Focus [2005] QBCCMCmr 552 (6 October 2005)

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

I hereby order that the application by Lindsay and Susan Ann Stewart, the co-owners of lot 4 for several orders quote:

1. A declaration that the body corporate has acted unreasonably pursuant to sections 94(2) and 152 of the Body Corporate and Community Management Act 1997 ("the Act) in making prepayments of the management fee ("the prepaid fees") to Focus Owners Limited under the Management Agreement dated 12 October 1979.
2. An order that

a) Focus Owners Limited immediately repay the prepaid fees; or alternatively
b) The body corporate demand repayment of the prepaid fees as a liquidated debt;
c) If the prepaid fees are not repaid within 7 days of a demand pursuant to this order that the body corporate immediately commence proceedings to recover the prepaid fees.

3. A declaration that the purported general meeting of the body corporate purportedly held on 29 November 2004 ("the AGM") is not a valid meeting of the body corporate.
4. An order that an EGM be called to recast the votes and give proper notice and opportunity for lot owners to vote.

is dismissed.

I further order that no decision regarding Focus Owners Limited shall be made by the committee (including any future committee) of Focus body corporate. Any decision regarding Focus Owners Limited shall only be made by the body corporate in general meeting, and in accordance with the applicable requirements of the Act and regulation module.

STATEMENT OF ADJUDICATOR’S REASONS FOR DECISION - REF 0148-2005

"Focus" CTS 12996

The applicants, Lindsay and Susan Ann Stewart, the co-owners of lot 4, have sought the following order of an adjudicator under the Body Corporate and Community Management Act 1997 (the Act) quote –

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 scheme is a subdivision of 125 lots recorded under a building unit plan of subdivision. The regulation module applying to the scheme is the accommodation module.

I am aware of a certain level of disputation currently existing between the applicants and the body corporate. It has been suggested to me that the basis for recent applications by the applicants is an ongoing dispute related to unpaid contributions. Whilst there might be a dispute between the applicants and the body corporate on the issue of contributions, my responsibility is to consider the issues raised in this application.

I intend to deal with the 3 and 4 orders sought by the applicants initially. The applicants seek the validity of the 2004 AGM for the reason that there was an error in the meeting notice. The applicants refer to the notified time being "pm" rather than the intended am time. The applicants claim that not all members of the body corporate were notified of the error, and the meeting proceeded at the am time "which resulted in members of the body corporate missing AGM on the grounds that they believed that it would be held at 10 pm".

I will not invalidate an entire general meeting on such a minor ground. General meetings, particularly annual general meetings, involving a scheme with a large number of owners (as is the case here) are both expensive and time consuming to convene. Further general meetings are vital to the continued and continuing effective operation of bodies corporate. Without meetings a body corporate cannot operate and continue. To invalidate a meeting has the potential for confusion and difficulty, particularly in circumstances where contributions have been levied and collected, and resolutions have been implemented. Consequently, adjudicators do not take their power to invalidate meetings lightly, and there must be some compelling basis before invalidation will be seriously considered. This view is supported by the reasoning of Judge Boulton of the District Court in the appeal decision in Wei-Xin Chen v. Body Corporate for Wishart Village, quote:

The current allegation does not even amount to non-compliance with a statutory requirement; rather it is a typographical error. The body corporate submission states that this error was noticed immediately and further advice was sent to all owners bringing their attention to the matter and reiterating that the meeting was 10:00am in the morning. I consider that common sense would suggest to most owners that it was unlikely that a meeting, of possibly considerable length, would commence at 10 pm in the evening. Of some 125 lots, only 4 owners have written supporting the applicants, and even then, not all have referred to the error causing confusion on their part. I conclude owners generally were not affected by this typographical error. I reject the applicants’ submission that the meeting should be invalidated on the basis proposed.

The fourth order sought by the applicants is that an EGM be called to recast the votes and give proper notice and opportunity for lot owners to vote. This order if made, would by implication require the invalidation of the AGM. The basis for this order sought is that there was a double counting of votes on a singly ballot paper where on the particulars of the envelope it recorded 2 lot numbers. That is, were the particulars on the voting material reflected that a particular owner owned 2 lots, then those owners single voting paper was recorded as two votes in respect of each of the motions voted on. The applicants conclude that there has been an irregularity in the recording of votes and therefore the resolutions should be declared invalid and they should be resubmitted to the body corporate in general meeting for voting upon.

In the circumstances, I am not even going to refer to relevant statutory provisions or the submission of the body corporate on this issue. Firstly, I refer to the quote of the learned Judge set out above as to matters of an insubstantial nature; namely the failure to include a separate voting paper for each lot owned. Secondly, it seems to me that the assumption made is a reasonable one; that an owner who voted one way for one lot owned, would intend to vote similarly for any second or more lots owned. Consequently, I seriously doubt if any votes would have been incorrectly allocated for or against any particular motion. Practically, I have briefly considered the names of all owners as recorded in Registrar of Titles records and note only a few (3) instances of double (or more) lot ownership by owners. Whilst this was only a cursory consideration on my part, it confirms to me that even in a worst case scenario – ie. where an owner choose differently in respect of different lots – the potential for irregularity in the recording of votes was very limited. Finally, I am again mindful of the number of owners who made submissions in respect of the application, and the contents of those submissions. 4 of 125 lots is approximately 3% of owners. Obviously, this alleged irregularity was not considered by owners to be significant. On this issue, I again refuse order in terms as sought by the applicants.

The first order sought by the applicants is a declaration that the body corporate has acted unreasonably pursuant to sections 94(2) and 152 of the Act in making prepayments of the management fee to Focus Owners Limited under the Management Agreement dated 12 October 1979. The applicants allege that:

I note in the balance sheet under the heading "current assets" the entry "Focus Owners Limited" for the amount $92354. 77. The entry is not recorded with the statement "prepaid management fees" or the like. It appears that this terminology is the applicants view or interpretation of the entry or at least the basis of the alleged debt.

The body corporate submission challenges the above interpretation:

It must be stated at this point that neither party has sought to explain the relationship between this body corporate and the company FOL. My limited knowledge is that the relationship is not the usual arms length one of body corporate and service contractor engaged by the body corporate. Rather FOL is a company set up many years ago to provide certain services to the body corporate and avoids the necessity for the body corporate to engage an independent service provider for resident management services. Moreover, I understand that the beneficial ownership of FOL is held by the majority of owners of Focus. I refuse to investigate further the relationship between this body corporate and FOL for the twofold reason that neither party has sought to raise or argue this aspect, or even to fully explain the relationship in the context of this dispute. Further, that disputes about a claimed or anticipated contractual matter about the engagement of a person as a ... caretaking service contractor must be the subject of specialist adjudication.

The applicants have failed to establish or evidence their allegation that the body corporate has prepaid management fees to FOL. Even this initial allegation which the applicants appear to believe is a given, is disputed. In the circumstances, I refuse to further consider, and intend to dismiss, the first order sought by the applicants. Clearly, a full understanding of the relationship between the body corporate and FOL is essential before any determination might be made regarding whether the body corporate has acted reasonably.

The second order sought by the applicants is in the alternative; that

I have noted that the fact of whether there has even been "prepaid fees" by the body corporate to FOL is disputed, and that in my view, the applicants have not sufficiently evidenced their application such that a conclusion to this effect is open on the material. Further, this is a dispute between an owner and the body corporate. There is no ability under the definition of "dispute" in the Act for an owner to be in dispute with a service contractor. Consequently, I consider there is similarly no ability for an order to be made in this application against FOL who surely must be considered a third party to this application. I therefore refuse to order as sought; namely that FOL immediately repay the prepaid fees.

Finally I turn to the question of whether the body corporate should be ordered to demand repayment of the fees as a liquidated debt. Putting aside the question of whether the amount owed might be categorised as "prepaid fees" which has not be established, I consider it at least acknowledged that, from the point of view of the body corporate, a debt is owned to it by FOL. I have no information whether this view of a debt owning to the body corporate is similarly shared by FOL. However the views of FOL are not necessary for my consideration of this order sought.

This aspect seeks a determination that the body corporate be ordered to demand repayment of the debt, and the mechanism to achieve this. Whilst the applicants’ grounds are scant on this aspect, they do conclude:

For the body corporate to be authorised to issue proceedings for recovery would require a special resolution of the body corporate in general meeting (see section 312 of the Act).

The body corporate submission relevantly states in response:

One would assume from the above statements that the writer of the submission, a director of the the body corporate manager for Focus, is speaking not only on behalf of the body corporate but also FOL. To my knowledge, the position of FOL on this entire issue is unknown. FOL has not provided a submission in respect of this dispute, and nor has it been requested to. The seemingly response on behalf of both the body corporate and FOL led me to request further information from the body corporate, quote:

From the response received, it seems that the "course of action" has not in fact been agreed upon, or at least has not been the subject of a body corporate committee or general meeting resolution. My request however appeared to prompt the body corporate into action; namely "for completeness, that course of action is to be specifically reviewed and recorded in the minutes of the committee meeting to be held on 23 September 2005".

The submission then goes on to state that the current body corporate committee members are:

The current board of Focus include committee members (a), (c), (d) and (e). That is; a majority of the members of the committee of the body corporate are members of the board of FOL. The manager is submitting that the committee of Focus, which comprises 4 directors or board members of FOL will confirm the "course of action". That is, what should be done by the body corporate regarding the debt owed to it by FOL.

Have any of these parties considered the application of the conflict of interest provisions of the legislation. Section 32 of the Accommodation Module provides:

32 Conflict of interest [SM, s 34]
(1) A member of the committee must disclose to a meeting of the committee the member’s direct or indirect interest in an issue being considered, or about to be considered, by the committee if the interest could conflict with the appropriate performance of the member’s duties about the consideration of the issue.
(2) If a member required under subsection (1) to disclose an issue is a voting member, the member is not entitled to vote on the issue.
(3) A person who holds the proxy of a member of the committee must disclose to a meeting of the committee the proxy holder’s direct or indirect interest in an issue being considered, or about to be considered, by the committee if the interest could conflict with the appropriate performance of
the proxy holder’s duties about the consideration of the issue.
(4) A proxy holder required under subsection (3) to disclose an issue must not vote as the proxy on the issue.
(5) A person who holds the proxy of a member of the committee must disclose to a meeting of the committee the member’s direct or indirect interest in an issue being considered, or about to be considered, by the committee if the proxy holder is aware that the member, if present, would
be required under subsection (2) not to vote on the issue.
(6) A proxy holder required under subsection (5) to disclose an issue must not vote as the proxy on the issue.

I suggest that this committee is so conflicted that it should not be making any decisions on behalf of the body corporate regarding FOL whatsoever. Rather, it is the owners in general meeting who should be determining what action, if any, should be taken against FOL regarding the alleged debt. Whilst I acknowledge that many of the owners in the scheme also have a beneficial interest in FOL, relevantly the conflict of interest provisions do not apply to the vote of an owner in general meeting.

In the circumstances, I intend to order that no decision regarding FOL shall be made by the committee (including any future committee) of Focus. The implication of this is that all decisions regarding FOL, including any regarding the alleged debt, can only be made by the body corporate in general meeting. This is so for the reason that even if committee members, both current and future, are not directors of FOL, it is still possible that committee members will have a beneficial interest in FOL as shareholders (as I understand that the majority of owners of lots are shareholders in FOL). This scenario raises the application of the conflict of interest provisions applying to votes taken at committee meetings, and is the reason why the committee should absent itself from taking any decisions regarding FOL in any respect.

This however is not the order the applicant was seeking. However, I again refuse in the circumstances to make the order as sought, essentially for the same reasons as proposed before. By way of aside, as previously mentioned, this office sought submissions regarding this application from the body corporate committee and all owners. Of some 125 or so owners, only 4 chose to respond in support of the application. In respect of this specific order sought, it seems to me from this response that there is very little if any groundswell of support amongst owners for the immediate repayment to the body corporate of the debt alleged to be owing by FOL. Further, given the clear connection between owners in the scheme and the shareholding in FOL, I consider strongly that any decisions to be taken regarding the body corporate’s relationship with FOL should be decisions of the body corporate in general meeting. In this regard it is open for any single owner at any time to submit a motion for inclusion on the agenda of a forthcoming general meeting of the body corporate regarding the debt alleged to be owing to the body corporate by FOL. If such resolution is carried, then the body corporate would be required to implement its decision, including a decision to commence legal proceedings against FOL for recovery of the debt. Parties should note that a motion proposing that the body corporate commence legal proceedings against FOL for recovery of the debt would require a special resolution in accordance with the requirements of section 312 of the Act.

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

Queensland Body Corporate and Community Management Commissioner - Adjudicators Orders

Focus [2005] QBCCMCmr 552 (6 October 2005)