Arundel Links [2004] QBCCMCmr 409 (25 August 2004)

TAKE NOTICE that pursuant to an application made under the abovementioned Act by following persons: Janet Christine GESELLE, as the owner of Lot 57; Peter Colin WOODWARD, as the owner of Lot 67; Tanya Patricia HOPKINS, as a co-owner of Lot 73; and Judith Anne Rose BROWN, as the owner of Lot 90,

1. I hereby order that the annual general meeting held on 26 May 2004 is void for irregularity and all resolutions purported to have been passed at the meeting were at all times void and of no effect, though any moneys received from owners in payment of contributions levied in accordance with the administrative or sinking fund budgets purported to have been passed at the meeting may be retained and the payments offset against contributions properly struck and levied at the substitute annual general meeting required to be held in accordance with this order.

2. I further order that -
a) under the authority, and from the date, of this order, the body corporate committee comprises the following members in the designated positions shown –

Chairperson: Odelle Scharneck

Secretary: Peter Woodward

Treasurer: Judith Brown

Ordinary Julian Passfield

Members: Tanya Hopkins

Janet Geselle

b) the secretary must within three (3) weeks of the date of this order forward, or cause to be forwarded, a copy of this order and the accompanying statement of reasons to all lot owners in company with a notice allowing no less than three (3) weeks for owners to submit motions and nominations for committee positions, being a notice relating to a substitute annual general meeting and otherwise complying with section 14 of the Body Corporate and Community Management (Accommodation Module) Regulation 1997 ("the Accommodation Module").

c) as soon as is practicable after the closing date for nominations and motions, the committee must call and hold a meeting to be the annual general meeting in lieu of that meeting voided by this order.

d) the committee must appoint an auditor having the qualifications and experience requiremed by the legislation, who must be independent of committee members, to carry out an audit of the financial statement compiled for the purported annual general meeting and, at the option of the committee, of the accounts from the financial year-end to a more current date.

3. I further order that Graeme Perkins, director of The Body Corporate Headquarters, 1/7 Strathaird Road, Bundall Qld 4217 must render all assistance to the secretary and the committee in accordance with terms of the body corporate manager agreement, including the following at the request of the secretary, treasurer or committee as appropriate: calling and holding of any committee meetings, determination of budgets, compiling and forwarding of notices, determination of the voting eligibility of owners, supplying of information on any body corporate matter known, and delivering up any records or assets held, but that no decision or action may be taken on behalf of the body corporate except with the express authority or permission of the committee or its designated member agent.

4. I further order that the engagement of The Body Corporate Headquarters as body corporate manager under the purported authority of the resolution passed in respect of Motion 8 "Appointment of Body Corporate Manager" at the annual general meeting held on 21 May 2002, will terminate at the close of the meeting held in accordance with this order.

5. I further order that The Body Corporate Headquarters must not impose any cost on the body corporate, whether for materials or labour, for or in connection with the calling and holding of the meeting, including the photocopying of this order and the statement of reasons for distribution to owners, and if any costs are charged then they may be recovered by the body corporate as an amount payable by The Body Corporate Headquarters by this order under section 286 of the Body Corporate and Community Management Act 1997.

6. I further order that all Administration Fees levied in the amount of $6.60 per quarter in notices of contributions to owners, are moneys of the body corporate and where any such fees have been received but paid over to The Body Corporate Headquarters then it must immediately refund those moneys to the body corporate and the body corporate must credit the accounts of the relevant owners.

STATEMENT OF ADJUDICATOR’S REASONS FOR DECISION - REF 0392-2004

"Arundel Links" CTS 17447

This is the final order to an application by Janet Geselle, Peter Woodward, Tanya Hopkins and Judith Brown of Lots 57, 67, 73 and 90 respectively, who have sought the following order of an adjudicator under the Body Corporate and of an adjudicator under the Body Corporate and Community Management Act 1997 ("the Act") -

The applicants also made application for an interim order and the following Interim Order 392-2004 was issued on 25 June 2004 -

JURISDICTION:
Under this heading in my statement of reasons to the interim order I found jurisdiction existed in the following terms –

General powers of an Adjudicator in making an 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 –

An order may require a person to act, or prohibit a person from acting, in a way stated in the order (section 276(2) of the Act). An adjudicator’s order may contain ancillary or consequential provisions the adjudicator considers necessary or appropriate (section 284(1) of the Act).

APPLICATION AND SUBMISSIONS:
No submissions were sought for the making of the interim order as I considered it could be adequately dealt with on the papers then before me, and a prompt order was in the interests of all parties.

For this final determination of the application, in accordance with section 243 of the Act a copy of the application was provided to the respondent body corporate (through its committee) and to the Body Corporate Manager, The Body Corporate Headquarters ("BCH"), with an invitation to each to respond to the matter of dispute raised in the application.

The committee made no submission on behalf of the respondent body corporate. It is extraordinary that a committee would not enter an explanation as to its actions and omissions complained of by the applicants. Perhaps the answer lies in the composition of the committee with a member each from BCH and the caretaking service contractor, Driftgrove Pty Ltd (directors Robert Bruce and Sandra June Watson) comprising two of the four members, with both BCH and the Watson’s each making a submission. While the Watson’s submission is from the perspective of treasurer and as the caretaking service contractor ("Resident Manager"), Graeme Perkins of BCH signed under the words, "For and on behalf of the Body Corporate" seemingly on behalf of the committee though there is no statement that it represents the committee’s views or was authorised by it.

The applicant’s viewed the submissions and lodged a written reply to them (see sections 244 and 246 of the Act).

I do not intend to give the facts of the dispute here as I would for a less complex matter, but will refer to and examine the evidence of all parties under the relevant headings in my determination of the various issues in the following "Determination".

DETERMINATION:
From titling records, "Arundel Links" was registered as a building units plan (now termed a building format plan) on 14 February 1995 and comprises 90 lots. It is regulated by the Body Corporate and Community Management (Accommodation Module) Regulation 1997 ("the Accommodation Module").

I shall deal with each of the matters of dispute raised by the applicants under separate headings. The orders I have made reflect my findings that the scheme has been mismanaged with many decisions and actions by the committee, and more particularly by BCH as its Body Corporate Manager engaged to give professional advice and assistance on legislative requirements. While the application has been brought against the body corporate, I consider that the role of BCH in the events, and Graeme Perkins as the working director of BCH, require orders involving those parties as consequential or ancillary orders to give proper effect to the resolution of all aspects of the dispute. The orders will ensure principally that the calling and conduct of a substitute annual general meeting will comply with the legislation and the decisions properly reflect the wishes of voting owners, without the body corporate and owners suffering a financial penalty for errors not of their making.

1. Painting Resolution declared void in interim order:
In my Interim Order (quoted above) of 25 June, I declared void the purported resolution to engage Barry Sole Painters to paint the building for a total cost of $168,750 with the following remarks in my statement of reasons ("Reasons") –

The "documentary evidence" referred to, and the applicable law, were explained in the Reasons as follows –

This resolution was not only a breach of the legislation but was also: a breach of normal, prudent commercial rules in seeking the best workmanship at the best price; and, so far as BCH advised the committee and its representative was actually part of the committee, a breach of both Clause 1 "Knowledge of Act..." and Clause 10 "Goods and services to be supplied at competitive prices" of the "Code of Conduct for Body Corporate Managers...", Schedule 2 of the Act.

There is also the unexplained variation in the tender prices of Barry Sole Painters from $6,500 per unit block in the tender dated 10 January 2003 to $7,500 in the tender dated only 4 months later on 28 May 2003 (overall a $22,500 increase). In the submission by the Resident Managers, the Watson’s (Driftgrove Pty Ltd), they have provided a copy of an email requested of Barry Sole by them, where Sole states that he was asked to review the quote and also include more detail as to what was covered in the quote, for example, removal of debris, hiring of scaffolding, workplace health & safety, insurance, guarantees, etc. On reviewing the quote...it was considered necessary to have the buildings professionally washed & cleaned... and the quote was increased to cover this cleaning and also hiring of scaffolding which was overlooked in the original quote. This increased the quote to $7,500.

Contrary to this explanation with its reference to the building having to be professionally washed & cleaned and the hiring of scaffolding being overlooked, there is no change whatsoever in the wording of both tenders apart for the amount. That is, the first as well as the second tender included the following relevant work being carried out: To prepare all exterior walls, guttering, facias, surfeits, doors and trim (this preparation includes washing down...) and "...hiring of equipment" which usually relates to scaffolding.

I note the other two tenders obtained, which were not sighted or assessed or put to the owners for choosing, were for $7,832 (Planet Painters Pty Ltd) and $201,300 (around $8,950 per block by Baker & Staff). It appears that the Resident Manager obtained the painting tenders.

The only comment regarding the painting tenders by Perkins for BCH in his submission to the application, was as follows –

This comment entirely misses the point; it was the fault of BCH as the paid professional to advise the committee to follow the legislation in submitting alternative tenders in separate motions to the body corporate in general meeting to allow owners to choose their preferred tenderer. I do not understand what body corporate authority Perkins purported to rely on in requiring that Barry Sole Painters freeze its tender price; the only question is whether the body corporate will choose this painter or another. I am concerned that such an answer could be given in response to a contravention of the legislation.

2. Validity of annual general meeting held on 26 May 2004:
At page 2 of my statement of reasons to the interim order, I said the following in respect to the purported annual general meeting,

I now have the submission of Perkins of BCH before me and his comments in respect to the meeting. He states that the representative of BCH at the earlier and the adjourned meetings, Danny Vegter (who has since resigned), "did not act in accordance with the Act. All I can do is apologise for his failure to carry out his duties in the correct manner. He goes on to offer that a fresh annual general meeting ("AGM") and a preliminary budget committee meeting be held by BCH at no cost to the body corporate.

Given this admission I will only give a brief overview of the events. I have read the statutory declarations of the applicants and give credence to their evidence.

At the initial AGM on 26 May, Vegter of BCH said there was not a quorum present and the meeting would therefore have to be adjourned, though he continued to count the votes on hand. The legislation provides that such an adjourned meeting must be held at the same time, on the same day and at the same venue in the next week (see section 46(4) of the Accommodation Module). The evidence is that on 2 June 2004 four of the applicants went to the meeting venue (the office of BCH) to participate in the adjourned meeting; staff informed them that Vegter was not available and despite waiting some 4 hours, no meeting was held. (As an aside, it was during this wait that the group of applicants searched the body corporate records and found the earlier Barry Sole Painters tender). At a later date, minutes for the initial meeting of 26 May were compiled by Vegter showing a quorum being "present", evidently with the addition of votes by Robert MacDonald whom the applicants declare did not arrive with his voting paper until the meeting was nearly finished; the legislation requires that if a quorum is not present within 30 minutes of the starting time of the meeting then its must be adjourned (see section 46(4) of the Accommodation Module).

I accept the evidence that a quorum was not present within the statutory period and the meeting should have been adjourned. I have ordered that the meeting is void for irregularity. Provision has been made in the order for an alternative AGM to be held, at the expense of BCH.

I would also point out to Perkins as a director for BCH, that Clause 6 of the statutory Code of Conduct for Body Corporate Managers is titled "Ensuring employees comply with Act and code" and requires BCH to take reasonable steps to ensure an employee complies with the Act and code.

Audit of body corporate accounts:
The minutes of the 2003 AGM held on 8 May 2003 show that the statutory motion for the audit of accounts required to be put by section 105 of the Accommodation Module, namely by special resolution that the statement of accounts not be audited, was lost on a vote of : Yes 5; No 9; and Abstain 2. That is, a majority of owners voted against the accounts not being audited.

The legislation then requires that where an audit is required as is the case here, the body corporate must vote on the subsequent motion for the appointment of a particular auditor for the task. The minutes show that the next motion for "Mr Graeme Litchfield, Chartered Accountant" to be appointed auditor, was noted "not voted on." This was clearly wrong.

This 2003 AGM was an adjourned meeting as a quorum was not present at the initial meeting either. The minutes show that the BCH representative (and then secretary) was Mr Nicholas Taktikos. As he was the only person actually present (there were voting papers of owners) he was the chairperson and therefore the error in not voting on the auditor appointment motion following the motion to have an audit, can only be his.

I would again refer Perkins of BCH to Clause 6 of the Code of Conduct in respect of this further employee (whom I believe has also resigned from BCH).

The applicants have raised the issue of auditing because of concerns over the finances of the body corporate.

For example, I have before a copy of the sinking fund budget forecast commencing for the period ending March 2000 to the period ending 2009. This forecast is a requirement of the legislation and must estimate at least 9 years ahead of the immediate body corporate’s financial year, the expenditure for capital/non-routine items such as painting of the building, fence replacement, waterproofing membrane replacement, etc (see section 92(30 of the Accommodation Module).

The forecast was prepared by Leary & Partners Pty Ltd., Quantity Surveyors. It shows a line item for "Painting, Plastering and Wallpaper" with an expected expenditure of $139,821 in the financial year ending March 2003 (in 2000 dollars), presumably for painting. In order for that expense to be met out of accumulated funds, the amount was factored into the amounts required to be struck and levied on owners in the intervening years of 2000 to 2003, calculated to be $34,525, $35,906, 37,432 and $38,836 (around $400 annually per lot entitlement) respectively for those years. As can be seen, painting was by far the largest cost provided for in the annual amounts.

Had these amounts been struck as the annual contributions, levied on owners and paid, then there would be no need for owners to have to meet the whole of the painting cost of $168,750 as set out in voided Motion 10 at the purported AGM. Either the forecast funds were not levied each year, or levied and spent elsewhere. I do not have copies of the sinking fund contributions struck each year though I note for the 2002 AGM the minutes show a sinking fund contribution of $346.23 per lot entitlement, and for the 2003 AGM the minutes show a contribution of $493.64 per lot entitlement – both are in excess of the forecast amounts of around $400 per lot entitlement (see last paragraph).

If the forecast amounts were not budgeted for and struck for each of the years then this is bad management and contrary to the requirements of the legislation. If they were levied (as seems to be the case for at least 2002 and 2003) and spent elsewhere, then this is also bad management and in contravention of the legislation as amounts accumulated for a particular purpose are earmarked for expenditure only for that purpose (unforseen costs must be separately levied as a special contribution).

The applicants have researched the bank account statements against contributions levied and forecast amounts and are concerned that the amounts do not reconcile. I do not need to review these allegations as the failure of Taktikos of BCH to put the appointment motion to the vote, meaning no audit was possible, is sufficient for an audit to be called for; the unknown status of the funds merely adds to the need for that audit and in that regard I note that Perkins has also offered to meet the cost of such an audit. The applicants are concerned that the audit be carried out by an independent auditor and my order is that the committee must decide on an auditor, independent of each of them, and with the advice of an accounting association (ie CPA or Institute of Chartered Accountants) as necessary, and have an audit done of the financial accounts presented to the purported AGM and of the accounts generally from the financial year-end to a more current date.

Validity of engagement of BCH as Body Corporate Manager:
In view of the failures of the body corporate to comply with statutory procedures in a number of areas, and in view of the order sought by the applicants for an Administrator to be appointed because of dissatisfaction with BCH’s management, I have obtained a copy of both the engagement contract between BCH and the body corporate and the minutes of the relevant meeting.

The minutes for the AGM held on 21 May 2002 show that the body corporate passed a motion for engagement of BCH for a period of 3 years for a base fee of $9,900 including GST (90 lots @ $110 per lot) with additional work charged by hourly rate. The contract was signed and commenced on that same day and shown as terminating on 21 May 2005.

The flaw shown to be present in the painting motion at the recent purported AGM which led me to declare it void in the interim order, namely a failure to provide voters with an alternative motion containing an alternative painting tender, is also present in the treatment of the engagement of BCH as Body Corporate Manager. That is, although the cost of the proposal (3 years @ $9,900 = $29,700, but with an annual Consumer Price Index escalation clause) is well in excess of the (then) major spending limit of $19,800 (99 lots @ $200 per lot), there was no alternative motion for owners to be have the choice required by section 102 of the Accommodation Module.

I shall quote an extract from a previous order, page 5 of Order 108-2004 made on 29 March 2004 referring to a meeting held in November 2002, which sets out the above interpretation of the major spending limit provision set out in section 102 as it existed at the relevant time (21 May 2002). The requirement that there must be competing tenders put before voting owners for their choice has been put beyond doubt by an amendment commencing on 1 December 2003 which expressly refers to a "motion with alternatives". The extract concerns a resolution for the engagement of a Body Corporate Manager at a meeting held in November 2002 for a scheme operating under the Standard Module (section 104) rather than the Accommodation Module (section 102), however the relevant major spending limit provisions are the same for both Modules.

In addition to the two reasons I have highlighted immediately above which equally apply here, I would add the further comment that by not having an alternative candidate for Body Corporate Manager, the lack of competition is unfair not only to the body corporate but also to other Body Corporate Managers.

For the foregoing reasons, I consider the engagement of BCH by "Arundel Links" on 21 May 2002 did not comply with the requirements of the legislation. However, for practical reasons I do not intend to declare the engagement to have always been void, regardless that upon quantum meruit ("as much as deserved") grounds I would not in any case consider that any fees paid to BCH to should be refunded.

Instead, I believe it will be in the best interests of the body corporate for BCH to continue in its duties, in particular to assist the committee in its budget meeting, the formulation of the budget and statutory motions, and the calling and holding of a substitute AGM, all at its own cost (as offered, though I would have ordered it in any case). To have appointed an Administrator, who would necessarily have to be an experienced Body Corporate Manager (though the applicants have not nominated such a person for appointment), would have the Administrator taking control of the body corporate records and assets, in particular taking over management of the accounts and business of the body corporate. In such a large scheme this would involve knowledge and time difficulties and would have been at a considerable cost to the body corporate. It is far better for BCH to continue with the management of the accounts and to manage the ordinary business of the body corporate, but under the control of a committee independent of both it and the Resident Manager. That management will continue, as I have provided for in my orders, until the close of the substitute AGM. This leads me to the next topic, the committee.

Composition of the Committee:
Having found the purported AGM of May 2004 void for irregularity, the purported election of members to the committee is also void.

However, that leaves the committee continuing to comprise a representative of BCH as secretary (from Vegter it has passed to another BCH employee I understand) and a representative of the Resident Manager company (Robert Watson) as treasurer.

Amendments to the Accommodation Module operative from 1 December 2003 prohibit either a Body Corporate Manager or a Caretaking Service Contractor (R Watson as Resident Manager) from holding a voting position on a committee, though both are automatically non-voting members (see section 10A of the Accommodation Module).

The purpose of this amendment is to prevent persons who have a direct commercial interest in the scheme or wjo are engaged to provide professional, independent information and advice to the body corporate, from being part of the decision making of the body corporate. By declaring the AGM void I have unintentionally extended the decision making role of both contractors in the committee beyond what it would otherwise have been, and in conflict with the spirit of the legislation (a transitional provision allows such contractors to continue in their office until the next AGM election).

I am aware of the flawed conduct of the election that took place at the meeting whereby those persons, or at least some of them, listed in the minutes, were "elected".

However it seems to me that the greater wrong would be to allow contractors who should be ex officio non-voting members under the legislation, continuing as voting members than to allow a committee of owners albeit elected in flawed circumstances. Accordingly, I propose to order that from the date of the order the members declared the elected committee shall be the committee. Of course both contractors will attend committee meetings as non-voting members. I consider the order is appropriate in the circumstances, especially considering the committee will have a limited life under the order until a properly conducted AGM can elect a committee.

Administration Fee of $6.60 payable to BCH:
The order sought by the applicants in this matter is as follows –

That the administrative fee of $6.60 levied on each Quarterly Contribution Notice by the body corporate manager without explanation since December 2003 be refunded to those owners who were not informed of any costs related to this additional service or have not used this additional service provided by Body Corporate Headquarters."

The applicants have provided in their grounds a copy of a letter from Perkins for BCH dated 3 November 2003 addressed to the Woodwards of Lot 67 which reads –

Nowhere in the circular letter are owners informed that a fee is to be charged for this internet access to their personal ledger statements.

The grounds also contain a copy of a quarterly Notice of Contributions addressed to the Woodwards which not only contains the usual separate line entries for interest on arrears, contribution payable to the administration fund, and contribution payable to the sinking fund, but also a line entry for an "Administration Fee" for $6.60. This amount is added to the other payments due and the total given as the total invoice amount to be paid by the owner pursuant to the notice of contributions.

There is nothing in the Notice of Contributions to indicate that the Administration Fee is in fact not a fee payable to the body corporate but to BCH, and is a fee for the recipient owner’s internet access to their ledger statement.

Section 94 of the Accommodation Module requires that a written Notice of Contribution must be given to owners, and also what matters must be set out in the notice, including contributions, discounts, arrears, etc. It is a statutory document that may only include those charges set out in the section; it cannot, for example, include any direct charge for a fee by a Body Corporate Manager to an owner. The notice is a document relating to the engagement of the Body Corporate Manager by the body corporate, and when giving a notice to an owner the Body Corporate Manager is merely acting as the body corporate’s agent in collecting contribution and other moneys due the body corporate.

Apart from this, the notice from BCH is headed "Body Corporate for Arundel Links CTS 17447" and I accept that most if not all recipient owners would, without the benefit of any other source of information, consider the Administration Fee to be a fee payable to the body corporate for some unknown administration service. Given the small amount, most would merely pay the total invoice amount without inquiry. Few, if any, would, without further information, connect the fee to the letter they received. In my view, there has been a misrepresentation of the fee by BCH.

The difficulty lies in what jurisdiction I have in dealing with the matter. Owners may have direct redress against BCH for charging a fee for an unsolicited service, but an action on that ground would have to be brought in another place.

However, the notice clearly contravenes section 96 of the Accommodation Module which may only invoice for moneys payable to the body corporate. Subsection (2)(a) states that the notice may also include "a specially contracted service enjoyed by the owner", but again that only relates to an amount payable to the body corporate.

The contract of engagement with BCH clearly provides for BCH to exercise all of the duties of the body corporate in the keeping of the financial accounts, payments of accounts and in preparing notices levying maintenance contributions (see clause 6 of the contract). The exercise of those duties must necessarily have provided a means for owners to be advised of the status of their ledger setting out their liabilities (including penalties) and the amounts they have paid. The introduction of internet access is another means of owners being provided that advice. It might therefore be viewed as BCH providing services required of it under the engagement, but in a different form.

Irrespective of whether BCH intended to provide internet access as a service under its contract with the body corporate or as an entirely separate service, it seems to me that the amounts paid by owners in respect of the invoices sent to them are funds of the body corporate; the legislation only allows amounts payable to the body corporate to be shown on the form and owners would have made payment on the understanding it was payable to the body corporate. If BCH was intending to provide a service outside of its contract with the body corporate, then it should have made an offer to owners individually and made its own arrangements for collecting payment.

Accordingly I have made an order that all of the $6.60 fees collected under a Notice of Contribution are funds of the body corporate and if some have already been redirected to BCH then those moneys must be refunded to the body corporate. The body corporate should then credit the amount of fees paid to the accounts of the relevant owners, rather than actually refund such a small amount to the owners. Of course BCH cannot include any such fee in any future notice.

Number of Scheme:	17447
Name of Scheme:	Arundel Links
Address of Scheme:	3 Arundel Drive ARUNDEL QLD 4214

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 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.

1.	"That new quotes for the $170,000 painting project be sought by the Administrator and be properly presented to the new AGM as alternate motions rather than a single quote.
2.	That a special levy be properly calculated and raised through the AGM to cover the cost of necessary impending projects, including painting, roof cleaning and repointing.
3.	That AGM-related costs be borne by the body corporate manager, The Body Corporate Headquarters.
4.	That the body corporate basic financial records, including bank accounts, GST, invoices and receipts, be checked against financial statements by the Administrator given the substantial variations in consecutive 2002/2003 figures as presented in 20092/2003 and 2003/2004 AGM agendas.
5.	That the administrative fee of $6.60 levied on each Quarterly Contribution Notice by the body corporate manager without explanation since December 2003 be refunded to those owners who were not informed of any costs related to this additional service or have not used this additional service provided by Body Corporate Headquarters."

Queensland Body Corporate and Community Management Commissioner - Adjudicators Orders

Arundel Links [2004] QBCCMCmr 409 (25 August 2004)