Palm Beach North [2005] QBCCMCmr 301 (3 June 2005)

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

I hereby order that the application for an order that all financial records of the body corporate be independently audited within 30 days, is dismissed.

I further order that the application for an order that the body corporate not hold any general meetings or any committee meetings until the unallocated levy payments have been identified, is dismissed.

I further order that the body corporate manager shall not make any payments from the body corporate account unless authorised to do so by the body corporate committee.

I further order that this interim order shall have effect for a period of 12 months or until a final order is made determining this application, whichever is the sooner.

I further order that a copy of this order and the accompanying statement of reasons for decision shall be distributed by the secretary to all owners within 14 days of the date of the order.

STATEMENT OF ADJUDICATOR’S REASONS FOR DECISION - REF 0316-2005

"Palm Beach North" CTS 31739

ORDER SOUGHT

The applicant, John William Reid, has sought an order of an adjudicator under the Body Corporate and Community Management Act 1997 (the Act) as follows:

The applicant also sought interim orders of an adjudicator in similar terms.

JURISDICTION

The application evidences a dispute between an owner of a lot included in a community titles scheme and the body corporate for the scheme (section 227(1)(b) 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

(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)).

SCHEME DETAILS

Palm Beach North was registered in a building format plan on 16 September 2003. The scheme comprises 28 lots and common property and is regulated by the Body Corporate and Community Management (Accommodation Module) Regulation 1997 (Accommodation Module).

BACKGROUND

The applicant’s principal concern is that the levies paid by owners through BPay into the body corporate bank account cannot be identified and allocated to the particular owners who have paid them. The applicant explained that as a result of this failure in the accounting system established by the body corporate manager, Body Corporate Administration (BCA), many owners have been advised that they are in arrears with their levies when they are not, and other owners have not been properly identified as being in arrears when they are.

To highlight the problem, the applicant attached a copy of a letter written by the body corporate manager to all owners on 27 April 2005, which stated:

"Please find attached levy notice for the period commencing 01/06/05. We are currently in the process of tracing deposits to the CBA bank account (sic) the body corporate. If you believe you have paid your arrears, please either ignore the arrears amount or contact us with receipt details so that we may allocate your payment."

The applicant described such a communication as "bordering on farce".

The applicant also expressed concern that owners would be disadvantaged if meetings were to be held, as they might incorrectly be identified as being unfinancial and thereby lose their voting rights. He stated that it is not acceptable for the body corporate to continue to operate whilst ignoring the legislation (the provision of an accurate statement of owners’ levy payments).

The applicant also sought an order that the body corporate be prevented from holding any committee or general meetings until the position in relation to payment of levies had been correctly established.

The applicant also claimed that the body corporate manager has made unauthorised payments to itself. In addition the applicant claimed that the body corporate operates only one bank account, so that payments on account of the administrative fund and the sinking fund are paid into that account, with no ability to properly identify the balance of each fund.

The body corporate committee and the body corporate manager were invited to respond to the application in relation to the interim order. An invitation was not issued to all owners at this stage.

Submissions were received from the body corporate manager and from the chairperson.

The chairperson was in favour of an auditor being appointed, and also in favour of no more meetings being held until an accurate status of levies is known. The chairperson also explained the steps that the committee had taken to establish the source of the unidentified BPay payments, but stated that the bank would only identify the bank from which the payments came and would not identify the account holder because of privacy considerations. The chairperson concluded that identifying who made each BPay deposit was not possible based on the bank statements alone.

The body corporate manager addressed a number of issues, several of which were not the subject of orders sought by the applicant (validation of the annual general meeting held on 6 January 2005, disclosure statements and continuance of body corporate management).

In relation to the allocation of levy payments, the body corporate manager stated:

"Like most other body corporate companies we have little or no difficulty in recognising payments made by owners and then allocating levies. There is a standard practice for the body corporate companies using the BCMax System, but it does require the company to have full and easy access to the bank. Subsequent to the 31/08/04 and while this company was not in charge of the bank accounts our problems in allocating the unmarked levy payments increased."
...

"Unfortunately it does take some time to ascertain who has made the payment and our problems are further exacerbated by the fact that the committee has informed the bank that we are not to receive any information. However from time to time no doubt to the volume of payments made to the many accounts with the CBA Burleigh Heads we receive co-operation which enables us to locate some levy payments."

"In an attempt to circumvent this contact with the bank we have found it necessary to contact individual owners. Now after all this time we have received the bank statements, which we believe should have been available to us at all times, we are attempting to make more progress."

"It is obvious that Mr Reid who was a member of the previous committee and a close associate of the chairman, Mr Sal Mazzarino, acting as his spokesman on many occasions, is not aware or does not wish to be aware of the problems associated with tracing the unallocated deposits."

The body corporate manager did not deny that there is only one bank account for the administrative and sinking funds.

DETERMINATION

The inability of the body corporate, through the body corporate manager, to properly identify monies that have been paid through the BPay system established by the body corporate manager is obviously a matter of significant concern. I do not accept the body corporate manager’s assertion that this task has been complicated as a result of the body corporate committee requesting that bank statements not be provided to the body corporate manager.

The evidence is quite clear. Even if the body corporate manager had had the bank statements, the BPay payments would not have been able to be allocated to a particular lot owner’s account because they were not individually coded so as to identify the lot owner making the payment. It is hard to imagine a more damaging deficiency in such a payment system.

The body corporate manager has not denied the applicant’s assertion that the BPay system was set up by the body corporate manager in February 2004. It goes without saying that a payment system which does not allow for the identification of individuals making payments is completely useless. The body corporate is entitled to expect better from its paid professional adviser, the body corporate manager.

It appears that there are two possible methods of now identifying the payments. The first method is for owners to provide whatever documentary evidence they have of the payments such as copies of their own bank statements or a copy of any receipts they printed out at the time the payment was made (assuming it was done electronically and not by telephone banking). The second method is for owners to provide a waiver to the body corporate’s bank in relation to privacy issues to allow the bank to disclose to the body corporate the names of the accounts from which the unidentified payments have been made.

I do not consider that the appointment of an independent auditor would resolve the situation any more satisfactorily. Firstly, the auditor would also have no way of identifying the payments without the co-operation of owners. Secondly, the auditor’s fees would be based upon the time spent in obtaining the information, which might be considerable. I have of course noted the applicant’s request that such fees be paid by the body corporate manager.

Furthermore, it appears that the body corporate resolved at its (late) 2004 annual general meeting held on 6 January 2005 to have the body corporate accounts audited after the end of the financial year on 31 August. As that is only a matter of 3 months away, it would, in my view, be an unnecessary drain on body corporate funds to have an audit conducted at this stage. However, this option will be available to me in my final determination, depending on the information provided after submissions have been received from all owners in relation to the final orders.

For the moment I consider that all owners should be advised immediately of the problem with the BPay system, and requested to provide relevant documentation or a waiver as described above to enable the body corporate to allocate the payments which have already been made. I cannot order owners to provide this information, but obviously it is in their best interests to do so without delay.

Owners should also be advised of the ramifications of the present problem in relation to their voting rights.

As far as the allegedly unauthorised payments by the body corporate manager are concerned, I note the email from the chairperson to the body corporate manager on 30 April 2005 demanding that self-authorised transfers from the body corporate account were to cease immediately. The chairperson listed five such transfers over a five month period. The body corporate manager did not comment on this allegation in his submission. I have not been advised whether any more transfers have been made since that email was sent.

The validity of these payments will have to be examined in detail in the final order. It is not appropriate to deal with such matters in an interim order. It is appropriate however to make an interim order that the body corporate manager shall not make any further payments from the body corporate account without being authorised to do so by the body corporate committee.

I turn now to the applicant’s concern that the body corporate does not currently have separate accounts for the administrative fund and the sinking fund.

Section 98(1) of the Accommodation Module provides that the body corporate must establish and keep an administrative fund and a sinking fund. However, section 98(5) provides that all amounts received by the body corporate for the credit of the administrative fund or sinking fund must be paid into 1 or more accounts kept solely in the name of the body corporate at a financial institution. Clearly the body corporate must be able to identify how much is in each fund at any given time, but if records are properly kept that amount should be able to be identified, even if there is only one account.

Needless to say, the body corporate is unable to identify the balances in each account at the moment because of the unallocated levy payments. Once those amounts have been clarified, the books should disclose the respective balances. If the body corporate should choose to open separate accounts for each fund in the future then it may also do that too.

I have also considered whether the body corporate should be prevented from holding any meetings until the unallocated levies have been identified.

If a general meeting were to be called, any owner who had paid levies through the BPay system as it currently stands might be deemed ineligible to vote on the basis of being unfinancial (depending on the type of motion involved). Such a situation would certainly disadvantage the owner/s concerned, and would also deprive the body corporate of a fully representational vote on whatever matters were under consideration. However, the possibility that owners might be disenfranchised could be a useful incentive to them to co-operate with the committee in identifying the unallocated levies as speedily as possible.

Furthermore, apart from a requested extraordinary general meeting, the only way a general meeting will be called is if the committee decides to do so. No doubt the committee would want the levy payments clarified before calling a general meeting, so I regard that as a sufficient safeguard for the time being.

I consider that an order preventing the body corporate from calling a general meeting would be an unnecessary restriction on its ability to manage its own affairs.

There is no impediment to a committee meeting being called and held, as committee members do not have to be financial to vote at a committee meeting. The only requirement in relation to financial standing concerning the committee is in relation to nominations and elections (sections 11(3), 23D(2)(a) and 23E(4)(b) of the Accommodation Module).

I therefore do not intend to hamper the administration of the body corporate by preventing committee meetings from being held. Quite apart from anything else, the committee will need to be able to meet to formulate the strategy by which the unallocated levy payments are to be identified.

This matter will now be fully investigated in accordance with the usual processes of this office. Amongst other things, submissions will be sought from all owners. In that regard, it should be noted that submissions for the interim order were only invited from the body corporate committee and the body corporate manager. The applicant was advised of this by letter dated 12 May 2005. For some reason the applicant appears to think that the application was supposed to be circulated to all owners at that stage. That is not correct.

However, I note that some concern has been expressed by the applicant over whether the body corporate manager would circulate the application to all owners. I also note from the body corporate manager’s letter dated 23 May 2005 to the Commissioner that the body corporate manager was concerned that the body corporate might not approve payment to the body corporate manager for distributing the application if the committee had not first approved such distribution. These are matters the body corporate committee and the body corporate manager must sort out for themselves. Suffice to say if the body corporate committee is concerned about the costs involved in the distribution of the application for submissions on the final order, then the committee can distribute the application itself. All that is required from this office’s perspective is evidence that all owners have been provided with a copy of the application, the submission letter and the submission cover sheet within two working days of receipt of that material.

There has also been considerable comment in the supporting grounds and in the chairperson’s submission about the unsatisfactory working relationship between the body corporate and the body corporate manager. These are matters which cannot be resolved by orders of this office.

If a body corporate engages a body corporate manager it is entitled to expect that the body corporate manager will perform the duties outlined in the agreement, and, amongst other things, provide advice on the requirements of the Act and the regulation module. I was concerned to read the chairperson’s submission that on some occasions when he has sought answers from the body corporate manager he has been told to read the Act and the regulations for himself. Whilst it is desirable for all committee members to have a working knowledge of the Act and the regulations, the engagement of a supposedly professional body corporate manager entitles a body corporate to expect that it will receive professional advice if it is sought.

However, if the body corporate believes that it is not receiving the service for which it is paying, then it should take appropriate steps to address the problem. In doing so it would be prudent to obtain independent legal advice as to the options available to it.

Number of Scheme:	31739
Name of Scheme:	Palm Beach North
Address of Scheme:	1444 Gold Coast Highway PALM BEACH QLD 4221

Queensland Body Corporate and Community Management Commissioner - Adjudicators Orders

Palm Beach North [2005] QBCCMCmr 301 (3 June 2005)