Focus [2005] QBCCMCmr 569 (13 October 2005)

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

I hereby order that the application for an order that

"A declaration that the Body Corporate acted unlawfully in that the Committee are and have been ineligible to be voting members of the Committee pursuant to Division 3, s.10 of the Body Corporate and Community Management Regulation 1997 (sic) and the Body Corporate and Community Management Act 1997.

and 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." be dismissed

I hereby order in lieu as follows:

1. That committee members Ms Lorraine Bryant, Mr Laurie Doorey, Mr Ernie Hall and Mr David De Moor are ineligible to be voting members of the committee pursuant to section 11(2)(b) of the Body Corporate and Community Management (Accommodation Module) Regulation 1997, and have been so during any period in which they or any of then have been executive officers of Focus Owners Limited;
2. That committee members Ms Lorraine Bryant, Mr Laurie Doorey, Mr Ernie Hall and Mr David De Moor may remain in office until the 31^st October 2005 or the annual general meeting of the body corporate for 2005, whichever first occurs, and thereafter the positions which they hold on the committee are to be declared vacant;

3. That nominations for the forthcoming annual general meeting may only be considered from those members of the body corporate who are eligible in respect of sections 309(2)(g) and 309(2)(h) of the Body Corporate and Community Management Act 1997;

4. That the committee elected at the 2005 annual general meeting within three (3) months of the date thereof convenes an extraordinary general meeting at which members of the body corporate have been invited to submit motions regarding, inter alia, the course of action to be taken concerning mismanagement of funds, and the future relationship between the body corporate, Focus Owners Limited and the Focus Owners Unit Trust fund;
5. That the body corporate sends a copy of this order and the reasons for the decision , unmarked, and unedited to all lot owners within 14 days of the date hereof. The order and reasons may, if practicable, be sent with material for the forthcoming annual general meeting to save costs

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).

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 sought as interim orders:-
1. An order that the Committee of the Body Corporate be dismissed.

Items 1 and 2 were subsequently not pursued by the applicants as interim orders sought. Item 3 was dealt with by an interim order made on 2^nd August 2005.

"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)).

Submissions were invited from all lot owners in accordance with section 243(2)(b) of the Act.

Submissions were received from W. Long owner of Lot 4 who sent in a copy of the forensic report into Focus Owners Unit Trust dated 6^th July 2005 from WHK Cressey Lynch, a copy of which was provided by the applicants in their application; Mrs Georgina Roberts, owner of Lot 34, who endorses the application; Graeme Levy, director of Kenrod Investments Pty Ltd, lot owner, who, whilst he is against the appointment of an administrator says that the committee "should be and be seen to be unaffected by any conflict of interest of them being office holders in Focus Owners Limited", and Steven Stojanovic owner of Lot 42 who also endorses the application.

Submissions dated 23^rd September 2005 were received from the body corporate via solicitors HW Litigation. The body corporate repeats and relies on its submissions made at the time of the interim order application, and further says that there is no evidence or even a clear allegation of any financial mismanagement, abuse of power or lack of scheme management by the current committee.

Since their election in November 2004, the current committee has reduced liabilities by 44%, increased cash at bank by 129%, and reorganised the financial management for the better, as reported in the WHK Cressey Lynch report. The body corporate submits that it is investigating instances of financial mismanagement by a former chairman and previous on-site managers, progressing complaints with the police and taking action. However, their investigations have been hampered by the poor state of the accounts and documents prior to 2004. The Fraud Squad are now in possession of the WHK forensic report. It concludes : "The body corporate is opposed to the appointment of an administrator at this time".

In reply, applicant Lindsay Stewart says that the same committee members are standing for election this year. However he provides material about Focus Owners Limited AGM, and not the forthcoming body corporate AGM. He disputes whether the Surfers Paradise police have yet been given a copy of the WHK Cressey Lynch report.

DETERMINATION

As the Accommodation Module applies to Focus CTS, the section relevant to eligibility of the committee is section 11 of the Body Corporate and Community Management (Accommodation Module) Regulation 1997. The same wording applies as "Section 10" in the Body Corporate and Community Management (Standard Module) Regulation 1997 and the reference by the applicants to the wrong section is of no consequence to their application.

Section 11 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--

(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) ......

"An associate" is defined at section 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)

The "unlawfulness" alleged against the body corporate is that the current committee members are, and have been, ineligible since their election. Whilst the applicants in their grounds allege previous mismanagement of finances by the committee and the body corporate, it is not on this ground that the declaration is sought. In other words, the applicants invite me to find as a matter of law that if committee members are ineligible to hold office, the body corporate is acting unlawfully in either electing or maintaining that committee in office. I do not have to find that the committee or the body corporate has or has not mismanaged finances.

This is supported by the applicant Lindsay Stewart in his further submissions supplied following the interim order on 18^th August 2005. He says –

Relying on the ineligibility of the committee, the applicant’s second order sought is 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."

The applicants have provided no evidence that the committee as a whole is ineligible. However, they have provided evidence that four current members of the 7- member committee are directors of a company called Focus Owners Limited (the company), an Australian public company limited by guarantee, which company is the licensee for providing certain services to the scheme by an agreement with the body corporate dated 12th October 1979. (the agreement).

The company has its registered office at the scheme land at 114 The Esplanade, Surfers Paradise. The company is also the trustee of the Focus Owners Unit Trust, a trust created by deed on 21^st July 1979.

The first question must therefore be, are those four committee members who are directors of the company, being Ms Lorraine Bryant, Mr Laurie Doorey, Mr Ernie Hall and Mr David De Moor, "associates of a service contractor or letting agent" contrary to section 11(2)(b) of the Accommodation Module? This leads to a consideration of the meaning of " service contractor," and " letting agent."

A "service contractor" is defined at section 15 of the Act is as follows -

By virtue of the agreement, headed "Management Agreement", the company ( referred to as "the licensee") was commissioned by the body corporate to "provide services" mentioned in the agreement. The services to be provided are set out at Clause 2 of the agreement and include-

The "first schedule" is not attached to the copy of the agreement provided to me but a page called "Duties of Licensee" is attached. Possibly the reference to the ’First Schedule’ in the agreement itself is erroneous. Under "Duties of the Licensee," the company must perform 17 listed duties, summarised as follows-

Further, the agreement gives the company exclusive use of that part of the common property in the foyer to enable it to carry on its duties under the agreement and to conduct the businesses of the licensee which are -

The agreement is for a term to be determined either by insolvency of the company, or following a dispute, by special resolution of the body corporate by giving one month’s notice, or by the company giving one month’s notice in writing ( Clause 1). In effect the agreement which commenced 26 years ago is still continuing.

The agreement contains an indemnity by the body corporate to the company ( Clause 2.12) in that the company is not liable itself for payment to staff, but pays the staff under the agreement only as an agent of the body corporate offering a service, and on the understanding that payments will be reimbursed to it as documented in the agreement. The body corporate also indemnifies the company from any claims by staff against the company.

HW Litigation, acting for the body corporate submits that -

In my view the indemnity clause in respect of the handling of financial payments to staff as "an agent of the body corporate" is not sufficient to deny that the agreement as a whole is a contract for the provision of services, which makes the company fall within the meaning of a " service contractor."

I have therefore not gone on to consider whether or not the company is also a "letting agent" or conducts "a letting agent business", although prima facie, it would seem that the agreement enables the company to conduct at least a letting agent business.

Clearly, the four named directors of the company are "associates" of the company in that they are executive officers of the company. (Section 309(2)(g) Act.)

I do not know if the remaining three members of the committee, that is Alexander (Lex) Bell, Michael Hearn and Robert Case are in a position "to control or substantially influence the corporation’s conduct" and are therefore also "associates" and ineligible to hold positions on the committee. ( Section 309 (2)(h) Act). I understand that lot owners as proprietors in the scheme are eligible to purchase limited units (being shares in a trust fund) of which the company is the trustee. The unit holders are entitled to vote at meetings of the unit holders. Whether Mr Bell, Mr Hearn and Mr Case or any of them hold units in the trust fund or whether if they do, they have power to control or substantially influence the trustee company I am not advised.

This must be a question for the body corporate as to whether or not a lot owner who is a unit owner in the company as trustee for Focus Owners Unit Trust has such power, and is therefore an ineligible "associate." In the submission dated 23^rd September 2005 by HW Litigation, the body corporate says -

"The committee is also concerned that all lot owners within the building may be potentially conflicted by reason of the definition of "associate". The committee intends to seek further legal advice in relation to this issue."

I note in the applicants’ material, a copy of an email sent on 7^th October 2005 from Steven Stojanovic to Lindsay Stewart, stating that "the AGM has been called for 31^st October 2005" and that nominations for the body corporate committee have been received from Ms Bryant, Mr De Moor and Mr Doorey. On 10^th October 2005, the applicants advised that nominations for the board of directors of Focus Owners Limited had been received and that Mr Hall, Mr Doorey, Mr De Moor and Ms Bryant had offered themselves for re-election to the company board.

Those four persons are ineligible to be voting members of the committee whilst they are executive officers of the company, and I make an order accordingly. Any other person who is an "associate" of the company as defined is also ineligible.

As stated at the time of making the interim order, one of the founding issues of this dispute is the constitution and purpose of the company and the way in which its operation may facilitate mixing of funds from one account to another, or non-transparent financial transactions between it and the body corporate accounts.

I agree with the applicants that the statement that the committee " intends to seek further legal advice" is meaningless. This matter has concerned members of the body corporate for more than a year, and the body corporate submission is made by lawyers.

Despite the submission of HW Litigation on behalf of the body corporate, I am not encouraged that mismanagement of funds is a thing of the past when I note that at a committee meeting held on 8^th July 2005, six members of the committee present voted that with regard to the payment of legal expenses concerning investigation of former financial mismanagement, "the body corporate and (the company) split the costs 50/50 in the interim..... and that in the event of a successful outcome, a suggestion was made for the body corporate to receive all monies owed and the remainder to go to (the company)." It appears that the finances of the body corporate and the company are still intertwined in the minds of the committee.

On 6^th October 2005, an adjudicator made an order that the committee alone, owing to conflict of interest, could make no decision regarding an alleged debt owed by the company, but that the body corporate must make such decisions at a general meeting.

If the AGM of the body corporate is set for 31^st October 2005, it may now be too late for motions to be put. However, at that meeting a new committee should be elected, and one of the first tasks of that new committee should be to obtain such accounting and legal advice as necessary to bring the company and the unit trust fund into line with the legislation, and to settle the discrepancies in the body corporate finances. In short, the 26 year old agreement may have shortcomings in respect of various aspects of legislation, and need close scrutiny, such as given to the unit trust fund management by WHK Cressey Lynch. The activities of the body corporate need to be entirely separated from the company business, and there is no room in the legislation for "merging" operations as alternatively suggested by WHK Cressey Lynch ( p. 7 report 6^th July 2005).

The applicants contend that, "The risk of a similar situation identified by the Cressey Lynch report) can only be avoided by clear separate representation on FOL (the company) and Body Corporate." I agree, and the body corporate must achieve this aim.

In submissions made by the body corporate at the interim order, the body corporate submitted that the "unique agency relationship" between the company and the body corporate "is not a situation contemplated, governed or envisioned (sic) by section 11 of the Accommodation Module." In the interim order I said that it is erroneous to think that merely because an 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.

The matter of whether to pursue action in relation to any malpractice or financial mismanagement should also be put as a motion to a general meeting to be held within three months of the forthcoming AGM, if there is not now time for such motions to be put. The committee or any lot owner may put motions to that general meeting. If a motion to involve ASIC or the fraud squad or the police is carried, (and the present status of investigations being carried out by the Gold Coast Fraud Squad is not at all clear from the material before me), the committee must provide these investigatory bodies or any of them with relevant material, and the body corporate should be made aware of the progress of such investigations with regular updates.

I have considered at length appointing an administrator to the scheme as requested by the applicants. The proposed administrator Horwath BRI Brisbane would charge an hourly rate, a partner commanding $370 per hour with certain administration costs in addition. I am concerned at imposing this financial burden on the body corporate. The fact that the 2005 annual general meeting is imminent also dissuades me from putting in an administrator until that annual general meeting. However, if the new committee and/or the body corporate is unable to comply with body corporate legislation, the next step will unevitably be to appoint an administrator.

The applicants seek a declaration that the body corporate acted unlawfully in electing and maintaining the current committee. I cannot make that declaration in that I have no evidence about Mr Bell, Mr Hearn and Mr Case, as explained above. Some of the committee members may be and have been eligible. I would not in any event wish to open up to challenge, the validity of the entire year’s work of the committee, and can see no benefit to the body corporate in such a declaration.

However, I am prepared, and do so order, that in the circumstances of holding directorships in the company, Ms Bryant, Mr De Moor, Mr Doorey and Mr Hall are not eligible to be committee members and should not have been elected as committee members.

They may however, continue in office until 31^st October 2005, if that date is the date of the annual general meeting for 2005. Those four persons are not eligible for re-election whilst they are directors of the company, and will become ineligible to hold committee positions and should resign if they or any of them subsequently become directors of the company whilst holding a committee position.

In the event that the date for the annual general meeting has not yet been decided, or is to be postponed for any reason, then positions held by Ms Bryant, Mr De Moor, Mr Doorey and Mr Hall are to be declared vacant as at 31^st October 2005, and the provisions of section 23C(1)(a)(ii) Accommodation Module shall apply, that is, within one month of the positions becoming vacant, eligible persons may be chosen to fill the vacancy at a general meeting until the annual general meeting. Persons must be chosen at a general meeting, rather than by the remaining members of the committee, as the committee will fall below a quorum. (section 23C(1)(a) Accommodation Module.)

It is hoped that this convoluted procedure can be avoided, as it can be if the annual general meeting is convened on 31^st October 2005, when it would appear to be planned, or within one month thereafter should there be any unforeseen delay.

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

1.	maintenance of emergency power machinery, fire fighting equipment and water pumps
2.	cleaning of drains, walkways, lifts, stairways, foyers, glass and windows on common property
3.	maintaining the swimming pool
4.	supervision of functioning of the lift
5.	maintaining the waste disposal system
6.	cleaning of carparks
7.	mowing of grass, weeding of gardens
8.	maintenance of small electrical items such as light bulbs
9.	eviction of trespassers, and reporting unlawful activities on common property to police.

Queensland Body Corporate and Community Management Commissioner - Adjudicators Orders

Focus [2005] QBCCMCmr 569 (13 October 2005)