Raffles on Capri [2005] QBCCMCmr 611 (4 November 2005)

Number of Scheme:	28124
Name of Scheme:	Raffles on Capri
Address of Scheme:	103 Salerno Street, Isle of Capri QLD 4217

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

CLH Nominees Pty Ltd, the caretaking service contractor and letting agent for the scheme as at 1^st June 2005

I hereby order that within 7 days of the date hereof the body corporate for Raffles on Capri refund to the applicant CLH Nominees Pty Ltd, one third of the "transfer fee" paid by the applicant to the body corporate on 1^st June 2005 as a condition of the transfer by the applicant of relevant contracts giving caretaking and letting rights to Fleming Management Pty Ltd, so that no more than 2% of the market value for the transfer of those rights shall have been paid to the body corporate by the applicant.

STATEMENT OF ADJUDICATOR’S REASONS FOR DECISION - REF 0398-2005

"Raffles on Capri" CTS 28124

APPLICATION

This is an application dated 1^st June 2005 by CLH Nominees Pty Ltd (the applicant) through its sole director Chris Harper, who at the time the application was made was the caretaking service contractor and letting agent for Raffles on Capri CTS 28124. The application is against the body corporate for Raffles on Capri CTS (the body corporate) for the refund of a transfer fee described variously in the application as $26,700 and $27,600, paid by the applicant on transferring its rights under an engagement with the body corporate to another on 1^st June 2005.

The sum represents 3% of the fair market value (selling price) of the transfer to Fleming Management (Qld) Pty Ltd, requested by the body corporate under section 83 of the Body Corporate and Community Management (Accommodation Module) Regulation 1997 (the Accommodation Module).

The applicant seeks relief from payment of any transfer fee on the following alternative grounds -

The application was made through the applicant’s lawyers Small Myers Hughes (SMH).

JURISDICTION

"Raffles on Capri" Community Titles Scheme 28124 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 (Accommodation Module).There are 51 lots in the scheme.

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 applicant transferred the management rights to Raffles on Capri on 1^st June 2005, some time after filing his application with the Commissioner’s office. Although lawyers acting for the body corporate have queried the time at which the application was lodged, I am satisfied that at the time of lodging the application, 2.13pm, the applicant was the caretaking service contractor for the scheme and therefore a person who can bring a dispute before by the Commissioner for Body Corporate and Community Management within section 227 of the Act.

THE FACTS OF THE APPLICATION

The undisputed facts are as follows-.
Whilst there have been some typographical errors by both parties concerning dates, and the amount in question, I am given to understand that Christopher Laurence Harper and the applicant entered into a Caretaking Agreement and a Letting Agreement on 1^st September 2003 with the body corporate. Unfortunately, all originals of these two documents were lost, purportedly in the hands of the applicant’s mortgagees.

The two agreements transferred to Mr Harper and the applicant, the benefit of a Caretaking Agreement and a Letting Authorisation Agreement between the body corporate and Jagdev Singh and Harsharan Cheema executed on 1^st December 2000 for a term of 25 years.

As the documents were lost, the body corporate resolved at a general meeting to "re-adopt" the caretaking agreement and the letting agreement. The motion to enter and execute the deed of engagement and deed of authorisation was put to the annual general meeting on 19^th August 2004, and passed by ordinary resolution 10/1 in favour recorded by a returning officer. There was at that AGM no motion concerning waiver or imposition of a transfer fee in the event of future transfer

This "re-adoption" was effected by a Deed of Engagement and a Deed of Authorisation (the New Agreements) being executed between the applicant, Mr Harper and the body corporate on 3^rd September 2004. The applicant is referred to in those Deeds as the lawful assignee of the 2000 agreements.

The applicant transferred on 1^st June 2005 to Fleming Management Pty Ltd the benefit of the New Agreements. The committee resolved on 30^th May 2005 to consent to the transfer and to impose a ‘transfer fee’ of 3% of the fair market value of the management and letting rights business as a condition of approving the transfer. The sum of either $26,700 or $27,600 ( the sum itself is not in dispute) was paid to the body corporate, being 3% of the market value. The original term of 25 years remained the same, ie the engagement ends in 2025.

The applicant’s sole director Chris Harper sustained injuries on 20^th December 2003 as a result of an assault. He suffered a large amount of swelling to side of face, shoulder injuries, and a fractured nose. The police attended and he was admitted to hospital. On 9^th January 04 he had a heart attack. He was found to be suffering from coronary artery disease. He had no previous cardiac history. From November 2004 he attended Trevor Lotz, psychiatrist as a patient with a Chronic Depressive Illness.

SUBMISSIONS

The applicant states that it has asked the committee not to impose the transfer fee, but it has done so. It has paid in order to affect the transfer on 1^st June 2005 but seeks a refund. It says that the body corporate manager "made representations to the Applicant prior to the Applicant executing the New Agreements... that no such fee would be imposed..."

The applicant further says at clause 3.1.5 of the application: -

The applicant acted in reliance on a representation made by the body corporate manager. In support of such representation it provides a copy of a fax dated 5^th July 2004 from Chris Harper’s brother-in-law Carl Rawlinson (Mr Rawlinson) to the body corporate manager, which stated:-.

Mr Rawlinson proposed that an extraordinary general meeting be called in August 2004, to approve and execute the new agreement, and stipulated that a condition should be that any future sale should" not attract a transfer fee." This was "to protect Chris’s interest" and because of the "initial confusion" about the transfer to CLH Pty Ltd. The resolution sought at the general meeting was "that the Body Corporate will not impose any transfer fee during the first three years of the life of the new agreement."

In support of its second ground, the applicant states that the New Agreements were identical to the terms of the original lost document with the exception of the starting date and the remuneration, which was merely increased in accordance with the original adjustments annually. It argues that the New Agreements commenced on 3^rd September 2004 which was "more than 3 years after the commencement date of the original agreement" ie 1^st December 2000.

Thirdly, the applicant asks that the committee waives the fee on account of the genuine hardship of the sole director Chris Harper in reliance on section 83(6) Accommodation Module

the contract date.

As well as the injuries sustained, a separation from his wife and subsequent heart attack and depressive illness, the applicant says that Chris Harper and the company has got into debt by employing other people who could help him perform the contract, and the applicant has therefore suffered financial hardship.

Submissions were invited from all lot owners in accordance with section 243(2) (b) of the Act. Submissions were received from the body corporate via Hynes Lawyers on 26^th July 2005, and amended on 27th July 2005; from Helene Murphy and Peter Deidun, co-owners of Lot13; Helen and Kevin Johnson co-owners of Lot 34; TR Donovan co-owner of number 31; Shirley Withnall owner of Lot 38; and Paul Cleverley a lot owner in the scheme.

With regard to the first ground, the body corporate says that the applicant cannot rely on any representations made by the body corporate manager as to whether or not the body corporate would impose a transfer fee, and that this is a matter for the committee. It says that in any event, the body corporate manager did not receive a fax dated 5^th July 2004 from Mr Rawlinson, setting out suggested conditions for the preparation of a new management agreement including a condition that a resolution of the body corporate be sought that no transfer fee be imposed should the new agreement be transferred. However, this fax has since been supplied by the body corporate manager.

Further, the applicant never put such a motion to a general meeting, nor asked the committee to put such a motion forward, and must have known that such a resolution was not passed.

With regard to the second ground, the body corporate examines whether the New Agreements were "service contracts" for the purposes of the Act, such as might trigger the imposition of a transfer fee on assignment. It states that the two contracts fulfilled the criteria for "service contracts" in compliance with section 76 of the Accommodation Module. It says the applicant "received a substantial benefit from entry into the Service Contract" and that section 83 Accommodation Module which allows for the imposition of a transfer fee, does not contain any exemptions for lost contracts.

With regard to the third ground, it argues that the hardship must be genuine and not reasonably foreseeable. It states that since the hardship alleged concerned incidents in December 2003 and January 2004, and the contract was entered into on "1^st September 2004" (sic), then the hardship preceded the date of the contract, and was therefore foreseeable.

Helene Murphy and Peter Deidun, co-owners of Lot13 do not address the issue of the transfer fee, but say that they were not happy with the applicant’s performance. Helen and Kevin Johnson co-owners of Lot 34 support the body corporate on the imposition of the transfer fee; TR Donovan co-owner of number 31, does not comment on the transfer fee, but did not find the applicant’s level of service satisfactory. Paul Cleverley says that there is no documented agreement between the applicant and the body corporate to say that a transfer fee would be waived. Shirley Withnall owner of Lot 38 also opposes the application.

In reply, the applicant says that submissions about the applicant’s standard of work are irrelevant to the issue. Further, the missing fax of 5^th July 2004 has been located by the applicant in the body corporate records, so it must have been received. In fact, the body corporate manager forwarded it to on to the body corporate’s then solicitors McDonald Balanda and Associates, on the same day.

It reiterates that negotiations surrounding the execution of the New Agreements were conducted on the basis that the applicant would enter into them provided that the transfer fee would not be imposed, and says that an email sent to the applicant by Jenny Rawlinson (Mrs Rawlinson), Chris Harper’s sister, and dated the same date as the submission in reply, ie 30^th August 2005 supports this.

It denies that there was any substantial benefit from entering into the New Agreements in that the terms were identical to the old lost contracts and that the contracts were entered into "at the request of the body corporate."

DETERMINATION

On 26^th October 2005, following a request for further information, the body corporate manager provided copies of body corporate records. I am satisfied that there was no general meeting in July 2004, as stated by Mrs Rawlinson in the applicant’s reply, and there was no resolution passed by either the body corporate or the committee specifically stating that a transfer fee would not be imposed.

The body corporate manager says that she made no representations to the applicant that a fee would not be imposed, and that such a decision was not hers to make. She acknowledges that such a request was made by Mr Rawlinson on the applicant’s behalf, but this was never confirmed.

In a fax dated 11^th June 2005 to SMH, Mr Rawlinson says that he made the call to the body corporate manager in July 2004 "on Chris’s behalf as his health had been poor as a result of the breakdown of his marriage, personal physical abuse, a heart attack and on-going chronic depression."

He says he also discussed with the body corporate manager the imposition of a transfer fee and that the body corporate manager said that "it would be agreed by special resolution at the next Body Corporate meeting."

I find it entirely plausible that Mr Rawlinson may have misunderstood the role of the body corporate manager, but that the body corporate manager did not make any representations that the transfer fee would not be imposed. She correctly stated that it would have to be put to a general meeting.
The AGM was held on 19^th August and the motion for entering into the new agreements was drafted by solicitors for the applicant Manley and Associates, after repeated requests from the body corporate manager for the submission of the motion prior to the meeting. The content of that motion was completely beyond the control of the body corporate manager.

The first ground is therefore dismissed

The motion to the AGM was prepared by Manley and Associates, and forwarded to the body corporate manager on 26^th July 2004, with an "explanatory note" about the motion for lot owners’ understanding of the reason for the motion. After an initial explanation, the explanatory note says-

b) the commencing remuneration is the annual remuneration in 2003......"

Mrs Rawlinson refers to a motion on the agenda for a general meeting in July 2004 which "specifically stated that the 3-2-1- penalty would not apply." She says that this was on the agenda that was sent out to all unit owners prior to the meeting. No such document is provided with the application, and I do not find her recollections reliable. She is clearly referring to the August 2004 AGM, but perhaps she is also referring to the explanatory note set out above?

Nor am I convinced by the applicant’s interpretation of section 83(3) of the Accommodation Module which states –

approves the transfer is not more than 3 years after the date (the "contract

which the term of the engagement or authorisation was extended,"

as referring only to the original engagement. If the ‘transfer fee’ was only payable within 3 years of an original 25 year contract, and not to subsequent assignments, there would have been no need for Mr Rawlinson to campaign on the applicant’s behalf that the transfer fee would not be imposed. The cut off date for imposing the fee would have been in December 2003.

However, I am satisfied that the New Agreements were intended to replace agreements entered into on 1^st September 2003, and were identical in substance. There would have been no need to enter into the New Agreements if the originals had not been lost.

Both the New Agreements contain identical wording at clause 3. as follows –

If any transfer fee is payable, then the relevant amount should only be 2% of the market value, and not 3%, relating as it does to the second year of performance ( June 2005) of the contract by the applicant.

I note that between July 2004 and May 2005, the body corporate changed its lawyers, and find that it may have been unintentionally influenced by a paragraph from its latest legal advisers, which is quoted in the committee minutes 30^th May 2005.

The advice was that a body corporate often chooses to waive the fee "because they feel that the Manager has provided as high level of service to the Body Corporate."

That is not to say, that where the body corporate manager has not provided good service that the transfer fee should be used as a kind of fine or penalty. The object of the section is that where the body corporate is exposed to the inconvenience of having to accept a new caretaking service contractor, with very little power to prevent a transfer, then if that transfer occurs close to the engagement of the transferor, then the body corporate may recoup some of its inconvenience in money. The performance of the caretaking service contractor is in fact irrelevant to the imposition of the transfer fee, but as stated by Hines Solicitors, its application is discretionary and not a legal obligation.

There is no evidence that the applicant "received a substantial benefit from entry into the Service Contract" as alleged by the body corporate, although I am not sure what weight such evidence might have had, had it been supplied.

I find that the New Agreements are contracts to which the ‘transfer fee’ could attach, but that the commencement date of the engagement was 1^st September 2003.

The remaining question then is whether, if the body corporate is minded to impose the transfer fee, it should be waived because of genuine hardship on the part of the transferor, which was not reasonably foreseeable at the contract date. (section 83(6) (b) Accommodation Module.) The contract date is the date on which the engagement or authorisation was entered into (section 83(3) Accommodation Module.) which I have found to be 1^st September 2003.

I find this a difficult question because the applicant’s sole director Chris Harper, has clearly suffered physical, emotional and financial hardship such as could not have been foreseen by him on 1^st September 2003, at the commencement of the engagement. However, following the hardship suffered which commenced at latest on 20^th December 2003 and continued thereafter such that he was unable to handle his business affairs himself in July 2004, his company confirmed its existing engagement on 3^rd September 2004. It is the company which is the engaged caretaking service contractor.

With no physical contract to assign, the applicant’s prospects of transferring its business might have been blighted. It took the commercial decision to re-affirm the contract with the body corporate. The body corporate entered into the New Agreements in good faith, on the assurances that the applicant , Mr Harper and/or Mr and Mrs Rawlinson, and temporary staff employed by the applicant would be able to continue to perform the existing contract.

Whilst it is clear that Mr Harper was to perform duties, the applicant is a company, which can only suffer financial hardship and not physical or emotional hardship. There has been very little evidence, if any, of the extent to which the applicant may have suffered financially because of the indisposition of Mr Harper, although it is clear that because of the illness of the person who was mainly to perform the duties on behalf of the applicant, the expenses would have been greater, or the profits less, then anticipated. It is said that Mr Harper has incurred "significant debt" but there are no details given of that debt.

Mr Harper’s psychiatrist, Trevor Lotz, says that Mr Harper’s "psychological vulnerabilities at the time of the negotiations should be taken into account." The negotiations referred to are those that took place in July and August 2004. It is not argued however on the applicant’s behalf that at the time of re-affirming the contract, Mr Harper did not understand what he was doing, ie that he was unable to make a decision as director of the applicant.

He was doing his best for the applicant by taking steps to make sure that he had an assignable contract so that he could transfer it as soon as possible. He did not succeed in securing the condition that no fee would be imposed, which he perhaps thought he had.
The fact that his traumatic domestic circumstances persuaded him to make a possibly ill-advised business decision is not a matter which the body corporate need excuse, if it does not wish to do so.

The third outcome sought is therefore dismissed.

I order that the body corporate will refund to the applicant a sum equivalent to 1% of the market value of the transfer to Fleming Management Pty Ltd on 1^st June 2005 so that the total sum imposed by the body corporate in June 2005 does not exceed 2% of the agreed sale price.

Queensland Body Corporate and Community Management Commissioner - Adjudicators Orders

Raffles on Capri [2005] QBCCMCmr 611 (4 November 2005)