Galileo Tower [2005] QBCCMCmr 150 (16 March 2005)

Last Updated: 5 July 2005

REFERENCE: 0701-2004

ORDER OF AN ADJUDICATOR

MADE UNDER PART 9 OF CHAPTER 6

BODY CORPORATE AND COMMUNITY MANAGEMENT ACT 1997

Number of Scheme:	14193
Name of Scheme:	Galileo Tower
Address of Scheme:	12 Mullen Street HAMILTON Q 4007

TAKE NOTICE that pursuant to an application made under the abovementioned Act by:

Paul Frederick SPOTTISWOOD, the owner of Lot 11; and James Edward DAWES, the owner of Lot 12,

I hereby order that the resolutions passed in respect of Motion 4 (for the lift upgrade) and Motion 11 (for the replacement of garage doors) at the extraordinary general meeting held on 12 August 2004, were at all times void.

STATEMENT OF ADJUDICATOR’S REASONS FOR DECISION - REF 0701-2004

"Galileo Tower" CTS 14193

This is the final order to an application by Paul Spottiswood and James Dawes of Lots 11 and 12 respectively, who have sought the following order of an adjudicator under the Body Corporate and Community Management Act 1997 ("the Act") -

"That motions 4, 11 and 12 of the EGM held 12 August 2004 be declared invalid. These motions were presented as ordinary resolutions and declared carried on a majority vote. The "Body Corporate and Community Management (Standard Module) Regulation 1997" (the Regulations) provides that these motions should have been classified as Special Resolutions. As Special Resolutions these motions would have been defeated. Refer s113 of the Regulations.
These motions are shown on the attached minutes of the relevant meeting:
Number 4 – Lift Upgrade, value $107,440.
Number 11 – Replacement of Garage Doors, value $14,982.
Number 12 – Replacement of Hot Water Systems - $8,986."

The applicants also made application for an interim order and the following Interim Order 88-2004 was issued on 16 November 2004 -

"I hereby order that the body corporate must not implement or otherwise act upon the resolutions of the body corporate declared passed at its extraordinary general meeting held on 12 August 2004 in respect of Motions 4 and 11, being for the upgrading of the lift and the replacement of garage doors respectively, pending determination of the final order to this application.

I further order that this interim order has effect for a period of three months from the date of this order."

At the request of the applicants the term of the interim order was extended on 17 February 2005 -

"I hereby order that the substantial interim order made on 16 November 2004 which reads as follows –

"I hereby order that the body corporate must not implement or otherwise act upon the resolutions of the body corporate declared passed at its extraordinary general meeting held on 12 August 2004 in respect of Motions 4 and 11, being for the upgrading of the lift and the replacement of garage doors respectively, pending determination of the final order to this application",

is extended until such time as a final order to the application is made."

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

"This is a dispute between owners (the applicants Spottiswood and Dawes), and the body corporate (the respondent), concerning whether the correct type of resolution was proposed and passed in respect of certain motions considered at an extraordinary general meeting of the body corporate. This is a matter that falls within the dispute resolution provisions of the legislation (see sections 227, 228 and 276 of the Act) and may be determined by a departmental adjudicator."

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 –

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.

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:
Under this heading in my statement of reasons to the interim order, I said -

"Under section 247 of the Act, the requirement to seek submissions from interested parties may be dispensed with and the application for an interim order dealt with directly by an adjudicator. That course is considered appropriate in this instance given the sufficiency of the documentary information supplied and the real possibility that the works subject of the relevant motions may be commenced at any time. Of course if the work proposed were carried out then it could only be reversed at a severe financial loss to the body corporate or perhaps result in expensive litigation."

In accordance with section 243 of the Act, a copy of the application was served on the respondent body corporate (committee) which was required to serve copies on all other lot owners along with a copy of the interim order and the department’s notice inviting the committee and each other owner to make a written submission on the dispute raised in the application.

A submission was received from the body corporate committee for the respondent body corporate opposing the application; the submission was marked to be also accepted as a personal submission by Cratburn Pty Lt of Lots 1 and 2, Andrew Mackenzie of Lot 4, Marie Dawson of Lot 5, and Timothy Lowne of Lot 6. A submission was also received from Jim Gorman of Lot 3 (Ignatatus Pty Ltd) adopting the committee submission.

The applicants inspected the submissions and subsequently submitted a reply to those submissions (see sections 244 and 246 of the Act).

This is one of three applications for this scheme that concern repairs and renovations to various parts of the common property, the others being Application No’s. 557-2004 and 717-2004. Given the commonality of disputes in the three applications, I shall determine them together and orders for all three with be issued together. The reasons for all three orders should be read together and copies of all three have been sent to all applicants, respondents and parties making a submission to any of the three applications.

The broad facts of the common dispute are as follows.
(NOTE: The following is a copy of the facts as presented under this heading in my Statement of Reasons to Order 557-2004. I have indented the copy so the particular comments relating to this application can be readily identified).

The building is now over 30 years old and parts of the common property are in need of repair, some repairs being of more pressing concern than others. Owners are facing the same decisions that as other owners in other, similar buildings; that is, whether to merely repair items or replace them with a modern equivalent, or some combination of both. In regard to machinery items such as the elevator subject of this application, the decision includes whether to take advantage of new technology which may offer a smoother ride, be more reliable, stave off future repairs for a much longer period, etc (see later). The decisions include questions of cost, the availability of replacement parts, the ability of some owners to pay, how does the benefit fall on owners, a prioritisation of repairs, expert guidance in identifying necessary repairs, whether renovation costs will be reflected in added value to lots, and how the different options must be resolved.

The owners have been considering these questions for some time. The applications and the outcomes of the extraordinary general meeting held on 12 August 2004 ("the meeting") show that owners have varying opinions on what should be done. There is reference to a "Master Plan" being decided on by the body corporate in general meeting in 2000 which was to be prepared setting out details for refurbishment (repairs and improvements) of the building. The body corporate engaged Norman Disney Young, Consulting Engineers, ("NDY") to review the existing lift equipment; it subsequently produced a "Lift Condition Report" dated 18 July 2003, recommending certain changes to the lift. Also around that time, the body corporate engaged Leary and Partners, Building Surveyor ("Leary"), to identify building defects and make repair recommendations. Leary subsequently carried out an inspection of the building and produced a report titled "Defects & Occupational Health & Safety Report" dated 27 August 2003 setting out details of the defect, the recommended repair, a prioritisation of the repairs, and a rough cost of the repair.

The meeting was held for owners to votes on various repairs and replacements. The first motion following confirmation of minutes, Motion 2, was a "motion with alternatives", comprising a principal motion and two alternative motions containing tenders by Milson Projects Pty Ltd ($479,358) and James Trowse Constructions Pty Ltd ($498,724) respectively. The cost per owner (all have equal lot entitlements) is around $33,000 (see section 42B of the Standard Module). The principal motion was put as a special resolution in recognition of the improvements it contained (see section 113 of the Standard Module). The motion failed and Application 557-2004 lodged by 7 owners is for an order to give effect to the motion – while the grounds do not specifically say that the opposing votes were unreasonable, that is easily inferred from their words and I have proceeded on that basis. The application also seeks a similar order for Motion 3 which is the appointment of a supervisor over the renovation works contained in Motion 2 – of course its fate will be decided by the order in respect to Motion 2.

The initial order sought in Application 717-2004 (by three related companies which each own a lot) was directly contrary to 557-2004 in that it sought Motions 2 and 3 remain as defeated motions. The applicants later made a change by adding to the application, permitted under section 245 of the Act but which required the submission process be restarted in respect to the additional matters. The additional orders sought was in effect seeking the invalidation of all of the motions passed at the meeting that related to building works, namely resolutions in respect of Motions 4, 5, 6, 7, 8, 9, 10, 11, 13, and 14.

The orders sought under this application (Application 701-2004, is for the invalidation of the resolutions passed in respect of Motions 4 (the lift), 11 (the garage doors) and 12 (the hot water systems). I have dealt in some depth with these particular resolutions in my Statement of Reasons to the interim order and I will be dealing specifically with them under "Determination" which follows.

Apart from Motion 2 (which was put as a special resolution), the determination of whether resolutions passed should stand or fall depends on whether the subject matter of each motion should be properly characterised as merely a repair, in which case an ordinary resolution is sufficient, or (assuming the cost is above the legislative threshold of $3,600 (12 @ $300 per lot) or alternatively is under the threshold amount but is part of a project of improvements that are in excess of the value) is an improvement, in which case section 113 requires a special resolution. All of the other motions were resolved by ordinary resolution, presumably on the basis that the committee considered all of them were repairs and not improvements, or if an improvement’s cost was under the threshold amount then they were not part of a project over the threshold amount.

I have broadly set out the facts of the matter and the orders sought under the three applications.

I might say at this point that in my Statement of Reasons to the interim order I made the following comment in respect of this and the other two applications –

"While I am ready to deal with the applications in time, perhaps the owners might think a better outcome will be achieved if they were to strive for a negotiated outcome encompassing all of the intended and suggested works, rather than fight each other through the adjudication system and later perhaps through the District Court on appeal. It may be more timely and effective (cost and otherwise) in this instance, to engage a trained mediator for the purpose. In any case, that is a matter for owners to decide."

I thought it may have been possible with the benefit of the comments and references I made in the interim orders to this and 717-2004, that owners might have been able to negotiate a suitable compromise outcome and call a further meeting to formalise that outcome. That obviously did not happen.

In regard to this application in particular, in my statement of reasons to the interim order I made reference to a teleconference I conducted with Spottiswood (for the applicants) and Ann Chambers of Strata Care (for the respondent body corporate). With the benefit of that conference and the application, I made a comprehensive statement in regard to the circumstances of the motions for the lift and the garage doors. Now I have the further benefit of the comprehensive submission by the committee (adopted by certain owners) and also, in respect to the lift motion, comments in the grounds to Application 717-2004 which seeks the invalidation of that motion (Motion 4). I do not intend to refer to the committee’s submission here, or to the applicant’s reply to it, but to raise the points appropriately when dealing with the separate matters under "Determination" which follows.


DETERMINATION:
"Galileo Tower" was registered as a building units plan (now termed a building format plan) on September 1973 and comprises 12 lots. It is regulated by the Body Corporate and Community Management (Standard Module) Regulation 1997 ("the Standard Module").

Motion 12 (Hot-water Systems):
I shall first address Motion 12 which was for the replacement of hot-water systems. I was informed during the teleconference that the hot-water systems had been purchased and all existing systems had been either been wholly replaced or that event was near. The committee has commented that the systems were over 20 years old and were well in excess of their normal life, confirmed by Leary. It said that refurbishment was not cost-effective or practical and replacement should be regarded as being "preventative repair". Both Leary and the contractor had made a "strong recommendation" that replacement be undertaken.

As the replacement has taken place I do not intend considering an order for their removal. The applicant states that the committee was warned at the meeting that as the systems were functional and any replacement at a cost ($8,986) in excess of the section 113 threshold limit would require a special resolution being an improvement. There is nothing before me that suggests the new systems are other than like replacements which, if replacement were necessary, would constitute repairs and not an improvement. In the circumstances I do not intend to pursue this dispute further.

Motion 4 (Lift):
In the Statement of Reasons to the interim order I made the following comments regarding this issue, which comments still reflect my view –

"In regard to Motion 4 for the upgrading of the lift, I am of the opinion that an interim order is warranted on the grounds that it appears on the face of it that the proposed work constitutes an improvement by the body corporate within the meaning of section 113 of the Standard Module rather than merely maintenance or like replacement. As the cost exceeds the threshold amount of $3,600 for the scheme (12 lots times $300) then that section requires approval must be by way of special resolution and not ordinary resolution as was the case.

The distinction between whether proposed work constitutes an improvement rather than maintenance is often a difficult and fine one to determine. In this case, the nature of the changes to the lift system as described in both the report by NDY and the (committee) notes to the motion, suggest strongly it must be categorized as an improvement in that it goes beyond maintaining the lift at its present level of efficiency, functionality, and value, amongst other considerations. The report by NDY, from my reading of the report without any further explanation, seems to state that the lift is in adequate working order, though incorporating some outdated technologies, with no defects to be remedied or changes required by law. That is, the report makes all sorts of recommendations to upgrade the lift technology, performance, comfort and appearance – all of which would considerably add to the value of the lift and therefore the building in general – but the telling phrase is at paragraph 3.1.5 where NDY says, "If the existing lift system was analysed purely on reliability issues, there is clearly no reason to alter the present arrangement, other than for technology upgrade and performance reasons." As well, breakdown rate is within the acceptable standard.

In summary, it appears to me that the "Lift Upgrade" is just that, an upgrading of the current lift standard to something that is beyond a mere maintenance and replacement, and constitutes an improvement for which the higher order of resolution, namely a "special resolution", is necessary for approval."

In its submission, the committee (and adopting owners) claim the work is a repair and not an improvement. It contends that words used by NDY such as "upgrades" and "improvements" are technical descriptions and should not lead to any inference that they support the changes being an improvement. It refers to particular changes that are almost a necessity, such as a electro-mechanical controller that is no longer manufactured meaning replacement parts will become progressively harder to obtain. The current technology replacement is a micro-processor, and the need for air-conditioning is to keep this part stable.

I have read its submission in its entirety, including the reference to the Master Tax Guide part on What is a repair?, and the comment "It is clear that there is not a "reconstruction of the whole thing, ie the entirety. In these circumstances, we submit that the works are repairs". This quote seems to suggest that if an item is not reconstructed in its entirety then it is not an improvement but a repair.

In previous orders for other schemes I have referred to the analogy of the different (business or property renting) tax treatments for "capital" work (not a deduction) and "repair" work (is a deduction), with an "improvement" and a "repair" under the Act. It is, in my view, a valid analogy and the references in my reasons to the interim order of 16 November 2004 concerning "level of efficiency, functionality, and value, amongst other considerations", springs from that source. But my understanding of the points of difference does not include the suggestion by the committee quoted above.

In fact the applicant Spottiswood has in his reply to submissions, himself taken up the reference (Lindsay V. Federal Commissioner of Taxation and Taxation Ruling 97/23). In brief, "a ‘repair’ restores the efficiency of the function of the property without changing its character", while "an ‘improvement’... provides a greater efficiency of function in the property ..it involves bringing a thing or structure into a more valuable or desirable form, state or condition than a mere repair would do."
Paragraph 47 then states, "Replacement or substantial reconstruction of the entirety, as distinct from the subsidiary parts of the whole, is an improvement."

I will not go on, but a proper appraisal of the efficiency, functionality and value of the proposed changes to the lift, as I have listed out previously, shows them to constitute an "improvement" within the meaning of section 113 of the Standard Module, thus requiring a special resolution to be properly authorised by the body corporate. For example, it may be true that electro-controllers are no longer manufactured however the part may be available for many years to come – or may be manufactured – and the report of NDY does not suggest otherwise.

Accordingly, the work contained in Motion 4 is an "improvement" within the meaning of section 113 of the Standard Module and should have been put as requiring a special resolution. It did not and the resolution passed in respect of the motion purporting to give authority for the work was at all times void and my order is to that effect.


Motion 11 (Garage Doors) :
I made the following comments in my statement of reasons to the interim order –

"In regard to Motion 11 for the "Replacement of Garage Doors", the applicant’s grounds merely state that "Until such time as the committee presents an acceptable solution (including colour scheme) for an overall upgrade of the building, there is no valid reason for replacing the garage doors." This is no evidence in support of the interim order sought. However, the attached copy of notes to the motion appear to show that the replacement is not based on necessity but more on improving the appearance of the scheme building –

"The existing doors are dilapidated and do not present an appealing face to the common areas. The appearance of the garage areas, including the garage doors, is a very important part of the visual statement made by the common areas. If left as they are, the existing panels will continue to deteriorate and will detract from the remainder of the common areas, which are to be refurbished as outlined in the other motions."

Again the proposed work appears to be an improvement rather than for maintenance purposes, and given the cost is $14,982 it can only be approved by way of a special resolution of the body corporate under the requirements of section 113 of the Standard Module.

As well, it seems that the garage doors are part of an overall project to renovate the scheme by a series of improvements and this may well place it, and the other proposals, all within the context of a "single project" as referred to in section 113(2) and therefore each improvement is caught by the special resolution requirement."

Motion 11 merely states, "That the body corporate undertake the replacement of the garage doors and approve a Special Levy to fund those works." It was put and passed as an ordinary resolution. There is nothing in the tenders to suggest that the replacement doors are other than "like replacement" doors (there was evidently insufficient room for the proposed alternative of electronically operated roller doors), with no difference in function or efficiency (other than that attributable to newness, for example, new bearings).

However, the work comprises the replacement of all 12 garage doors and raises the question as to whether all are in such a state of disrepair as to require not repairs, but total replacement. When considered together with the other works proposed, it appears to be as I assessed in my previous comments, "...it seems that the garage doors are part of an overall project to renovate the scheme by a series of improvements..." and form part of an overall "project". I have commented on this aspect of the works more fully in my reasons to Order 717-2004 and those form part of these reasons by reference.

The work contained in Motion 11 is an "improvement" within the meaning of section 113 of the Standard Module and required a special resolution, and therefore the resolution passed in respect of Motion 11 purporting to give authority to the work, was at all times void and I have so ordered.


Additional Comments:
In its submission, the committee (and adopting owners) commented on my observation that there existed a "wide divergence of opinion amongst owners over the renovation proposal", saying that there are effectively only 9 individuals who control the ownership of the twelve lots (Mr Hollis controlling the three companies which own Lots 7, 8 and 10; and Ms Meixner controls the companies which own Lots 1 and 2) and 6 of the 9 owners support all the renovation motions.

Putting aside for the moment that both of the multiple owners have voting rights in respect of each of their lots as determined by parliament and fixed in legislation, even were votes to be counted on the basis of ownership and not lots the opposing vote of 3 owners would still be sufficient to prevent a special resolution from passing (3 being greater than 25% of 9, the dissenters being Spottiswood, Dawes and Hollis). And the determining factor in renovations, where the work is beyond mere repairs, is not whether ordinary resolutions can be obtained, but special resolutions.