Palm Beach North [2005] QBCCMCmr 577 (19 October 2005)

TAKE NOTICE that pursuant to an application made under the abovementioned Act by John Reid, the owner of Lot 19

I hereby order that Kim Elliot of Complete Body Corporate Services, 10 Ferry Road, Southport (the appointee) is appointed to examine the records and any relevant financial documents of the Body Corporate for Palm Beach North Community Titles Scheme 31739 (the body corporate) for the purpose of determining:

1. The total amount of contributions fixed and levied on the owner of each lot included in the scheme by the body corporate for the period from 22 September 2003 to the date of this order;
2. The total amount of contributions paid to the body corporate by the owner of each lot included in the scheme for the period from 22 September 2003 to the date of this order;
3. The amount of contributions for which payment is currently required by the body corporate for each lot included in the scheme for the period from 22 September 2003 to the date of this order.

I further order that the body corporate must give the appointee the records and other documents which are the property of the body corporate and which are reasonably required by the appointee to comply with the order.

I further order that the order is taken to be a prescribed notice for the purposes of section 151(4) of the Body Corporate and Community Management (Accommodation Module) Regulation 1997 (Accommodation Module) but only to the extent that the notice requires property of the body corporate from a person who is in possession or control of the property as stated in section 151(1)(b) of the Accommodation Module, and the property is reasonably required by the appointee to comply with the order.

I further order that the appointee must, within 7 days of completing the examination required by this order, return to the body corporate all the records and documents which are the property of the body corporate and in the possession of the appointee, and provide a written report to the body corporate which includes:

1. A determination of the total amount of contributions fixed and levied on the owner of each lot included in the scheme by the body corporate for the period from 22 September 2003 to the date of this order;
2. A determination of the amount of contributions paid to the body corporate by the owner of each lot included in the scheme for the period from 22 September 2003 to the date of the order;
3. A determination of the amount of contributions for which payment is currently required by the body corporate for each lot included in the scheme for the period from 22 September 2003 to the date of the order;
4. Details of the time taken by the appointee to conduct the examination and the cost to the body corporate for the appointee to comply with the order.

I further order that the body corporate is authorised to expend up to a maximum of $720.00 payable to the appointee to comply with the order.

I further order that the annual general meeting of the body corporate required by section 58 of the Accommodation Module to be held by 30 November 2005 will not be void for the reason that the meeting is held after 30 November 2005, provided the annual general meeting is called and held before 31 January 2006 and otherwise is called and held in accordance with the Body Corporate and Community Management Act 1997 and the Accommodation Module.

I further order that within 14 days of the date of this order, the Secretary must give to the owner of each lot included in the scheme a copy of this order and the accompanying statement of reasons.

I further order that in all other respects, the application is dismissed.

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

"Palm Beach North" CTS 31739

APPLICATION

This application is by John Reid, the owner of Lot 19 (applicant) against the body corporate (respondent). The applicant is seeking the following outcomes, quote:

JURISDICTION

"Palm Beach North" Community Titles Scheme 31739 is a scheme under the Body Corporate and Community Management Act 1997 (Act) and the Body Corporate and Community Management (Accommodation Module) Regulation 1997 (Accommodation Module).

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:

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)).

INTERIM ORDER

The applicant had also sought an interim order, and on 3 June 2005, Adjudicator PJ Hanly made the following Interim Order, quote:

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.

SUBMISSIONS

The applicant’s main submissions were stated by the Adjudicator PJ Hanly in the "Statement of Adjudicator’s Reasons for Decision" as, quote:

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 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.

In accordance with the Act, submissions were called and a copy of the application was provided to the body corporate manager for distribution to the owner of each lot (excluding the applicant) and the committee. While submissions were made to the Adjudicator before the Interim Order was made, no submissions were made on the matters raised to the application by the applicant as a consequence of the Notice of Application and Invitation to Make a Submission dated 7 June 2005.

The submissions to the application for an interim order were summarised by Adjudicator PJ Hanly to the effect that, quote:

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."

While the Adjudicator dismissed the application for an interim order with respect to an independent audit of the financial records and the suspension of general meetings and committee meetings, the Adjudicator (in the Statement of Adjudicator’s Reasons for Decision) recognised that 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". The Adjudicator provided a number of possible strategies which could be adopted to identify the payment of contributions.

However, it is apparent that such strategies either have not been adopted or have proven unsuccessful as the applicant (with the agreement of a committee member, Mr Mazzarino) maintains that the identification of the payment of contributions by lot owners remains unresolved. This is troubling given that the Interim Order was made on 3 June 2005, and that all owners were given advice, not only of the application made by Mr Reid, but of the Interim Order made by Adjudicator PJ Hanly. It is also problematic that the body corporate financial year ended on 31 August 2005 without this matter being resolved.

Since the submission period ended on 28 June 2005, there have been three teleconferences organised with the applicant and a representative of the body corporate committee. The first teleconference was cancelled given the unavailability of the then chairperson, Mr Huxtable. The applicant subsequently was chosen to the committee and a second teleconference was held with the applicant and Mr Mazzarino as a representative of the body corporate committee. At this teleconference, the applicant nominated Kim Elliot of Complete Body Corporate Services as an independent person who has the capacity to audit the financial records of the body corporate to determine the financial status of each lot owner.
I requested that the applicant obtain a letter of consent from Kim Elliot and also canvass the opinions of the other committee members. Kim Elliot subsequently provided (in a letter dated 28 July 2005) her agreement to conducting a reconciliation of the contributions paid by lot owners at a fee of $90 per hour up to a maximum of 8 hours to complete the task. However, the applicant could not provide consensus from other committee members and subsequently requested that the determination of the application be postponed. On 13 October 2005, another teleconference was held with the applicant and Mr Mazzarino.

Given the absence of submissions made in response to the application, I have decided to rely on the information provided by Mr Reid and Mr Mazzarino, who I understand are two of four members of the committee. I have also noted the submission from Mr Huxtable, who as the previous chairperson agreed that an audit be conducted.

It is evident from the information provided in the application and at the teleconferences that the body corporate cannot categorically guarantee that the owner of each lot included in the scheme does not owe a body corporate debt^[1] or that the owner of each lot included in the scheme has prepaid a contribution to the body corporate. The payment of contributions levied by a body corporate is a fundamental component of the proper financial management of the body corporate. Uncertainty with respect to the payment of contributions is a significant problem for the obvious reason that a body corporate’s capacity to meet its financial obligations is principally dependent on the contributions paid by lot owners. Consequently, there is a distinct possibility that the doubt surrounding the payment of contributions could affect the management of the scheme. Further, there can be no certainty with respect to an owner’s right to for example, be chosen to the committee or to vote at a general meeting, as this right is restricted if the owner owes a body corporate debt at the relevant time.

I consider that given the degree of uncertainty which exists with respect to the payment of contributions due to the body corporate by the owners of lots in this scheme, it is crucial that a full and complete reconciliation of the payment of contributions is conducted as quickly as possible. From the information provided, I am satisfied there is little possibility that the body corporate will settle this matter itself. In addition, the situation is now exacerbated by the fact that the body corporate’s financial year ended on 31 August 2005 and the body corporate has an obligation to call and hold its annual general meeting before 30 November 2005^[2]. It is at the annual general meeting that lot owners consider the financial performance of the body corporate and decide on its future financial obligations. These are important matters which cannot be properly considered and determined if the body corporate’s true financial position cannot be assessed with any degree of certainty. Lot owners also choose its management committee at this meeting. Further, there is the issue of the capacity of each and every lot owner to even vote on the motions on the agenda^[3], or to nominate for election to the committee^[4].

Given these circumstances, I consider that any further delay is untenable. For these reasons, I consider that it is necessary that a person be appointed to make a determination of the status of the payment of contributions levied by the body corporate on lot owners. Given that it is apparent that it is preferred that an external and independent person make the determination, I consider that it is reasonable that an examination be conducted by such a person. In the circumstances, I have decided to appoint Kim Elliot, Managing Director of Complete Body Corporate Services to conduct an examination of the body corporate records and documents for the purpose of determining the total amount of contributions levied on the owner of each lot included in the scheme; the amount of contributions paid by the owner of each lot; and the amount of contributions for which payment is currently required. Both Mr Reid and Mr Mazzarino requested that this examination not only relate to the financial year ending 31 August 2005, but to each financial year since the establishment of the scheme.
Given that the scheme was established on 22 September 2003, and the current uncertainty with respect to the payment of contributions, I do not consider this request to be unreasonable. Consequently, I have ordered that the examination relate to contributions fixed by the body corporate in accordance with the regulation module applying to the scheme from the date of establishment of the scheme to the date of this order.

Upon completion of the examination, Kim Elliot is required to provide a written report to the body corporate detailing the results of the reconciliation conducted, particularly details relating to the total amount of contributions levied on the owner of each lot included in the scheme; the amount of contributions paid by the owner of each lot; and the amount of contributions for which payment is currently required. The report must also include details with respect to the time taken by Kim Elliot to conduct the examination. Kim Elliot has quoted $90 per hour up to a maximum of 8 hours to complete the examination. This is the extent of the authority for the purposes of this order. If further time is necessary to complete the examination, Kim Elliot should consult with the committee and any further work may only be completed with the proper approval of the body corporate or its committee.

To ensure that Kim Elliot has the information necessary to properly comply with the order, I have ordered that the body corporate must provide to Kim Elliot the body corporate records and documents necessary to enable the completion of the examination. In recognition of the fact that the body corporate manager or another person may have possession or control of a record or other document necessary to conduct and complete the examination, and to enable the examination to be completed as expeditiously as possible, I have deemed the order to be a prescribed notice pursuant to section 151 of the Accommodation Module, but only to the extent that the notice relates to specified property as defined by section 151 and required by Kim Elliot to complete the examination. For example, the notice may require income and expenditure statements, any prepared reconciliation statements, details of notices given to a lot owner requiring the payment of contributions, a record of contributions paid to the body corporate by a lot owner and any other financial record belonging to the body corporate which is in the possession or control of the person. I have also ordered that, upon completion of her duties in compliance with the order, Kim Elliot is to return to the body corporate, the records and other documents in her possession which belong to the body corporate.

It has been brought to my attention that the statement of accounts for the 2004 to 2005 financial year have not been audited despite the resolutions of the body corporate on Motions 6 and 7 at the Annual General Meeting dated 6 January 2005 (2005 AGM), which not only required an audit but also to appointed AM Giles of AM Giles & Company to audit the statement of accounts. The agenda of an annual general meeting must include the substance of each statutory motion to be considered at the meeting^[5]. A statutory motion includes a motion about presenting the body corporate’s accounts for the financial year^[6]. A copy of the statement of accounts for the financial year must accompany the notice of the annual general meeting^[7]. Given the resolution at the 2005 AGM, the statement of accounts must be audited^[8], and a copy of the auditor’s certificate must accompany the notice of the next annual general meeting held after the certificate is given^[9]. In my opinion, that this audit must be completed prior to the next annual general meeting.

It is recognised that there is limited time remaining for the body corporate to call and hold its annual general meeting in accordance with section 58 of the Accommodation Module. I do not consider that the annual general meeting should be held until, at least, the matters relating to the examination to be conducted by Kim Elliot are settled and AM Giles completes the audit of the statement of accounts for the financial year ending 31 August 2005.
In my opinion, not only must the financial status of each lot owner be determined, but the assessment made may require subsequent management. For instance, it would be reasonable to expect that a lot owner is informed of the outcome of the assessment with respect to that persons’ lot and the owner is given a reasonable opportunity to meet any payment obligations arising from the report. Further, AM Giles will require a reasonable time to complete the audit. Obviously, the satisfactory completion of these matters requires time.

For these reasons, I have decided to order that the annual general meeting for the year will not be void for the reason that the meeting is held after 30 November 2005, provided the meeting is held before 31 January 2006 and otherwise complies with the requirements of the Act and the Accommodation Module. I consider that in the circumstances, it is just and equitable to make this order even though the order was not sought by the applicant. In my opinion, if this order is not made, the body corporate will not be able to convene an annual general meeting in accordance with the requirements of the Accommodation Module and there is a distinct possibility that this will result in a further application to this office, which will further delay the ongoing management and administration of the scheme. I consider that an order extending the time to call and hold the annual general meeting will enable the body corporate to properly resolve the financial status of lot owners and provide lot owners with proper accounts which demonstrate an accurate account of the financial position of the body corporate. It should be noted that while I have extended to time for calling and holding the annual general meeting, I have not similarly extended the time for submitting a motion for consideration at the annual general meeting^[10] or the time for making nominations for election to the committee^[11].

The applicant has also sought an outcome with respect to unauthorised payments. In my opinion, this matter should be considered by the body corporate in general meeting. Section 105(4) of the Accommodation Module provides that the body corporate may, by ordinary resolution, resolve to have its accounting records for a particular period, or for a particular project audited.

To ensure that each lot owner is fully aware of the circumstances surrounding the payment of contributions and the convening of the annual general meeting, I have ordered that a copy of the order and the accompanying reasons be given to the owner of each lot included in the scheme.

^[1] Schedule, Dictionary, "body corporate debt", Accommodation Module.
^[2] Section 58, Accommodation Module.
^[3] Section 47A, Accommodation Module.
^[4] Section 11, Accommodation Module.
^[5] Section 43(3)(a), Accommodation Module.
^[6] Schedule, Dictionary, "statutory motion", Accommodation Module.
^[7] Section 104(6), Accommodation Module.
^[8] Section 105(1), Accommodation.
^[9] Section 105(7), Accommodation Module.
^[10] Section 39(3), Accommodation Module.
^[11] Section 14, Accommodation Module.

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

(c)	a claimed or anticipated contractual matter about:
(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.

Queensland Body Corporate and Community Management Commissioner - Adjudicators Orders

Palm Beach North [2005] QBCCMCmr 577 (19 October 2005)