Isle of Palms Resort [2005] QBCCMCmr 385 (18 July 2005)

Last Updated: 19 July 2006

REFERENCE: 0493-2005

INTERIM ORDER OF AN ADJUDICATOR

MADE UNDER PART 9 OF CHAPTER 6

BODY CORPORATE AND COMMUNITY MANAGEMENT ACT 1997

Number of Scheme:	20860
Name of Scheme:	Isle of Palms Resort
Address of Scheme:	21 Coolgardie Street ELANORA QLD 4221

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

Joye Gooden, the Owner(s) of lot 109

I hereby order that the body corporate for Isle of Palms Resort must not implement resolution 6 of the extraordinary general meeting of 14 July 2005, proposing entry into new caretaking and letting agreements, pending a final determination of the validity or otherwise of that resolution. I further order that, within 21 days, the body corporate must distribute a copy of this order and reasons for decision to all owners. This is an interim order and will remain in effect for a period of not longer than six months. It is the responsibility of the applicants to apply to extend this order if no final determination has been made within that period. This order will automatically lapse upon a final order being made or this application being withdrawn.

STATEMENT OF ADJUDICATOR’S REASONS FOR DECISION - REF 0493-2005

"Isle of Palms Resort" CTS 20860

Interim Application

Isle of Palms Resort Community Titles Scheme (Isle of Palms) is a 174 lot scheme under the Body Corporate and Community Management Act (Act) and the Act’s Accommodation Module Regulation (Accommodation Module).

This is an application for interim orders. It arises out of an application by Joye Godden, owner of lot 109 (applicant) seeking orders against the body corporate for Isle of Palms (respondent).

Interim Orders Sought

The applicant seeks an interim order to stop the body corporate entering into new management rights agreements with Eastmond Enterprises Pty Ltd and Varindi Pty Ltd (caretakers).

By way of brief background:

1. The caretakers had purchased the management rights under a ten year term with an additional ten year option. The original ten year term expired in late 2004;
2. In 2004 the caretakers purported to exercise the option to require the body corporate to continue to grant them the management rights for the period from late 2004 to late 2014. However, a dispute arose between the body corporate and the caretakers regarding whether the caretakers were in breach of the management rights agreements and therefore not entitled to exercise the option;
3. At an annual general meeting on 21 March 2005 the caretakers proposed a motion that the body corporate enter into a new agreement with them for a period of ten years from 2004 to 2014 with an additional ten year option from 2014 to 2024. This motion was defeated;
4. In May 2005, a specialist adjudicator determined that the caretakers had validly exercised the option under the original agreement and made an order requiring the body corporate to enter into new management rights contracts for the period 2004 to 2014 pursuant to the option; and
5. On 14 July, owners voted to enter into agreements with the caretakers for a period of ten years from 2004 and for an additional ten years from 2014 to 2024 (at the caretakers’ option).

The applicant challenges the validity of this resolution on the basis that:

• Contrary to the legislation, the body corporate was required to consider a motion to extend the authorisation of the caretakers more than once in a financial year (Accommodation Module, 39(4)(c)).
• The information for the meeting was misleading to owners because it said the committee submitted the motion when it was in fact submitted by the caretakers. It also said that the specialist adjudicator has ordered a new agreement but the applicant believes this to be the caretakers’ current option.

The caretakers have provided submissions to the effect that:

• The agreement put forward in March was different from the agreement adopted in July;
• The motion in question proposed a new engagement rather than amending an existing engagement. It is therefore argued that section 39 of the Act does not apply to prevent this type of motion being put forward a number of times in one year; and
• There was nothing misleading in the explanatory note or in the motion mistakenly being listed as submitted by the committee.

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 challenging the validity of a resolution to enter into a new contract with the caretakers for a period of 10 years from 2004 with the caretakers having the right to extend the contract for another 10 years from 2014 to 2024. She is seeking an interim order to stop the body corporate signing this contract pending a final determination of the validity of the resolution. 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

The applicant’s submissions satisfy me that there are a number of serious legal questions that require consideration.

Firstly, a specialist adjudicator had ordered in May that the caretakers had validly exercised their option under the 1994 to 2004 contract and that the body corporate must execute a new contract with the caretakers for the period 2004 to 2014. Some questions therefore arise regarding whether the parties can simply ignore that order and enter directly into a new contract on the terms proposed and with an additional option from 2014 to 2024.

Secondly, as the proposed contract is not the new contract required by the specialist adjudicator but a different contract proposed by the caretakers, it is necessary to consider further whether it was misleading that the motion was listed as being submitted by the committee and that the explanatory note referred to the order of the specialist adjudicator.

Thirdly, the proposed contract is a new contract rather than a deed of variation of an existing contract. However, the entry into the new contract has the effect of amending the terms of the engagement and authorisation given to the caretakers as it incorporates new terms, one of which terminates the old agreements. It is therefore at least arguable that this was "a motion proposing that the engagement of a person as a service contractor, or the authorisation of a person as a letting agent, be amended" (Standard Module, 39(4)(c)). If so, the legislation prohibits a motion of that nature being put forward more than once a year.

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.

The caretakers have indicated that they are intending to sell their rights and that the grant of an additional term from 2014 to 2024 will facilitate this sale. Further, any increased price from the sale by the caretakers was said to benefit the body corporate as the body corporate can request between one and three percent of the purchase price as a transfer fee if management rights are sold within the first three years of a new contract.

On the other hand, allowing the body corporate to enter into the new contract now could mean that owners are bound by the terms of the new agreement from now until 2024. Given that serious questions about the validity of the motion and the vote have been raised before this office I consider it prudent to grant the interim order sought.

The caretakers made submissions to the effect that the management rights are in limbo at the moment and it was important the agreement be entered into. However, there is nothing to stop the caretakers enforcing the order of the specialist adjudicator and requiring the committee execute a new agreement according to that order. That would be a new agreement that gives effect to the exercise of the option and is for a period of ten years from 2004 to 2014 on the same terms as the previous agreement.

Further, once an agreement pursuant to the specialist adjudicator’s order is signed, there is nothing to stop the caretakers putting forward a request for a new agreement for owners to vote on in general meeting. The caretakers can take steps to avoid the concerns raised in this application. For example, a motion proposing termination of the existing arrangements could be proposed first and a separate motion proposing entry into a new agreement could then be put forward. This would make it clear that what is proposed is entry into a new agreement rather than an amendment of an existing engagement. I recognise that there are some risks in this approach if the caretakers cannot be confident of owners’ support for the new agreement. However, an alternative would be for the caretakers to arrange the proposed sale so that any new caretakers would have the responsibility to seek a new contract or any extension to a transferred contract. This alternative may deprive owners of the opportunity to require payment of a transfer fee but this would be balanced by the opportunity for owners to negotiate more favourable terms under any new management rights’ contracts.

I recognise that the grant of the interim order will cause some inconvenience to the caretakers. However, if the interim order is not granted then owners may be improperly deprived of the opportunity to negotiate new terms for management rights from 2014 onward. I will therefore grant the interim order as sought. Submissions will be sought and a final determination will be made regarding whether the resolution was valid. Alternatively, at any time, the caretakers can seek the support of the majority of owners for arrangements that are to the satisfaction of both the caretakers and the body corporate.

I note that there are some complications that may be able to be resolved by agreement between the caretakers and the body corporate rather than by adjudication. For this reason I would encourage discussion between the caretakers and interested owners. I will also order that a copy of this order and reasons for decision should be distributed to all owners. To minimise expense, the body corporate may wish to coordinate the sending of this material with the distribution of the application to all owners requesting submissions. However, no other extraneous material apart from material provided by this office should be sent with that notice seeking submissions.

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.