Paloma [2004] QBCCMCmr 24 (14 January 2004)

Last Updated: 30 September 2005

REFERENCE: 0408-2003

ORDER OF AN ADJUDICATOR

MADE UNDER PART 9 OF CHAPTER 6

BODY CORPORATE AND COMMUNITY MANAGEMENT ACT 1997

Number of Scheme:	9524
Name of Scheme:	Paloma
Address of Scheme:	93 - 97 Albatross Avenue MERMAID BEACH QLD 4170

TAKE NOTICE that pursuant to an application made under the abovementioned Act by Helen Kable, the owner of lot 6

I hereby order that the resolution numbered 3 purportedly carried by the body corporate at the EGM held on Friday 4 July 2003 to the extent that the committee be empowered to approve whatever reasonable costs were necessary to finalise the litigation with Mitchell, subject to ratification at a subsequent general meeting, is invalid and of no effect.

STATEMENT OF ADJUDICATOR’S REASONS FOR DECISION - REF 0408-2003

"Paloma" CTS 9524

The applicant, Helen Kable, the owner of lot 6 sought an interim order to declare motion 3 of the EGM held on July 4, 2003 for the Paloma Body Corporate out of order. On 3 July 2003, the requested interim order was dismissed for the reasons set out in that interim 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 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)).

The applicant sought an order that motion 3 considered at the EGM of the body corporate held on Friday 4 July 2003 be ruled out of order.

Motion 3 headed Bruce Mitchell Costs Appeal – Body Corporate Costs provided –

That the body corporate ratify the committee decision to oppose the appeal lodged by Bruce J Mitchell Construction against the costs awarded to Monier Wunderlich, payable by his firm; and that the committee be empowered to approve whatever reasonable costs are necessary to finalise this matter, subject to ratification at a subsequent general meeting.

Explanatory Note:
The body corporate has lodged an amount of $2500 with Lambert and Ho Trust Account as deposit for use of a counsel in this matter. Should the appeal fail the body corporate should be awarded costs.

The minutes record that the motion was carried at the meeting by 7 votes to 4.

In her grounds, the applicant contended that motion 3 "is not in accordance with the Body Corporate and Community Management Act 1997 nor in accordance with the regulations as set out in the Standard Module". The applicant provides two reasons for this. Firstly that the motion refers to the word "reasonable" without this term being defined, "and no details of the probable legal costs were forwarded to owners before the EGM". The applicant concluded that the committee was operating outside its authority in requesting approval for subsequent ratification for spending on legal fees without limit and which could amount to many more thousand of dollars.

Secondly, the applicant alleged that the committee has assumed that motion 3 would be passed and had already paid $2500 into the solicitor’s trust fund as a deposit on the additional legal fees.
The applicant alleges this amount is over the authority for the committee to spend without obtaining prior approval from the body corporate.

Submissions were sought from the committee and all owners. Excepting a submission from Nannette Blair, only the committee submission is available to me in determining this application. The committee responded by the chairperson, Michael McCallum to the requested interim order. No further submission was forthcoming from Mr McCallum excepting some further comments contained in wider correspondence of 31 July 2003. These comments are not relevant to the determination of the dispute.

In his original submission, the chairperson provided some background regarding legal matters affecting this body corporate. In respect of the current application, he stated that –

• The committee has advice that it is within power to approve and conduct a defence to a legal action;
• ... The committee has determined that it is a proper commercial decision to defend this action; ...
• The solicitors for the body corporate also required that the body corporate place the sum of $2500.00 in their trust account to pay a barrister to represent them at the hearing of Mitchells’ appeal;
• Because of the time frame required by litigation, this has been done and approval for this specific expenditure has been sought at the EGM of 4 July 2003. The monies remain in trust. ...
• It is difficult to place an exact figure on the future legal costs of this matter. ...

In the interim order I commented that –

I consider that given the subject matter of the motion, and the necessity of the body corporate to defend legal proceedings brought against it, that the matter is largely outside the control of the body corporate. A committee however does have certain constrains on its power to act on behalf of the body corporate. I intend to dismiss the application for an interim order, and to seek submissions on the validity of the motion from all owners, before making a final determination. If at the meeting the motion is carried, all parties should proceed on the basis that the validity of the motion will be determined by my final order to this application.

Determination

The issue to be determined by this application is whether a body corporate in general meeting is able to empower its committee "to approve whatever reasonable costs are necessary" to finalise a legal dispute involving the body corporate "subject to ratification at a subsequent general meeting".

This scheme has 12 lots, so the relevant limit for committee spending at the time this resolution was passed was $1200 (12 x $100 per lot). It seems reasonable to assume that the spending to oppose the appeal lodged by Mitchell would exceed this amount, particularly given that the body corporate has already lodged $2500 in the solicitor’s trust account. Given that the expenditure would exceed the committee’s expenditure limit, then section 103 is relevant. That section relevantly provides that –

103 Spending by committee
(1) The committee may only carry out a proposal involving spending above the relevant limit for committee spending for the scheme if--
(a) the spending is specifically authorised by ordinary resolution of the body corporate; or ...

Resolution 3 carried at the EGM held on Friday 4 July 2003 purported to authorise the committee to spend in excess of its expenditure limit. To this extent, the resolution would appear to be valid on the basis of section 103(1)(a). However, it is necessary to go further in my view. The original section 103 concluded with the words –

(3) This section has effect subject to the requirements under the division for spending that is above the relevant limit for major spending.

The relevant limit for major spending was formerly $200 per lot. In the case of this body corporate, the relevant limit was $2400. Again, I conclude that the "reasonable costs" contemplated by the resolution would reasonably exceed $2400 based on the fact that $2500 has already been paid into the solicitor’s trust account, and apparently this is not for costs generally, but merely for Counsel’s fee in appearing for the body corporate.

Consequently I conclude that the approval of the legal fees in the circumstances was expenditure subject to the requirements of section 104, requiring determining by the body corporate in general meeting by ordinary resolution. The relevance of this is that section 26 of the standard module further provides that a decision is a decision on a restricted issue for the committee if it is a decision (c) on an issue reserved, by ordinary resolution of the body corporate, for decision by ordinary resolution of the body corporate. If a matter is a restricted issue, then the committee have no power to determine the matter. The determination of the matter is restricted to the body corporate in general meeting.

I conclude that the body corporate was not able to empower itself in the way in which it did by resolution 3 at the EGM held on Friday 4 July 2003, and that the purported empowering of the committee to approve whatever reasonable costs were necessary to finalise the matter, was invalid and of no effect. I have ordered to this effect. I do agree however that the body corporate was able to ratify a committee decision to oppose the appeal by Mitchell, and in the circumstances, I propose to allow the resolution to stand to this extent.