Focus [2005] QBCCMCmr 418 (2 August 2005)

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

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

I hereby order that the application for an interim order that

"the Committee of the Body Corporate do not vote on, pass or act upon any resolution",

is dismissed.

I further order that

the application for final orders remains outstanding. There will be an opportunity for persons likely to be affected by any final orders to provide submissions regarding the application for final orders in due course.

STATEMENT OF ADJUDICATOR’S REASONS FOR DECISION - REF 0507-2005

"Focus" CTS 12996

On 14th July 2005, Lindsay and Susan Ann Stewart, co-owners of Lot 6 (the Applicants) filed a dispute resolution application with the Commissioner for Body Corporate and Community Management under the Body Corporate and Community Management Act 1997 (the Act). The application was received by the Commissioner’s office on 19th July 2005.

In the original form of the application, the Applicants stated that they were seeking the following orders:

2. An order that:-

(a) the Committee of the Body Corporate be dismissed.
(b) an Administrator be appointed to conduct the affairs of the Body Corporate
for such period as determined by the Commissioner.
(c) an EGM be called at such time as determined by the Commissioner to elect
a new Committee for the Body Corporate.

With the following being interim orders:-
1. An order that the Committee of the Body Corporate be dismissed.

On 19th July 2005, a Senior Community Titles officer telephoned the applicant Lindsay Stewart (Mr Stewart) about the application. He advised Mr Stewart that items 1 and 2 of the interim orders sought in the application appeared to be final in nature, and as a result were not suitable for consideration by an adjudicator as interim orders. He sought grounds for an adjudicator to make an interim order in respect of item 3, for example, that the committee had acted in a certain way or were about to act in a certain way.

The Applicants responded to the request by fax on 20th July 2005 and provided a copy of the minutes of a Committee Meeting held on 20th January 2005 by fax on 22nd July 2005 (which document was already in the applicant’s material).

The application for interim orders was amended in respect of items 1 and 2 on 22nd July 2005. Item 3 remains which reflects the fact that the applicants have concerns over the legitimacy of the committee and until such time as a final order is made, the committee should not be permitted to continue to act as a committee, that is, it should be prevented from voting on, passing or acting upon any resolution.

JURISDICTION

"Focus" Community Titles Scheme 12996 is a scheme under the Body Corporate and Community Management Act 1997 (the Act) and the Body Corporate and Community Management (Accommodation Module) Regulation 1997 (the Accommodation Module).

There are125 lots and the buildings are created under a Building Unit Plan of subdivision.

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)).

The applicants claim that the committee is not properly elected in that persons currently on the committee are ineligible for election under "section 10" , (whereas with regard to the Accommodation Module, I believe they mean "section 11"), so that the Act (which includes the relevant regulation) has been contravened.

Section 247(3) of the Act allows the Commissioner to refer an application to an adjudicator for consideration for an interim order even though proper notice of the application has not been given to the body corporate or other affected persons, and despite the fact that parties to the application have not been given an opportunity to make a submission about the matters in dispute. It seems to me that the Act allows this process because applications for interim orders often relate to emergency or otherwise urgent circumstances, where it is simply impractical or impossible to allow a period for submissions prior to the consideration of the application for interim orders. It is also relevant that generally the purpose of an interim order is simply to maintain the "status quo" of a situation, and not finally to resolve the matters in dispute.

Section 279(1) of the Act allows an adjudicator to issue an interim order in response to an application "if satisfied, on reasonable grounds, that an interim order is necessary because of the nature or urgency of the circumstances to which the application relates." Read together with section 247(3), section 279(1) allows an adjudicator to issue an interim order without any reference to other parties to the dispute.

The Commissioner has referred the application to me under section 247 of the Act to consider whether an interim order is warranted due to the nature or urgency of the circumstances of the application.

Notwithstanding that the Act allows for interim orders to be issued without reference to other parties, I am of the view that when possible, it is preferable and more consistent with the principles of natural justice, to allow affected persons to make a submission about an application (even if the time allowed for submissions is necessarily brief) prior to the determination of an application for an interim order. I therefore sought submissions from the body corporate closing on 29th July 2005.

It is clear that the Applicants consider that their application for an interim order should be considered virtually immediately. Specifically, the Applicants have raised concerns that "over the past years" they have "seen the building be in disarray from a financial point of view, management point of view and simply as an investor in the building" which Mr Stewart says is the result of the committee’s mismanagement, although I was not advised whether the existing committee were re-elected and therefore whether the applicant holds the same committee members responsible for the financial plight of the scheme.

On 26th July 2005 at my request, Mr Stewart provided this office with a copy of the minutes of the meeting of the AGM of 29th November 2004.

At the AGM of 29th November 2004, it appears that Mr Robert Case as Secretary was returned unopposed; Ms Lorraine Bryant as Treasurer was returned unopposed; and that elections were held for the position of chairman and ordinary members. Mr Laurie Doorey was elected as chairman beating Steven Stojanovic by 10 votes; Ernie Hall, David DeMoor, Lex Bell and Michael Hearn were elected as ordinary members out of a field of 12 candidates. It appears from his resume that Mr Laurie Doorey has been active on the body corporate committee in one way or another for 5 years prior to his re-election as chairman in 2004; it appears from his resume that Ernie Hall was also previously on the committee from 2001.

Of the committee elected or returned in November 2004, four lot owners (Ms Bryant, Mr Doorey, Mr Hall and Mr De Moor) are also directors and on the committee of a company called Focus Owners Limited, (the company) which company is the licensee for providing caretaking services for the scheme by management agreement dated 12th October 1979.

The agreement provides for the body corporate to reimburse the company for commissioning and engaging a manager who performs caretaking duties for a salary, and for employing staff to maintain records.

I note that the four named directors were also directors of that company for the year 2003-2004 and that Ms Bryant, Mr Hall and possibly Mr Doorey ( at least since an EGM in September 2004) were on the committee of the body corporate for the previous year.

The other members of the committee (being Mr. Bell, Mr Case and Mr Hearn) do not appear to have involvement with the company. Their names are not listed as directors on the historical extract for the company provided by the applicants. There appears to be no prima facie reason why they would not be eligible for the committee of the body corporate.

There is no evidence provided by the applicant that the election process of the AGM of 2004 was defective. An affidavit of Steven Stonjanovic referred to in an email from the applicants was not provided in the material and has not been considered.

The mismanagement alleged is that body corporate funds are mingled and used for the running of the company, and that there have been various instances of unauthorised use of body corporate funds, for example for travel and legal fees. The overall allegation is that the proximity and interests of committee members between the scheme and the company, is such that there is a conflict of interest, abuse of the power and failure to administer the body corporate for the benefit of the owners of the lots included in the scheme, such as is the duty of the committee by virtue of section 94 of the Act.

It is of course for this reason that section 11 of the Accommodation Module states as follows:-

Division 3--Eligibility--Act, s 99
11 Eligibility for committee membership [SM, s 10]
(1) A person is eligible to be a voting member of the committee if the
person is an individual nominated for membership of the committee by a
member of the body corporate (the "nominating entity") and is also--
(a) a member of the body corporate; or
(b) a person of a following category--
(i) if the nominating entity is an individual--
(A) a member of the individual’s family; or
(B) a person acting under the authority of a power of
attorney given by the individual;
(ii) if the nominating entity is a corporation--a director,
secretary or other nominee of the corporation;
(iii) if the nominating entity is the body corporate for a
subsidiary scheme in a layered arrangement of community
titles schemes--a representative of the subsidiary scheme.
(2) However, a person who is otherwise eligible under subsection (1) to
be a voting member of the committee is not eligible to be a voting member
of the committee if the person is--
(a) a body corporate manager, service contractor or letting agent; or
(b) an associate of a body corporate manager, service contractor or
letting agent, other than a lot owner who is the associate of a
letting agent only because the letting agent, in conducting the
agent’s letting agent business, acts for the lot owner; or
(c) a person, other than a letting agent for the scheme, who conducts
a letting agent business for the scheme.
(3) Also, a member of the body corporate--
(a) is not eligible to be a voting member of the committee if the
member owes a body corporate debt when the members of the
committee are chosen; and
(b) may not nominate a person for membership of the committee if
the member owes a body corporate debt when the nomination is
received by the secretary.
(4) Unless otherwise permitted under this regulation,5 only 1 co-owner
of a lot can be a voting member of the committee, on the basis of
ownership of the lot, at a time.
(5) ...

"An associate" is defined at s.309 of the Act as follows:-
309 Associates
(1) For this Act, a person is associated with someone else if--
(a) a relationship of a type to which this section applies exists
between them; or
(b) a series of relationships of a type to which this section applies
can be traced between them through another person or other
persons.
(2) This section applies to relationships of the following types--
(a) marriage or de facto relationship;
(b) the relationship of ascendant and descendant (including the
relationship of parent and child) or the relationship of persons
who have a parent or grandparent in common;
(c) partnership;
(d) the relationship of employer and employee;
(e) a fiduciary relationship;
(f) the relationship of persons, 1 of whom is accustomed, or under
an obligation (whether formal or informal), to act in accordance
with the directions, instructions or wishes of the other;
(g) the relationship of a corporation and executive officer of the
corporation;
(h) the relationship of a corporation and a person who is in a position
to control or substantially influence the corporation’s conduct.
(3) Despite subsection (2)(e) and (f), the owner of a lot in a community
titles scheme and a letting agent for the scheme are not associated merely
because of their relationship as owner and letting agent.
(4) In subsection (2)--
"de facto relationship" means the relationship between 2 individuals who,
although not married to each other, live in a relationship like the
relationship between a married couple.
"executive officer", of a corporation, means a person who is concerned
with, or takes part in, the corporation’s management, whether or not
the person is a director or the person’s position is given the name of
executive officer.

(my underlining)

Whilst the applicants have supplied no evidence to impugn the conduct of the current committee in any way, I share the applicants’ concern that Ms Bryant, Mr Doorey, Mr Hall and Mr De Moor, appear on the face of it, to be ineligible to be committee members if they are and continue to be directors or otherwise associates of the company, and as such their election, and subsequent holding of committee positions, is open to challenge.

SUBMISSIONS

The body corporate made a submission through their solicitors on 29th July 2005. It points out that the background to this application is that there has been a long-running dispute with the applicant regarding payment of body corporate levies. It states that the grounds of the application are "misconceived" and that the application is "frivolous and vexatious."

With regard to the proximity of the interests of the company and the body corporate, it says at p.3 of the submission:

Further, the submission concedes that the "unique agency relationship" between the company and the body corporate "is not a situation contemplated, governed or envisioned by section 11 of the Accommodation Module."

This would seem to be the key issue in this dispute. It is certainly not the case that if parties have entered into an agreement for specific performance of duties, that because that agreement was "not contemplated" or envisaged by the legislation, it is therefore "not governed" by it and the parties do not have to comply with the law.

I do not find that the application is "frivolous and vexatious". However, the body corporate says that the applicant has provided no supporting information or evidence to indicate financial mismanagement, abuse of power or lack of scheme management by the current committee and I agree.

On 30th July 2005, Colin Strain, a lot owner, faxed through a submission out of time, containing a report dated 6th July 2005 from auditors WHK Cressey Lynch into the affairs of the company. The report is headed " Revised report of 20th August 2004". I am assuming that this report is of general knowledge to the body corporate. It is addressed to "Focus Owners Unit Trust" and covers a period June 2003 to April 2004. The auditors recommend that the board make further investigations through the police concerning the possibility of large sums of money being misappropriated from the business.

The applicant advises that 92 pages of evidence have been given to police but neither the applicant nor the body corporate has advised what stage the police investigations have reached concerning the affairs of the body corporate. The applicant states that he is "following that up continually...".

The report also states that since the date of the initial investigations by WHK Cressey Lynch that new management and accounting systems have been implemented, transactions are more transparent, and that "the opportunity for collusion between cheque signatories and cheque beneficiaries, which has been a leading factor in the losses incurred by the business in the past, have been virtually eliminated."

On 1st August 2005 this office received an email from the applicant which is in the nature of a reply to the submission of the body corporate. Whilst I note the points emphasized by the applicants, I am still being asked to find as a fact that the current committee has misappropriated funds which is a finding which cannot be made the subject of an interim order and which to date has not been proved. Whether or not funds are missing, how they came to be missing, and who is responsible are matters more suitable for investigation by the police. The evidence relied on to support such a finding is an auditors’ report of the financial affairs of the company. There has as yet been no separate forensic audit of the body corporate’s finances.

ORDER

Whilst there clearly is concern about the financial arrangements devised for this scheme through the establishment of the company in 1979, this interim order is not the vehicle by which to remedy such financial arrangements. Indeed, the applicant seeks only that the current committee cease acting as a committee until a final order is made.

Such an interim order would not, I suggest, prevent any person bent on misappropriating funds from doing so, and the investigation of such activity must be left to the police and/or the courts. Further, to prevent the current committee from operating would severely curtail the legitimate running of the body corporate and require a new committee be elected at a general meeting with the consequent cost and work of convening such a meeting, or else an administrator to be appointed in the interim which is one of the final orders sought by the applicant.

The AGM must be held within three months of the end of the financial year which it appears ends on 31st August. I understand that the AGM is normally held in November, and that therefore the current committee could continue until the AGM or until sooner determination of the final order application that an administrator be appointed to the scheme.

The question of whether or not the existence and operation of the company itself is in conflict with the Act, is a question which requires careful consideration and one which is likely to found the basis of an application for specialist adjudication under section 265(1)(a)(i) of the Act, which requires that "adjudication of a dispute must be by specialist adjudication if the dispute is about a claimed or anticipated contractual matter about the engagement of a person as a body corporate manager, or caretaking service contractor for a community titles scheme;..."

For the reasons stated above, interim relief is declined. The application will be allowed to proceed to submissions and final determination in the normal course.

Queensland Body Corporate and Community Management Commissioner - Adjudicators Orders

Focus [2005] QBCCMCmr 418 (2 August 2005)