Teneriffe Hill Apartments [2005] QBCCMCmr 71 (9 February 2005)

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

Yates Nominees Pty Ltd, the Owner(s) of lots 1, 2, 51, 53, 54, 59, 65 and 66

I hereby declare that the committee resolution of 2 September 2004 to the effect that all future motions at general meetings be decided by secret ballot is invalid, on the basis that it was unreasonable for the committee to require all motions be decided by secret ballot to deprive the applicant of its right to demand a poll.

I further declare that, as a consequence, the resolutions passed by the body corporate at the general meeting of 5 October 2004 are invalid as they should not have been decided by secret ballot.

I further order that the motions put before the body corporate at its general meeting of 5 October 2004 are to be reconsidered at the upcoming annual general meeting of the body corporate unless, prior to the notice of meeting being distributed, the person who submitted the motion notifies the secretary in writing that they do not wish to pursue the motion.

I further order that the applicant must abstain from voting on any motion dealing with the subject of how the body corporate is to respond to applications brought by the applicant.

STATEMENT OF ADJUDICATOR’S REASONS FOR DECISION - REF 0602-2004

"Teneriffe Hill Apartments" CTS 24567

Teneriffe Hill Apartments Community Titles Scheme (THA) is a 68 lot scheme under the Body Corporate and Community Management Act (Act) and the Act’s Accommodation Module Regulation (Accommodation Module). The community management statement indicates that lots 1 and 2 are used for commercial purposes and lots 3 to 68 are used for residential purposes.

This is an application by Yates Nominees Pty Ltd, owner of lots 1, 2, 51, 53, 54, 59, 65 and 66 (applicant) seeking to declare invalid a resolution by the committee to the effect that all motions before the body corporate in general meeting must be decided by secret ballot.

The applicant was the developer of the scheme and continues to have an interest in the scheme as holder of both the commercial lots and a number of residential lots. James and Gayle Yates are directors of the applicant and are members of the committee of the body corporate.

This present dispute arose out of a separate application by the applicant seeking an adjustment of the lot entitlements for the scheme. The lot entitlements for the two commercial lots are 86 and 94 respectively, whereas the entitlements for the residential lots range from 5 to 7 entitlements per unit. The applicant considers that these lot entitlements for the commercial lots are too high resulting in the applicant paying a disproportional amount of any levies. On the other hand, these lot entitlements mean that the applicant has a proportionally higher vote if a poll vote is demanded and votes are counted according to lot entitlements rather than each lot having one vote.

Subsequent to the applicant lodging its application seeking an adjustment of lot entitlements, a motion was proposed seeking the removal of James and Gayle Yates from the committee of the body corporate. The applicant demanded this vote be a poll vote and the motion was defeated. It appears that the motion was defeated because of the applicant’s proportionally higher lot entitlements and that if all owners only had one vote per lot then the motion would have been passed.

The committee then resolved that all motions at the meeting of 5 October 2004 be held by secret ballot, and that all motions at all future general meetings also be decided by secret ballot. This prevented the applicants demanding a poll on ordinary resolutions meaning that owners had only one vote per lot irrespective of their lot entitlements. On 5 October 2004 I granted an interim order in favour of the applicant providing that certain motions, if passed by the body corporate, must not be implemented pending a determination of the validity of deciding those motions by secret ballot.

Other owners have also provided submissions. These included submissions to the effect that:

The applicant’s response denies that the applicant has defied decisions of the body corporate, acted in retribution against committee members or vexatiously lodged disputes. In particular, this response denies that the applicant decided on the place for the illuminated signage and attaches a letter from the company that installed the illuminated signage that says that company has developed a good working relationship with the local council and the council nominated the place of erection as the most suitable for the building.

Ordinarily, each lot in the scheme will only have one vote (Act, 108(2)). However, for any ordinary resolution not decided by secret ballot a lot owner is entitled to call for the vote to be decided by a poll (Act, 109). If the vote is decided by a poll then the motion is passed only if the total of the contribution schedule lot entitlements for the lots in favour is more than the total of the contribution schedule lot entitlements for the lots against (Act, 110). This means that an owner can influence the outcome of the vote to the same extent to which they will have to contribute to the costs of carrying out the resolution.

The exception is that an owner has no right to call for a poll when the vote is being decided by secret ballot (Act, 109). This is presumably because the holding of a poll by secret ballot would complicate the process and may actually deprive vote of its secrecy if the contribution schedule lot entitlements for a particular lot are unique. The legislation contemplates that there will be circumstances where the importance of a secret vote outweighs the right to demand a poll. The question in this instance is whether the committee is unreasonably depriving the applicant of its voting rights by deciding that all motions be decided by secret ballot.

The explanatory notes for the legislation indicate that the secret ballot procedures are designed to be used for particular types of resolution or in special circumstances. The purpose is to allow owners to cast their votes anonymously and free of the threats or influence of another.^[1] However, in this instance, the committee have resolved that all resolutions of the body corporate should be by secret ballot. Members of the committee have made comments to the effect that it is necessary to do this to redress the disproportionately high voting rights of the applicant on a poll.
The applicant has submitted that it is an unfair and unjust abuse of power for the committee to deprive the applicant of its voting rights by acting in this manner.

Courts in equity have established the doctrine of ‘fraud on a power’ stating "a person having a power, must exercise it bone fide for the end designed, otherwise it is corrupt and void"^[2] and establishing that the doctrine of fraud on a power "authorises intervention where the power is exercised in bad faith or for purposes foreign to the power"^[3]. The New South Wales Court of Appeal has recognised this doctrine of fraud on a power as being of general application and, specifically, as applicable to bodies corporate under the Strata Titles Act of New South Wales.^[4]

Adjudicators have jurisdiction to declare a resolution void if unreasonable or to declare a motion passed if the opposition to it is unreasonable (Act, 276). In considering whether a resolution is unreasonable it is instructive to consider decisions of the courts that have found a procedurally valid exercise of a power invalid on the basis it constitutes a fraud on the power. In particular, it is relevant that a fraud on a power can be constituted if the power is exercised for a purpose or with an intention beyond the scope of the power.^[5] The conduct does not need to be dishonest or immoral to constitute a fraud on the power.

In all the circumstances, I am prepared to declare invalid the committee resolution of 2 September 2004 to the effect that all future motions be decided by secret ballot. This is on the basis that it is an unreasonable exercise of a power directed towards depriving the applicant of its voting rights (Act, 94).

As a consequence, I will also invalidate the resolutions passed at the extraordinary general meeting of 5 October 2004 on the basis that the applicant was unfairly deprived of its opportunity to call a poll. However, I note that the body corporate will shortly be holding its annual general meeting and I will therefore make an order that these motions be reconsidered at the upcoming general meeting by open ballot unless the person submitting the motion agrees in writing that they do not wish to pursue the motion.

Members of the committee have made statements to the effect that it is fairer if all owners can only exercise one vote for each lot rather than being able to call a poll. They have also submitted that the applicant is acting unreasonably and favouring the commercial lots over the residential lots.

I can appreciate these submissions, particularly in the context of the applicant using its contribution schedule lot entitlements to influence a poll at the same time as the applicant is claiming those entitlements are too high and is seeking to reduce those entitlements and the corresponding levies payable by the commercial lots. However, the applicant currently has a right to demand a poll and is required to contribute to any activities of the body corporate in proportion to the current contribution schedule lot entitlements. It is an unreasonable abuse of power for the committee to use a secret ballot merely to deprive the applicants of its voting power and the applicant has been granted relief by this order.

However, this does not mean that the applicant has a right to exercise its vote to unreasonably favour the commercial lots over the residential lots. If any owner can establish that a particular resolution of the body corporate is unreasonable or otherwise contrary to legislation then that owner may seek an order from an adjudicator to overturn the resolution.
For example, an occupier must not use a lot or the common property in a way that causes nuisance or interferes unreasonably with the use of another lot (Act, 167). If an occupier can show that the positioning of an illuminated sign causes a nuisance or interferes unreasonably with the enjoyment of his lot then that occupier would be entitled to an order to prevent a continuation of the nuisance.

I will therefore make an order in favour of the applicant but caution the applicant that it is not legitimate to exercise its voting rights to unreasonably favour the commercial lots or in a way that is otherwise contrary to legislation.

There is one current issue on which the body corporate’s submissions show that the applicant has threatened to act unreasonably in exercising its voting rights. This is in threats to vote against the engagement of legal representatives and the incurring of legal expenses by the body corporate in response to applications lodged by the applicant.

By lodging an application against the body corporate, the applicant has brought about a situation where its own interests conflict with those of the body corporate. This raises some concern about whether it would be proper for the applicant to vote against proposals that the body corporate engage lawyers to defend the applicantions brought against it by the applicant.

Under the law relating to corporations, members of a company may generally vote in their own interests.^[6] However, the courts of equity have consistently invalidated the exercise of voting power by a majority of members in a company where the vote is a means of securing some personal gain rather than for purposes of the proper management of the company.^[7]

Similarly, in this jurisdiction, it is only committee members who are specifically prohibited from exercising their vote subject to a conflict of interest at committee level (Commercial Module, 23). Owners are not subject to any specific provisions regarding a conflict of interest when voting in general meetings. However, decisions of bodies corporate are subject to an overriding restriction in that the body corporate must act reasonably in carrying out its functions and administering body corporate assets (Act 94, 152). I consider it unreasonable for the applicant to bring an application against the body corporate and then use its disproportionately greater lot entitlements to impede the body corporate’s ability to defend the application. The applicant has created a conflict of interest situation and it would be unreasonable of the applicant to vote in its own personal interests and prevent the body corporate obtaining proper legal representation.

I note that the conflict of interest situation above is different from the applicant legitimately using its voting power to defeat a motion seeking to remove the applicant’s representative from the committee. There is no conflict of interest in the applicant merely voting for representation on the committee where the applicant considers that representation to be in the best interests of the body corporate and for the proper management of the body corporate. Examples of a conflict of interest would be one person being involved in both sides of a dispute, as above, or one person being involved on both sides of a commercial agreement, for example if an owner were to vote that the body corporate engage the owner as a service contractor.

Submissions on behalf of the applicant express concern that the applicant is being denied access to records of the body corporate, including records relating to the dispute and records that would justify the significant increase in the postage and handling expenses of the body corporate.

The applicant has no entitlement to access confidential communications between the body corporate and its lawyer in respect of the applications it has brought against the body corporate. This is specifically recognised in the provision of the legislation governing access to records (Accommodation Module, 149).

However, the applicant is entitled to other records including financial records that reveal the body corporate’s expenditure (Accommodation Module 149, 150).

While it is not the subject of this application, the applicant has expressed a concern that members of the committee are conducting a campaign against it and using body corporate funds to produce and distribute information to solicit votes against the applicant.

It would be difficult to criticise a decision of the committee to expend a reasonable amount of money on distributing information to owners about legal proceedings the body corporate is engaged in or other matters of interest to owners. In fact, some provisions of the legislation require the committee to send explanatory material to owners.

However, it would not be appropriate for material to be sent at body corporate expense if that material is sent without committee sanction and it would not be appropriate for the committee to sanction the sending of material at body corporate expense if that was partisan material for the purpose of soliciting votes. That is the type of material that should be sent at the cost of the owner or group promoting that particular viewpoint.

For the reasons above, I will make an order invalidating the resolutions purportedly passed by secret ballot at the general meeting of 5 October 2004. Instead, the motions put forward for that meeting will need to be considered at the upcoming annual general meeting unless the person submitting the motion no longer wishes to pursue the matter.

For the annual general meeting, the applicant will be entitled to exercise its voting rights and demand a poll on motions not properly put forward for consideration under a secret ballot. However, the applicant should not be entitled to exercise its vote in its own interests rather than in the interests of the body corporate in a conflict of interest situation where the applicant has brought an application against the body corporate. I will therefore make an order that the applicant must abstain from voting on any motion that deals with the subject of how the body corporate is to respond to applications brought by the applicant.

^[1] Explanatory Notes, Body Corporate and Community Management and Other Legislation Amendment Bill 2002, page 65.
^[2] Aleyn v Belchier (1758) 28 ER 634.
^[3] LGSS Pty Ltd v Egan, [2002] NSWSC 1171.
^[4] Houghton & Anor v Immer (No. 155) Pty Ltd (1997) 44 NSWLR 46, referring to Free Church of Scotland v Overtoun [1904] AC 515 at 695.
^[5] Lin & Anor v The Owners – Strata Plan No. 50276 [2004] NSWSC 88, referring to Vatcher v Paull [1915] AC 372.
^[6] East Pont Du United Lead Mining Co v Merryweather (1864) 2 H&M 254.
^[7] Peters American Delicacy Co Ltd v Heath [1939] HCA 2; (1939) 61 CLR 457.

Number of Scheme:	24567
Name of Scheme:	Teneriffe Hill Apartments
Address of Scheme:	Cnr Florence & Chermside Streets TENERIFFE QLD 4005

Queensland Body Corporate and Community Management Commissioner - Adjudicators Orders

Teneriffe Hill Apartments [2005] QBCCMCmr 71 (9 February 2005)