone, postage, and photocopying and BC manager’s fees; 10. Reimbursement for deficit incurred in the financial year Administration Fund ending 31st July 2002 totalling $13,900.00; 11. Reimbursement for deficit incurred in the Sinking Fund as at 31st July 2002 totalling $15,607.03; 12. Audit of ATO and GST account for years 2000, 2001 and 2002 and all errors, costs and losses to be reimbursed by B&D Body Corporate Management; 13. Reimbursement for costs of Strata World Body Corporate inputting records on their database, is dismissed. I further order that within one (1) week of the date of this order, and at its expense, B&D Body Corporate Management of Cleveland shall comply with the requirements of section 153(2)(a) of the standard module and produce, and give to the body corporate, in electronic image form all financial and other records of the body corporate for Cleveland Terrace which it holds in such form.

STATEMENT OF ADJUDICATOR’S REASONS FOR DECISION - REF 0014-2003

"Cleveland Terrace" CTS 20765

The applicant, the body corporate for Cleveland Terrace, has sought several orders of an Adjudicator under the Body Corporate and Community Management Act 1997 (the Act), quote –

1. Forensic Audit of Accounts for the financial year 1999/2000, 2000/2001 and 2001/2002 – costs to be paid by B&D Body Corporate Management;
2. Corrected Financial Statements for 2000/2001 and 2001/2002 – costs to be paid by B&D Body Corporate Management;
3. Corrected Audit Reports for the years ending 31^st July 2000, 2001 and 2002 – costs to be paid by B&D Body Corporate Management;
4. Reimbursement for any losses, administration fund expenses, and sinking fund expenditures that cannot be substantiated;
5. Reimbursement for costs of 2000 Audit Report - $1235.75;
6. Reimbursement for costs of 2001 and 2002 Audit Reports - $1760.00;
7. Forensic Audit of all invoices with Wayne Goninan Electrical Services and reimbursement for all charges, invoices, hours, duplication payments or overpayments that cannot be substantiated;
8. Reimbursement for all extra costs of the EGM held 10 July 2002 including phone, postage, and photocopying and BC manager’s fees;
9. Reimbursement for all extra costs of the EGM held 6 November 2002 including phone, postage, and photocopying and BC manager’s fees;
10. Reimbursement for deficit incurred in the financial year Administration Fund ending 31^st July 2002 totalling $13,900.00;
11. Reimbursement for deficit incurred in the Sinking Fund as at 31^st July 2002 totalling $15,607.03;
12. Audit of ATO and GST account for years 2000, 2001 and 2002 and all errors, costs and losses to be reimbursed by B&D Body Corporate Management;
13. B&D Body Corporate Management to release and turn over to Cleveland Terraces all computer disc and computerized financial records and any other records on computerised hard drive or discs from 1999 to 22 January 2003 relating to Cleveland Terraces;
14. Reimbursement for costs of Strata World Body Corporate inputting records on their database.

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)).

Jurisdiction

In correspondence dated 7 February 2003, this office raised with the applicant the potential issue of jurisdiction, based on the provisions of section 182 of the Act.

The respondent to the application, B&D Body Corporate Management (B&D) submitted that it had ceased to be the body corporate manager on 22 January 2003, and concluded that "the Act does not have jurisdiction where the dispute includes persons previously involved with the scheme".

The applicant body corporate contended that the application was lodged on 6 January 2003 and the contractual relationship between the parties was terminated as at 22 January 2003, and consequently, the parties were parties within the definition in section 182 of the Act at the time the application was commenced.

This office has formerly proceeded on the basis that provided the parties were within the terms of section 182 of the Act at the time the application was commenced, then that the application was within jurisdiction. On this basis, the current application is within the jurisdiction of section 182.

In any event, the distinction between party and former party is no longer relevant at least so far as disputes concerning the return of body corporate property. Amendments to the Act which commenced on 4 March 2003, and which are capable of retrospective operation, provide that a dispute now includes a dispute between the body corporate and a former body corporate manager about the return of body corporate property (see section 227(1)(h)).

Orders sought

The body corporate has sought a series of orders against B&D based on allegations that –

• B&D failed in its fiduciary duty to the body corporate;
• B&D engaged in questionable accounting practices, and issued incorrect financial statements and paid invoices without regard to their accuracy or the budget;
• That these actions have resulted in owners being subjected to considerable financial burden in excess of $29,000, which the body corporate seeks reimbursement of.

The body corporate then seeks to plead the basis of its claims which comprise a combination of alleged contraventions of the legislative provisions (see paras a, b, f, g, h, i, l) and more generally alleging that B&D failed to act in a manner commensurate with its position and obligations which it owed to the body corporate.

B&D have responded that –

• In relation to orders 1 and 3, the body corporate has all the documentary evidence to conduct a full forensic audit, and that B&D is unable to conduct a full forensic audit as it no longer has access to the necessary documentation. Generally, B&D "denies that there has been any misappropriation of funds, breach of contract or negligence on its behalf";
• In relation to orders 3 to 12, B&D "denies there has been losses, administration expenses and sinking fund expenses", and states that "any losses or expenditures that cannot be substantiated (of which there are none) is a matter to be pursued in the courts".

It seems clear that the body corporate does not intend B&D to undertake the "forensic audit" but rather that it be undertaken by an expert in such matters at the expense of the B&D.

I conclude that as a package of measures intended to address the body corporate’s grievances regarding its dispute with its former manager, the orders sought cannot and should not be made. The essence of several of the orders sought are evidence gathering in nature, or seeking the means of establishing a case or claim against B&D, which the body corporate then seeks to resolve by an award of costs or losses allegedly incurred or some form of "damages". I consider that it is for the applicant to undertake its own investigations, and after having done so, determine whether it has a sufficient case against B&D on which to proceed. The question of "reimbursement" of losses, expenses, expenditures that cannot be substantiated, costs of reports, costs of meetings, deficits and any other costs or losses which might be found to have occurred will be dependent in my view upon the success or otherwise of the claim which the body corporate might make against B&D following the completion of its own investigations into the alleged actions / inactions of B&D.

The applicant body corporate states that B&D failed in its fiduciary duty to the body corporate. "Fiduciary duty" is defined in the Butterworths Australian Legal Dictionary as –

An equitable duty to act in good faith for the benefit of another. A fiduciary duty arises in the context of a fiduciary relationship, such as that between trustee and beneficiary. Persons subject to a fiduciary duty are not permitted to profit from their positions ... or to put themselves in a position where the fiduciary duty and personal interest may conflict.

A "fiduciary relationship" is then defined as "a relationship of trust and confidence or of confidential relations".

I doubt the parties relationship would be construed a fiduciary one. Rather, it seems to me that it is a contractual one, and presumably the parties rights and obligations, and any consequences which flow from alleged breaches of those rights and obligations, will be determined by the terms of the contract which existed between the parties. However, this is only an observation, and I recommend that the parties obtain their own legal advice as to what, if any, rights of action might exist. I do know that given that B&D is now the former body corporate manager, there will be no jurisdiction for any further application to this office.

Return of records

I consider the only issue raised in the application that I might concern myself with is the question of the release by B&D to Cleveland Terraces of all computer disc and computerized financial records and any other records on computerised hard drive or discs from 1999 to 22 January 2003 relating to Cleveland Terraces. In its grounds, the body corporate states that –

B&D ... refused to turn over all computerised records and computer discs on 22 January 2003 when their contract expired and was not renewed – sec.152(1)(c). Under sec.152(1)(b), B&D held documents in electronic image form therefore Cleveland Terraces invokes sec.152(2)(a) requires custody of all its pertinent documents that are in photographic or electronic image form.

Whilst the body corporate refers to section 152 of the Standard Module, the relevant section is in fact section 153 which provides -

153 Documents in custody of body corporate manager--Act, s 268
(1) This section applies if--
(a) a person (the "person") engaged as a body corporate manager for a community titles scheme has custody of a document of the body corporate; and
(b) the person holds the document in photographic or electronic image form; and
(c) the person’s engagement as body corporate manager expires and is not renewed, or is otherwise brought to an end.
(2) The body corporate may--
(a) accept custody of the document in photographic or electronic image form; or
(b) require the person to reproduce, and give to the body corporate, the document in paper form.
(3) The person must, at the person’s cost, comply with a requirement of the body corporate under subsection (2)(b).
Maximum penalty for subsection (3)--20 penalty units.

The body corporate has attached to its application certain correspondence with B&D relating to the termination, and the request for return of body corporate records. In particular, the treasurer wrote to B&D on 10 February 2003 stating –

Despite repeated requests from the committee ... and the new body corporate manager ... you continue to refuse to turn over the computerised accounting records on disc. Unless these computer discs are turned over immediately, a dispute resolution will be lodged with the commissioner by Friday 14^th February 2003.

The body corporate had previously required the return of all records (on 6 and 9 January respectively).

B&D have responded that –

B&D are "more than happy to release all electronic material to Cleveland Terraces from 1 August 2002 to 22 January 2003 without any order being made. With regard to the electronic material before that time, B&D say that they are willing to provide the requested material at a price equivalent to that which B&D would incur in its retrieval.

I consider that the provisions of section 153 are applicable to this aspect of the dispute. Subsection (2) provides that the body corporate may--
(a) accept custody of the document in photographic or electronic image form; or
(b) require the person to reproduce, and give to the body corporate, the document in paper form.

It should be noted that the election as to which form it receives the records in is for the body corporate to determine. In this regard, the body corporate has elected to receive all records "on computerized hard drive or disc". Further, B&D are not able to impose any cost condition on the provision of the records. In fact, B&D must bear the cost of providing the electronic copy of all body corporate records held by it to the body corporate. I intend to order that B&D so provide the records to the body corporate. Should B&D fail to comply with the terms of the order, the body corporate will be able to apply for the imposition of a penalty against B&D as provided for in the section.

There is no basis for the making of the final order; namely reimbursement for costs of Strata World Body Corporate inputting records on their database, and for this reason, I intend to dismiss this order.