Focus [2005] QBCCMCmr 248 (10 May 2005)

Last Updated: 5 July 2005

REFERENCE: 0125-2005

ORDER OF AN ADJUDICATOR

MADE UNDER PART 9 OF CHAPTER 6

BODY CORPORATE AND COMMUNITY MANAGEMENT ACT 1997

Number of Scheme:	12996
Name of Scheme:	Focus
Address of Scheme:	114 The Esplanade, SURFERS PARADISE Q 4217

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

Mr David and Mrs Margaret Linnett, the former Owners of lot 26.

I hereby order that the application for the following orders of an adjudicator: 1. A direction to remove an alleged unsubstantiated civil debt from the levy notice and the disclosure statement. 2. A direction to the body corporate to issue a new Levy Notice and Disclosure Statement without these "alleged civil debts" is dismissed pursuant to section 270(1)(b) of the Body Corporate and Community Management Act 1997 on the grounds that that this is an appropriate case for determination by a court of competent jurisdiction.

STATEMENT OF ADJUDICATOR’S REASONS FOR DECISION - REF 0125-2005

"Focus" CTS 12996

Application

By application received by this Office on 21 February 2005, the applicants, Mr and Mrs Linnett, the then owners of lot 26, sought the following interim orders of an adjudicator:

1. A direction to remove an alleged unsubstantiated civil debt from the levy notice and the disclosure statement.

2. A direction to the body corporate to issue a new Levy Notice and Disclosure Statement without these "alleged civil debts".

The scheme

"Focus" is a subdivision of 125 lots registered as a building unit plan (now known as a building format plan). The regulation module applying to the scheme is the Accommodation Module.

Jurisdiction

Section 227(1)(b) of the Body Corporate and Community Management Act 1997 provides that a dispute between an owner or occupier of a lot and the body corporate, is a dispute which may be resolved under the dispute resolution provisions 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-

(a) a claimed or anticipated contravention of the Act or the community management statement; or

(b) the exercise of rights or powers, or the performance of duties, under the Act or the community management statement; or

(c) a claimed or anticipated contractual matter about-

(i) the engagement of a person as a body corporate manager or service contractor for a community titles scheme; or

(ii) the authorisation of a person as a letting agent for a community titles scheme.

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

Background

During the 1970’s the developer of this complex sold the "management rights" on the open market but owing to subsequent dissatisfaction with two manager/ caretakers, the body corporate established a unit trust with a corporate trustee, Focus Owners Ltd. (FOL) for the purposes of purchasing the management rights for the Focus building. This was funded by obtaining a contribution of $2,000 from each lot owner. Since that time, FOL has employed staff to attend to the letting business and common property maintenance.

In order to comply with requirements that a manager/ letting agent live on site, FOL has either owned or permanently rented a unit for a resident manager. Until the year 2000, unit 31 was owned by FOL and was used to provide accommodation to the resident manager employed by FOL. I am advised that pursuant to an agreement between FOL and the Body Corporate, the Body Corporate was invoiced for half of the rent payable for unit 31. In 2001 unit 31 was sold in order to reduce the indebtedness of FOL.
After the disposal of unit 31, the applicants’ unit was rented by FOL to accommodate the resident manager and again, a half share of the rent was paid by the Body Corporate.

It is evident from minutes of a meeting of the Body Corporate Committee, held on 10July 2004, that the Body Corporate Committee has been investigating allegations of unauthorised expenditure of Body Corporate funds. It is alleged that an audit of Body Corporate accounts prior to the meeting of 10 July 2004, revealed "various unauthorised payments for excessive travel by (one of the applicants) and increased rental payments for the former manager’s accommodation". The minutes refer to alleged unauthorised payments of $12,246 for travel expenses claimed by the applicant to attend to body corporate business during his time as chairman of the Body Corporate. It is further claimed that these payments were used to offset levies payable by the applicant.

The minutes also contain the allegation that the Body Corporate’s agreement to pay for the manager’s accommodation in unit 26 on a 50/50 basis involved a weekly increase in rental payments of $245 per week without Body Corporate approval. According to the Minutes, the alleged unauthorised increase in rental payments to the owners of unit 26 is approximately $15,388.

The following resolutions were made at this meeting of the Committee:

•	that unauthorised travel amounting to $12,246.15 be added to the lot statement for Lot 26 to be reimbursed by the owners on the sale of the unit.
•	All unauthorised payments by the body corporate or FOL be determined and such payments be refunded to the Body Corporate or FOL and an account rendered to the owners of lot 26.
•	All unauthorised body corporate payments by the body corporate or FOL be determined and such payments be refunded to the Body Corporate or FOL and an account rendered to the owners of Lot 26.

A Notice of Contributions/ Tax Invoice 12996/1776 dated 21 December 2004 was subsequently issued to the owners of lot 26 advising that the arrears/ pre-payments owing by them to the Body Corporate for Focus was $68,730.01 although this amount was subsequently increased to $69,732.87.

Earlier this year the applicants signed a contract for the sale of unit 26 for which the settlement date is 3 March 2005. In response to the purchaser’s request, the Body Corporate issued a Body Corporate Information Certificate on 18 February 2005, stating in the Summary of Amounts Due but Unpaid that the following amounts remain unpaid:

Annual Contributions $4,585.26
Special Contributions $13.20
Other Payments $66,019.61
Penalties $136.20

Total Amount Overdue $70,754.27

The owners of Lot 26 subsequently advised the body corporate that:

•	The alleged debt relates to a personal/ civil dispute between them and the Body Corporate and / or FOL;
•	As a civil/ personal dispute, it does not involve a levy or charge and should not therefore be included in any Levies Notices and/or Disclosure Statements; and
•	All references to the alleged debt must therefore be removed from all Levies Notices and/ or Disclosure Statements issued in regard to Lot 26.

As agreement could not be reached between the parties, a dispute resolution application was submitted with this Office on 21 February 2005. On 2 March 2005 I made an interim determination in which I declined to make the orders sought by the applicants. I did so on the grounds that the

matters in dispute were not capable of expeditious and objective consideration. I further found that an effective resolution of the application required further investigation, particularly by allowing affected parties to make written submissions about the application.

The urgency of the application was substantially diminished by a pre-settlement agreement between the parties whereby the disputed funds would be held in trust on settlement of the applicants’ property on 3 March 2005 pending determination of the substantive dispute by an order of the Office of the Commissioner for Body Corporate and Community Management or the District Court.

The Body Corporate Information Certificate issued pursuant to 205(4) of the Act and Notice of Contributions each refer to an outstanding amount of $68,730.01. On the face of the application and material provided in support, it is clear that the amount of $68,730 does not consist wholly of levies or charges. On the other hand however, it has been alleged that the unauthorised payments were used to offset levies payable by the applicant and consequently the amount of levies and charges owing to the body corporate may be higher than what the applicants claim to be owing.

Submissions

On 22 February this Office sought an urgent submission from the respondent Body Corporate.
HW Litigation, Solicitors for the Body Corporate opposed the making of an interim order because:

•	The purchaser had agreed to settle the contract on 3 March on the basis that the disputed amount will be held on trust pending an order by the Office of the Commissioner for Body Corporate and Community Management. As the funds will be held in trust, the applicants’ position would be protected.
•	the extensive and voluminous accounting and financial records which would need to be considered in detail in order to respond to the application;
•	In the time available, the body corporate did not have an opportunity to prepare a detailed submission responding to the application; and
•	the monies in dispute form the subject of a ongoing police investigation following a complaint by the Body Corporate in October 2004.

A further submission dated 6 April 2005 was received from Bellborough Pty. Ltd. (trading as PBCM) the Body Corporate Manager and advised:

•	Bellborough Pty. Ltd. (which has acted as Body Corporate Manager since 2001) has never held the cheque books. All cheques were drawn by Messrs Linnett and Spencer with Bellborough Pty. Ltd. subsequently writing up the accounting records;
•	The affairs of the Body Corporate are closely intermingled with the affairs of Focus Owners Limited (FOL) as the Body Corporate was continually funding FOL and subsequently being reimbursed. As at 6 April FOL owed the Body Corporate in excess of $90,000;
•	The Committee is aware that in normal circumstances, "lot statements" cannot be used to withhold funds from owners but claims exceptional circumstances exist in this case involving numerous questionable transactions undertaken without Committee approval;
•	The applicant was advised of the outstanding amounts on 28 June 2004 and therefore had ample time to meet with the Body Corporate with a view to resolve this matter before he entered into a contract to sell the unit;
•	The applicants have not provided an explanation of the purposes for which various cheques were drawn;
•	The applicants declined to act on advice that they were required to obtain the approval of a general meeting for reimbursement of expenses on the basis that there was a standing approval issued at an AGM in 1979;
•	The Body corporate is seeking compensation for "malpractice" and losses brought about by breach of trust.

Annexed to the submission is a report from WHK Cressey Lynch, who are auditing the accounts of FOL, in which the Body Corporate has been advised as follows:

•	Several transactions authorised by Messrs Linnett and Spencer were unable to be substantiated in any manner.
•	Year end journals authorised by the prior chairman are yet to be explained.
•	There are unexplained movements in funds between the Body Corporate and Focus Owners Unit trust.
•	Invoiced amounts owed of $68,189.25 remain unpaid by the prior chairman.

In reply the applicants have advised as follows:

•	Bellborough Pty. Ltd. has not been involved in the management of FOL and therefore is not in a position to comment on matters relating to FOL.
•	All quotes and expenditure were considered and approved by the Committee;
•	Several Directors of FOL were also members of the Body Corporate Committee and had (deliberately or otherwise) intermingled the affairs of the two;
•	As Manager of the complex, FOL had overall responsibility for maintaining the complex and the Body Corporate advanced funds to FOL for outlays which included:-
-	resident manager’s salary;
-	a half share of the rental payable for the manager’s accommodation;
-	resident manager’s office space;
-	reception salaries; and
-	costs of telephone, photocopying and secretarial work.

The applicants submit that no one seems to know whether this expenditure was brought to account.

•	The applicants reject the allegation that they have acted in breach of trust and submit that the respondent has not been able to provide particulars of the alleged debt of $68,730.01.
•	Having regard to the fact that the dispute involves the Body Corporate, FOL and the applicants, it is submitted that this is not a dispute within the meaning of section 227 of the Act and consequently the Office of the Commissioner for Body Corporate & Community Management does not have jurisdiction to adjudicate upon the matter.
•	If the Office of the Commissioner for Body Corporate & Community Management does have jurisdiction (which is denied) the allegation that certain matters have been referred to the Queensland Police Service would be highly prejudicial to any adjudication by the Office;
•	The respondents have not complied with the rules of natural justice as the applicants have not been afforded an opportunity to respond to the allegations against them.
•	The adjudicator has no alternative other than to order the release of $69,732.87 held in the trust account of HW litigation.

Determination

The applicants initially sought the following interim orders:

1. A direction to remove an alleged unsubstantiated civil debt from the levy notice and the disclosure statement.

2. A direction to the body corporate to issue a new Levy Notice and Disclosure Statement without these "alleged civil debts".

On 2 March 2005 I declined to make the above orders on the grounds that the matters in dispute were not capable of expeditious consideration and that an effective resolution of the application required further information, particularly by allowing affected parties to make written submissions about the application.


After further consideration of this matter, I am of the view that this is an appropriate case for determination by a court of competent jurisdiction pursuant to section 270(1)(b) of the Act.
The body corporate is seeking an order that the respondent pay the body corporate $69,732.87 in reimbursement for unauthorised payments allegedly received by the applicants. Notwithstanding the receipt of further submissions from the parties to the dispute, at this point in time it is impossible to determine the applicants’ indebtedness to the Body Corporate with any certainty. As the applicant has pointed out, this Office is not a Court or Tribunal and the dispute resolution mechanisms provided for under chapter 6 of the Act are simply not appropriate for resolution of this type of dispute.

The examples of adjudicator’s orders in Schedule 5 of the Act do not include orders regarding recovery of alleged unauthorised payments. This case is further complicated by allegations involving an employee of FOL and allegations involving breach of trust and other fiduciary duties by the applicants. Such disputes are typically within the jurisdiction of the courts. Accordingly, I propose to dismiss this application as a matter which should be considered by a court of competent jurisdiction. Further, as the settlement has now been completed, albeit subject to the payment of disputed funds into a trust account, there is little point in ordering the issue of a Levy Notice and Disclosure Statement.

As noted above, the urgency of the application for an interim order was substantially diminished by a pre-settlement agreement between the parties whereby it was agreed that the disputed funds would be held in trust pending determination of the substantive dispute by an order of this Office or by the District Court.

I consider it appropriate that this dispute should be resolved by the District Court unless the parties are able to otherwise reach some form of settlement between them. Further, I do not propose to make an order regarding the return of the $69,732.87 held in the trust account of HW litigation, as I believe that the terms of the agreement require this money to remain in trust until the substantive matters are resolved.