Rainbow Bay Resort [2004] QBCCMCmr 82 (12 February 2004)

TAKE NOTICE that pursuant to an application made under the abovementioned Act by Stephen & Heather Davis, the former caretaking service contractors

I hereby dismiss the application for an order declaring that the Body Corporate is not entitled to impose a transfer fee pursuant to section 83 of the Body Corporate and Community Management Act (Accommodation Module) 1997 in respect of the assignment of the interest of Stephen John Davis and Heather Davis in the caretaking and letting agreements dated 20 December 2002 from Stephen John Davis and Heather Davis to Ronald David Fairbank and Marilyn Joy Fairbank on the basis that Stephen John Davis sought approval of the body corporate to the transfer on the basis of genuine hardship not reasonably foreseeable by them as at 20 December 2002.

I further dismiss the application for an order declaring that the Committee meeting of the Body Corporate held on 23 June 2003 at which it was resolved to consent to the assignment of the Caretaking and Letting Agreement dated 20 December 2002 from Stephen John Davis and Heather Davis to Ronald David Fairbank and Marilyn Joy Fairbank should have also resolved pursuant to Section 83 of the Accommodation Module either not to require payment of a transfer fee on the assignment referred to above on the grounds of genuine hardship, or alternatively to waive payment of any transfer fee to which the Body Corporate may be entitled under Section 83 of the Accommodation Module on the basis of genuine hardship which was not reasonably foreseeable on December 2002 being the date of the Caretaking and Letting Agreement.

I further dismiss the application for an order that, in the event that the Applicants have paid the Transfer fee pursuant section 83 of the Accommodation Module at the time any interim or final order is made by an Adjudicator, then an order that the transfer fee paid to the Body Corporate be refunded to the applicants.

STATEMENT OF ADJUDICATOR’S REASONS FOR DECISION - REF 0451-2003

"Rainbow Bay Resort" CTS 5907

APPLICATION

This application was made by Stephen John Davis and Heather Davis, then caretaking service contractor (applicants) on 1 July 2003, under the Body Corporate and Community Management Act 1997 (Act). The applicants sought orders against the Body Corporate for Rainbow Bay Resort (respondent) in the following terms:

Rainbow Bay Resort community titles scheme (Rainbow Bay Resort) consists of 25 lots and common property. The Rainbow Bay Resort community management statement indicates that the Body Corporate and Community Management (Accommodation Module) Regulation 1997 (Accommodation Module) applies to the scheme. (In its reply to submissions, the applicants amended the references in their application from standard module to accommodation module.)

PROCEDURAL MATTERS

Under section 243 of the Act, a copy of the application was provided to the respondent body corporate and to all owners, with an invitation to the committee and all owners to respond to the matters raised in the application. Written submissions were made by two owners and on behalf of the committee. The applicants inspected the submissions received and made a written reply (see sections 246 and 244 of the Act respectively).

A dispute resolution recommendation was made referring the dispute to departmental adjudication.

JURISDICTION

This is a matter which falls within the dispute resolution provisions of the legislation (see sections 227, 228, 276 and Schedule 5 of the Act).

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:

(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 227 defines the allowable parties to a dispute under the dispute resolution provisions of the Act. I am satisfied, on the material provided, that the application was lodged approximately 25 minutes before the transfer of the applicants’ management rights. Therefore, at the time that the application was lodged, the applicants were service contractors and letting agents for the scheme. Accordingly, they were within a category of persons entitled to make an application, and were parties to a dispute in respect of which an adjudicator could make an order. Although the applicants have since sold their management and letting rights, they are still parties to a dispute, in that the transfer fee to which the body corporate claims it is entitled is still disputed by the applicants. This situation is distinguishable from a dispute involving, for example, a by-law contravention, where, upon the sale of the party’s lot, an order regarding a by-law contravention would be irrelevant. I am therefore satisfied that I have jurisdiction to determine this application.

MATTERS IN DISPUTE

The application relates to the disputed fee charged by the respondent on the transfer of the applicants’ management and letting agreements. The facts of the dispute, as outlined in the application, submission, and reply to submissions, can be summarised as follows.

A Management Agreement and a Letting Agreement (Agreements) between the applicants and respondent were signed on 20 December 2002. The Agreements granted caretaking and letting rights from 28 December 2002 to 27 July 2012. At the committee meeting of 12 December 2002, which considered the transfer to the applicants, the applicants confirmed they were in excellent health and physically capable of undertaking the required caretaking functions.

The applicants advise that they undertook the caretaking and letting duties personally, and therefore assert that the business could not be run effectively by only one of them. On 3 June 2003 one of the applicants, Stephen Davis, presented to a medical practitioner with symptoms of anxiety. These symptoms had reportedly been experienced by Mr Davis for the previous six weeks. In a letter dated 29 June 2003 (two days before the transfer) the medical practitioner confirmed in writing that Mr Davis should not be placed under any more stress because his blood pressure was at a dangerously level.

Although there is no supporting medical evidence, and the medical practitioner had apparently not previously seen Mr Davis to enable comparative blood pressure levels, the applicants assert that Mr Davis did not have severe health problems or suffer from stress before entering into the Agreements. The applicants further assert that these health problems could not reasonably have been foreseen in December 2002.

Some 13 days after the first visit to the medical practitioner, the applicants’ legal representatives wrote to the respondent requesting its consent to their proposed assignment of the Agreements to Ronald and Marilyn Fairbank (assignees). The letter requested that the respondent not require the payment of a transfer fee because Mr Davis had "suffered a serious health set back" and had medical advice not to continue as a building manager. The letter said that the applicants were "reluctantly selling after a very short period, to their financial disadvantage, and obviously only because of necessity caused by their hardship."

At a committee meeting on 23 June 2003, some 7 days after the applicants’ letter, the committee met the applicants and the proposed assignees. The minutes record a discussion of the transfer fee and that the applicants were requested to provide medical evidence and evidence of the listing of the management rights for sale. The committee indicated that a motion to consider the transfer fee would be put to extraordinary general meeting (EGM). The minutes state that "Mr Davis then advised the meeting that he had made a mistake by entering into the Management Rights business and he was doing the building a favour by not staying. Mr Davis advised that if the holding of an EGM would hold up the sale of management rights, then he was not prepared to pursue this avenue to waive the transfer fee." The meeting then resolved to consent to the assignment of the Agreements, subject to the payment of a transfer fee of 3% of the market value of the transfer.

In its reply, the applicants dispute the committee meeting minutes. An undated letter with no address or identifying salutary details is attached, which was purportedly sent by the applicants to the respondent on 11 July 2003, after the applicants had received a copy of the minutes. The applicants allege that the reference to the applicants’ mistake in entering the management rights business referred only to the unexpected health problems. They allege that the body corporate manager said that if the transfer fee was disputed it would have to go to an EGM. The applicants confirmed that they said they could not wait for an EGM because they had to settle on 1 July 2003, but assert that they did not agree to the transfer fee. The applicants argue that the committee information was misleading because there was no requirement for an EGM to determine a transfer fee. The applicants note that the respondent did not seek medical evidence prior to the meeting.

The management rights sale was settled on 1 July 2003, shortly after this application was lodged. A transfer fee of $15,300 was apparently paid by the applicants.

In its submission, the respondent provides documentation which it asserts shows that the applicants had put their management rights up for sale prior to 21 February 2003. They also provide a copy of the front page of the contract for sale between the applicants and the assignees dated 26 April 2003, with settlement to occur on 1 July 2003. This information was not included in the application but has not been disputed by the applicants. I sought specific clarification from the applicant, who confirmed that the management rights were first listed for sale on 18 February 2003.

The respondent’s submission also alleges that the body corporate manager informed the applicants in late May that the body corporate could impose a transfer fee unless there was evidence of genuine hardship. The applicants do not dispute this. The applicants’ purported letter of 11 July 2003 refers to a conversation with the body corporate manager "several weeks" before the June committee meeting, although the letter reports that the body corporate manager advised that a committee member was "adamant that the transfer fee would be enforced."
Finally, the applicants assert that while a doctor was not visited until June, the health impact had been experienced earlier; that the applicants sold the business because of Mr Davis’s health but did not know the seriousness of his health at that time; that genuine hardship must only exist at the time of seeking consent for transfer; and that Mr Davis saw a doctor because of his health and not because of the implications of the transfer.

DETERMINATION

The respondent resolved to impose a fee as a condition of approving the transfer of the management rights within the first three years of the commencement of the contract, under section 83 of the Accommodation Module. This section states:

(a) section 107(3) [now section 122(3)] of the Act applies to the engagement or authorisation; and

(b) the engagement or authorisation is not the result of the exercise of an option by the service contractor or letting agent under the terms of the engagement of the person as a service contractor, or the authorisation of the person as a letting agent, contained in a previous engagement or authorisation for the scheme; and

(c) the approval of the body corporate is sought to the transfer of a person’s rights under the engagement or authorisation.

(a) if the approval date is not more than 1 year after the contract date 3 %; or

(b) if the approval date is more than 1 year, but not more than 2 years, after the contract date 2%; or

(c) if the approval date is more than 2 years, but not more than 3 years, after the contract date 1%.

(a) the transferor is a financier under section 109 [now section 123] of the Act who is acting under the provisions of the financier’s charge over the engagement or authorisation; or

(b) The transferor is seeking approval to the transfer on the basis of genuine hardship not reasonably foreseeable by the transferor at the contract date.

The applicants contest the validity of the committee’s imposition of a transfer fee on the basis of their "genuine hardship". Unless an exception in section 83(6) applies, the body corporate has discretion to impose a transfer fee or not. But, if an exception applies, there is no discretion – the body corporate is prohibited from charging a fee. To fall within the section 83(6)(b) exception, the applicants must demonstrated that they have suffered genuine hardship, and secondly that the hardship was not reasonably foreseeable at the contract date of 20 December 2002.

Meaning of genuine hardship

The New Shorter Oxford English Dictionary, defines ‘hardship’ as including "hardness of fate or circumstance; severe suffering or privation". The same dictionary defines ‘genuine’ to include "real, true, not counterfeit". I am not aware of any judicial interpretation of the phrase ‘genuine hardship’, but it does appear that the meaning of the term ‘hardship’ has been judicially considered in a number of instances. I am indebted to the Adjudicator determining application 0474-1997, who made the following comments regarding authorities on the meaning of ‘hardship’:

"In Re Kabalan [1993] FCA 76; (1993) 113 ALR 330, Gummow J, when reviewing the Bankruptcy Rules (Cth), defined "hardship" as "...any condition which presses with particular asperity upon a person..." This was also considered an appropriate definition by the Full Tribunal of the A.A.T. in Re Dorevitch Pathology and Minister for Health [1993] AATA 377; (1993) 32 ALD 170 at 177 (paragraph 17). In Re Qld Medical Lab. and Dept. of H.H.C.S. (1994) 33 ALD 159 at 167 (paragraph 32) the Full Tribunal of the A.A.T., when considering the word "hardship" as it appeared in the Health Insurance Act 1973 (Cth) ruled that "the term ‘hardship’ can potentially cover a broad spectrum of connotations including meaning an appreciable detriment whether it be financial, personal or otherwise." All of the authorities indicate that each case must depend on its own particular facts and circumstances."

Therefore, it would appear that ‘hardship’ can take many forms, but that it involves a degree of severity and seriousness. Therefore, minor or common inconveniences or difficulties would not appear to fall within the definition of hardship. Stress in the workplace, for example, is not uncommon. It can have a detrimental health impact for many but strategies can be employed to manage it. To amount to ‘hardship, stress must arguably be severe and have a debilitating impact.

The applicants argue that the genuine hardship must exist at the time of the request for transfer, and seem to imply that hardship need not have existed before approval was sought. I am not convinced of the merit of this argument. Section 83(6)(b) requires that hardship is the basis for the request to transfer. Therefore, while the hardship must exist when the transfer approval is sought, I am of the view that the hardship must be the reason why the transferor has gone down the path of seeking to sell their management rights unless there is some intervening cause (for example, the transferor had decided to sell and after that decision a circumstance of genuine hardship arose which necessitated them selling for a lower price than they might otherwise have expected to facilitate a quick sale.) The applicants have not suggested any such intervening cause and assert that the health problems were the reason for the sale being pursued.

Existence of genuine hardship

I must state at the outset that I found the application presented by the applicants to be unsatisfactory in many regards, and lacking in relevant information. The applicants do not satisfactorily explain why the management rights were listed for sale in February 2003 when, according to Mr Davis’s doctor, the symptoms of stress were not evident until late April (that is, six weeks prior to the visit to the doctor on 3 June 2003), or why Mr Davis did not visit a doctor before 3 June 2003 if his symptoms were so debilitating some 4 or 5 months before as to make it impossible for him to continue to work in the management rights business. The applicants also do not explain why they did not seek approval for the transfer and raise their apparent hardship until 16 June 2003, when the contract for sale apparently occurred on 26 April 2003, or, in the alternative, does not give any evidence that approval was formally sought earlier.

In the absence of evidence to the contrary by the respondent, I accept that the applicants could not continue in the business if one of them was unable to work in the business. The evidence that Mr Davis is unable to work in the business, however, is not unequivocal. The applicants’ letter to the respondent on 16 June 2003 states that "he has been advised by his doctor that he is unable to continue the works of a building manager without further adversely affecting his health." However, this is not reflected by the letter provided from Mr Davis’s doctor, which simply says that Mr Davis should not be placed under more stress. The doctor does not attribute the stress to the work environment, but rather states that he is unable to assess to what extent the raised blood pressure is caused by the "recent" stress that Mr Davis reported in his occupation.

The applicants have provided no medical evidence from any doctor consulted by Mr Davis prior to 3 June 2003 or prior to 20 December 2002. While the high blood pressure need not have been caused by Mr Davis’s occupation to potentially give rise to hardship, without some indication that the business caused or contributed to the high blood pressure or added to his stress levels it is difficult to argue that Mr Davis had to cease work in the business to manage the high blood pressure. The applicants have not commented on why or how the management business was stressful for Mr Davis. It is noteworthy that the applicants appear to claim that the impacts of stress arose within weeks of taking over the management rights. I find this difficult to believe, if the applicants were of the state of health claimed when the Agreements were signed.

The applicant advised, for the first time, on 6 February 2004, that the management rights were listed for sale "due to mild health problems suffered by Mr Davis during January 2003". The applicants argue that their claim "should not be prejudiced by the fact that Mr Davis did not seek medical advice until a later date at which time the true nature of his condition was known." However ‘mild health problems’ do not amount to genuine hardship, and the applicant’s own doctor only refers to health problems from late April. It is unclear why the applicants made no mention of the January health problems earlier in the process, but they have provided no convincing evidence that serious health concerns existed prior to the management rights being listed for sale.

I am of the view that section 83(6)(b) puts the onus on the applicants to raise the issue of hardship, rather than for a body corporate to determine if this is the reason for the transfer. While the body corporate should satisfy itself of the legitimacy of any claimed hardship, I consider that the transferor must make out the basis of the claim. The applicants apparently first notified the respondent of their hardship claim only 16 days prior to settlement, despite having known the settlement date some seven weeks earlier. The applicants complain that the respondent did not request medical evidence before the June meeting but the committee had only a few days before the meeting to consider this claim. In this circumstance, I feel that it was reasonable for the committee to wait until the meeting to discuss the issue. Moreover, it was reasonable for the committee to consider that the word of the applicants, without any supporting documentation, was not sufficient. The applicants give no reason why they did not provide any substantiation previously, or why they were apparently reluctant to provide such information at or after the meeting.

Reasonable foreseeability

As outlined above, the applicants asserted that Mr Davis had no health problems before 20 December 2002, but have provided no medical evidence to confirm that his blood pressure was not elevated prior to this time. Again, the applicants have not outlined why the management business was a cause of stress for Mr Davis, and I note that it would be reasonably foreseeable that the duties required of the resident manager would be time consuming and relatively onerous. However, in light of my comments above, I do not consider that it is necessary for me to determine conclusively whether the applicants should have reasonably foreseen any stress or high blood pressure arising from undertaking the management rights business.

Proposed Extraordinary General Meeting

The applicants raise an issue that the committee indicated that it would need to call an EGM to consider the transfer fee. My decision does not turn on this issue but it may assist the parties to clarify my views on the matter.

It is clear that a committee body corporate may consent to the transfer of rights under a service contract or letting authorisation, provided that the matter is not otherwise a restricted issue for the committee (see section 82(2) of the Accommodation Module). If committees generally have this authority, it follows that committees can also decide whether or not to impose the transfer fee, again provided that this is not otherwise a restricted issue for the relevant body corporate. There is no suggestion in this dispute that the body corporate has previously resolved that these are restricted issues for the body corporate. However, while the committee may decide to approve these issues, I do not consider that the wording of section 82(2) requires that the committee must decide the matter itself. This section suggests that approval of the transfer may be given by the committee or by an ordinary resolution of the body corporate. For example, in circumstances where the body corporate is exercising its discretion under section 83(2), it may well be appropriate for the committee to refer the decision to a general meeting because it will be all owners who will be deprived of the income if the fee is waived. As outlined earlier, there is no such discretion applicable if genuine hardship is sought, rather an assessment of whether the hardship exists or not. However, I am not satisfied that it was unreasonable of the committee to contemplate referring this issue to an EGM in the circumstance that they did not reasonably consider that genuine hardship existed.

Conclusion

The principle of payment of a transfer fee endeavours to balance the interests of caretaking service contractors and bodies corporate. On the one hand, the legislation allows caretakers the flexibility to transfer their interests. Transfers do not have to be prompted by necessity, but are often on the basis of a profitable, commercial decision. On the other hand, bodies corporate enter into service agreements in good faith, with some expectation that the caretaking service contractor will complete the agreement. When an agreement is transferred, particularly within a short time of its commencement, bodies corporate can experience significant disruption and costs while the new caretaker settles into their role. The payment of the transfer fee recognises and compensates bodies corporate for this disruption. It also recognises that bodies corporate contribute to the value of the rights that the service contractor is transferring, and in many instances, profiting from.

To be successful, the applicants must demonstrate genuine hardship, not reasonably foreseeable at 20 December 2002, which is sufficient to outweigh the respondent body corporate’s entitlement to a transfer fee. Given the lack of information regarding the claimed hardship given to the respondent at the time the request for transfer and when the decision regarding the transfer was made, I consider that it was not unreasonable for the respondent to consider that genuine hardship did not exist and to consequently impose a transfer fee.

Whilst I accept that in June 2003, at least, Mr Davis suffered from high blood pressure, I do not accept that this was the basis of the applicants’ decision to sell. On the evidence provided to me, I find that this decision was made independently of Mr Davis’s doctors’ assessment in June 2003 that his blood pressure was "dangerously high". While it may well be that the applicants quickly learned that they were not compatible with the management rights business, I am not satisfied that the applicants were forced to sell because of serious adverse health. In these circumstances, there can be no suggestion that the applicants have suffered genuine hardship as the result of such a sale.

I do not propose to order that the body corporate refund the transfer fee paid by the applicants.

Number of Scheme:	5907
Name of Scheme:	Rainbow Bay Resort
Address of Scheme:	265 Boundary Street, GOLD COAST MC QLD 9413

Queensland Body Corporate and Community Management Commissioner - Adjudicators Orders

Rainbow Bay Resort [2004] QBCCMCmr 82 (12 February 2004)