Sailfish Point [2005] QBCCMCmr 224 (22 April 2005)

Last Updated: 5 July 2005

REFERENCE: 0198-2005

INTERIM ORDER OF AN ADJUDICATOR

MADE UNDER PART 9 OF CHAPTER 6

BODY CORPORATE AND COMMUNITY MANAGEMENT ACT 1997

Number of Scheme:	20973
Name of Scheme:	Sailfish Point
Address of Scheme:	300 Cottesloe Drive MERMAID WATERS QLD 4218

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

Craig Leishman and Michael Knowles as trustees, the Owner(s) of lot 33

I hereby order that, pending a final determination, the body corporate is not to implement the resolution passed at the annual general meeting of 25 February 2005 that purports to authorise entry into a new management and letting agreement with KO International Pty Ltd on behalf of the body corporate. I further order that, within 7 days, the body corporate must send a copy of this interim order and reasons for decision to all owners.

STATEMENT OF ADJUDICATOR’S REASONS FOR DECISION - REF 0198-2005

"Sailfish Point" CTS 20973

Application

Sailfish Point Community Titles Scheme (Sailfish Point) is a 99 lot scheme under the Body Corporate and Community Management Act (Act) and the Act’s Accommodation Module Regulation (Accommodation Module). The scheme is designed for residential purposes.

This is an application for interim and final orders. The application is by Michael Knowles and Craig Leishman as trustees of the MB Knowles Family Trust, owners of lot 33 (applicants) seeking orders against the body corporate for Sailfish Point (respondent). The applicants seek to overturn a resolution passed at the annual general meeting of 25 February 2005 that the body corporate enter into a new caretaking and letting agreement with KO International Pty Ltd (KO) for a term, with options, totalling 20 years.

Background

At the annual general meeting of 25 February 2005, owners voted 36 in favour and 19 against a proposal that the body corporate enter into a new caretaking and letting agreement with KO.

The applicants’ submit that, in November 2001, KO purchased the remaining term of a three year management rights agreement that had been entered into by the body corporate in June 2000. This agreement contained two options to renew for a further three years. The applicants make submissions to the effect that KO has exercised only one of these options and that KO retains the right to exercise a further option to extend the agreement until June 2009.

However, the secret ballot paper proposing the new management rights agreement contained an explanatory note that stated:

Your manager, Kerry O’Callaghan, has been the manager of the complex for over 3 years now. Your Committee believes that he has given good value and loyal service to owners during that time and it is obvious to any visitors or residents in the complex that the standard of the complex is now a lot higher than what it was at the time he took over as Manager.
Your Manager has recently exercised his last option to extend the term of his Management and Letting Agreement for another 3 years and therefore to ensure long term security of management for the complex requests that owners enter into the new Caretaking and Letting Agreement referred to the motion above.

The Agreement is very similar to the current Agreement, except it is for a term of 5 years with 3 x 5 year options which is for a total term less than the 25 years allowable under the Accommodation Module. There are no other alterations of any substance to the Agreement except that the clause giving the Caretaker the right to mortgage the Agreement has been removed as this is now not necessary because of the amendments to the Body Corporate & Community Management Act last year. In particular the Manager’s remuneration under the Agreement has not altered nor has there been any reduction in the Manager’s duties under the Agreement.

This voting paper contained a further note from the committee stating "Your Committee supports this motion".

Submissions by Kerry O’Callaghan on behalf of KO were to the effect that the applicant and another owner were conducting a vendetta against him because they both have unauthorised structures built on the common property and the body corporate is taking action against them. He says that his solicitors prepared the explanatory note for the motion on his behalf and made an error in stating that he had exercised his last option. However, he says that this was a mistake not noticed by him or the body corporate and would not have influenced anybody’s vote. Kerry O’Callaghan says that he has no intention of leaving Sailfish Point or putting his management rights on the market but he is concerned with protecting his long term financial future. He says that he is looking to stay on until retirement rather than start again in another complex but with only a few years left on his agreement he will either have to extend the agreement or look at selling now to leave sufficient time for the new manager to make an impression.

The applicants’ submissions are to the effect that:

• The voting on this motion was prejudiced by misleading statements in the recommendations prepared by the committee;
• The body corporate has not acted in the best interest of all owners; and
• Votes were not placed in a receptacle in open view of the meeting as required by the legislation.

Submissions on behalf of the committee were to the effect that:

• Lot owners provided a mandate for entering into the new agreement with 36 votes in favour and only 19 against;
• The explanatory note was in fact submitted by the caretaker. It is conceded that the motion failed to specify who submitted the motion. It is also conceded that the current agreement does have a further three year option but this was an honest administrative error rather than a deliberate ploy to influence votes;
• The returning officer did leave the room with the unopened secret ballot envelopes but this was only because there was no room in the meeting room for the returning officer to reasonably carry out the count. No objection was raised and the count was undertaken in a fair, reasonable, and professional manner.

Two other owners have provided submissions to the effect that the entry into a new management rights agreement should be restrained if the secret ballot was not conducted correctly.

Decision

Urgent interim relief

An interim order will not be granted unless is it necessary due to the nature or urgency of the circumstances to which the application relates (Act, 279). Further, any orders granted must be just and equitable in the circumstances (Act, 276).

The applicant is seeking an interim order to stop the body corporate entering into a new management rights agreement with KO for, at KOs option, a period of up to 20 years. To assist me in determining whether it is just and equitable to grant relief at this stage, before full and final consideration of all the issues raised, I consider it relevant for me to briefly consider whether the application raises any serious legal question.

If the application raises a serious legal question then it may be appropriate to preserve the existing state of affairs pending the final determination. It is relevant to consider whether the likely inconvenience should no interim order be granted outweighs any inconvenience likely to result from the interim order. In particular, it is relevant to consider whether an interim order is necessary to prevent something occurring that cannot be adequately redressed by final orders.

Serious legal question

Concern expressed by the applicants

The applicants claim that the body corporate has not acted in the best interests of owners. It is not entirely clear from the applicants’ submissions regarding whether they oppose the new 20 year agreement based on a concern that:

1. The owners may become dissatisfied with the performance of KO but still be tied to the agreement for 20 years because there are only limited circumstances in which the body corporate can terminate the management rights or force the holder of the management rights to sell those rights; or
2. The owners may not get any benefit from the agreement because the KO may sell its management rights within a short period of time.

In the first respect, twenty-five years is the maximum term for a management rights agreement for a hotel or a scheme that is predominately lots used for long or short term letting (Accommodation Module 79, 80). The proposed agreement with options of up to 20 years is within this maximum term and would be binding on the body corporate for that period subject to the circumstances in which the body corporate can terminate those rights or force a sale of those rights (Accommodation Module 84, Act 136).

In the second respect, the present agreement gives KO an option to extend operation of the agreement to June 2009. Obviously, the grant of a new agreement on the same terms but for a period of 20 years would give KO a much more valuable asset to sell. There are limitations on the body corporate withholding approval to any sale the new management rights by KO or any amount of the sale price that the body corporate can require KO to provide to the body corporate (Accommodation Module 82, 83). Further, since 13 July 1997, the legislation has prohibited a body corporate from seeking any payment or special benefit from the caretaker for the grant of the letting and caretaking rights to that person (Act, 113-115).^[1] Therefore, the body corporate cannot ask KO for any payment for granting the new 20 year term. When contemplating a renewal or extension of management rights a body corporate can only seek to negotiate terms or costings that are more favourable to owners, presumably on the basis that any person obtaining management rights free of charge should be able to provide services more cheaply than someone who needs to recover the costs of purchasing the management rights.

In any event, the majority of owners obviously consider the new agreement to be in the best interests of the body corporate and this vote should not be overturned lightly. Therefore, it is important to consider whether the applicants have raised any serious legal question requiring determination in order to justify grant of the interim order sought.

Misleading information

The material provided with the submissions indicates that the applicants believe owners may have been misled because:

• The explanatory note appears to have been written by the committee but it was actually written and submitted on behalf of KO;
• The explanatory note implies that less than three years remain under the present management rights agreement but KO actually has a further option to extend the current agreement until June 2009;
• The explanatory note says that the agreement is necessary to ensure long term security of management for the complex but the agreement does not actually guarantee that KO will stay for the next 20 years because KO can sell the management rights at any time.

Based on the above, there does appear to be a serious legal question about whether the explanatory statement is misleading. Kerry O’Callaghan has submitted that he has no intention of leaving Sailfish Point and would like to stay at the scheme until retirement rather than start again in another complex. He also submits that the explanatory statement was prepared by his lawyers and was not intended to be misleading. This may be the case and owners may be satisfied with this. Owners have voted in favour of the motion and I would not overturn this vote lightly. However, if a significant number of owners do make submissions to the effect that they were mislead by this explanatory statement and would have voted against the motion if they had been aware of the true situation then there would be a strong basis for declaring the resolution invalid.

The relevant provisions of the legislation in this regard are that:

• The voting paper should not include any explanatory note but merely state whether an explanatory note for the motion is included in the explanatory schedule (Accommodation Module, 40A);
• A separate explanatory schedule must accompany the voting paper and must state only the number assigned to the motion, the explanatory note of up to 300 words provided by the person submitting the motion, and the name of the person submitting the motion (Accommodation Module, 40C);
• The only other explanatory material that can accompany the voting paper is explanatory material provided by the committee but this material must be in a third document separate from the voting paper or explanatory schedule (Accommodation Module, 40C(7));

These provisions prevent committees including statements like "Your committee supports this motion" on the voting paper. They assist owners to identify who is providing the explanatory material and make up their own minds about the benefits or otherwise of motion that had been put forward. In particular, this amendment was described as being designed to prevent the committee being placed in the unfair position of being able to manipulate the meeting material to seek to influence the way in which owners vote.^[2]

Non-compliance with the legislation of an insubstantial nature should not be allowed to imperil the actions of bodies corporate or their committees, particularly in the instance of committees where actions are taken in good faith.^[3] However, the applicants have at least raised a serious question regarding whether owners were mislead or manipulated by the material provided or by recommendations being placed on the voting paper itself rather than in separate schedules of explanatory material. If a significant number of owners provide statements to the effect that they were mislead or manipulated then that may be a basis upon which it is just and equitable in all the circumstances that an adjudicator declare the resolution void (Act, 276). Of course, this would not mean that the body corporate manager could not again propose a new agreement and seek the support of owners that the body corporate enter into that agreement.

Secret ballot

The respondent has conceded that the secret ballot was not conducted in open view of the meeting as required by the legislation (Accommodation Module, 51A). However, the respondent submits that the returning officer only performed the count in a separate room because there was insufficient room at the meeting and that no one objected to the returning officer leaving the room. A statement from the returning officer is provided in which the returning officer declares their independence and states that no owner or any other person interfered with the process of opening and counting the votes.

This failure to comply with the legislation may not, in itself, be sufficient to justify declaring the resolution void. However, owners should be given an opportunity to provide evidence that the vote may not have been accurate. In any event, there is a serious legal question to be determined.

Inconvenience from an interim order

In considering whether to grant the interim order sought, it is relevant to balance the inconvenience caused by an interim order against inconvenience caused by waiting until a final determination to grant any necessary orders.

It appears from the submissions that the committee had not executed the new agreement on behalf of the body corporate prior to the present dispute arising. Given this, it may be very unlikely that KO could enforce the agreement against the body corporate unless a final determination accepts the validity of the resolution. However, for the avoidance of doubt it appears preferable that the committee do not formally execute the agreement for the time being. I will therefore make an interim order that the resolution not be implemented pending a final determination of the validity of the resolution.

I will not make a general order prohibiting the body corporate from entering into a new management rights agreement with KO. This will allow KO to seek the calling of another extraordinary meeting at which it could propose entry into a new contract with the vote to be conducted in a manner that avoids the objections raised by the applicants.

Order

For these reasons, I make the interim order above.

The application will be allowed to proceed to submissions and a final determination in the normal course.

^[1] Prior to 4 March 2003, sections 102-104 of the Act.
^[2] Explanatory Notes, Body Corporate and Community Management Legislation Amendment Regulation (No. 1) 2003, page 43, 44.
^[3] Wei-Xin Chen v Body Corporate for Wishart Village CTS 19482, Appeal 4080 of 2000, District Court Brisbane, 29 May 2001.