Fletcher [2005] QBCCMCmr 85 (15 February 2005)

TAKE NOTICE that pursuant to an application made under the abovementioned Act by: Margaret Joy SMITH as both attorney for Ruby Ellen SMITH and co-executor with Jennifer GREENSLADE for the Estate of Collin William SMITH, the co-owners of Lot 3; and Margaret Joy SMITH, as the owner of Lot 4,

I hereby order that in respect of the following resolutions purported to have been passed at the extraordinary general meeting of the body corporate held on 15 July 2004 -–

1. The resolution appointing a replacement body corporate committee was at all times void except to the extent that Paul Brinsmead is the chairperson, and as a consequence and by this order the previous positions of secretary and treasurer held by Jennifer Greenslade and ordinary member by Allan Dale remain held by those persons, and the three persons Brinsmead, Greenslade and Dale solely comprise the current committee.

2. The resolution for the remuneration of the body corporate chairperson up to $1,200 annually, is invalid and any payments made on the authority of the resolution must be reimbursed by the recipient to the body corporate.

3. The resolution for the Administrative Fund budget of $18,000 and a contribution of $3,000 per lot entitlement, is reduced to the amount of $13,580 and a contribution of $2,263, by the removal of the line item "Contract Cleaning & Gardening" at a cost of $4,420 which is invalid, and any contributions based on the purported budget levied on owners must be adjusted accordingly and any adverse action taken against an owner, whether financial or in respect to voting eligibility, must be remedied as if the situation giving rise to the adverse action never existed.

I further order that the body corporate must within two (2) months of the date of this order engage a structural engineer to inspect and give a written report as to the nature and source, and recommendations as to how best to rectify, any defect or fault found, including those instances identified by Solutions IE Pty Ltd in its report to the body corporate dated 19 August 2004 (a copy of which must be provided to the structural engineer), in regard to –

• concrete corrosion or spalling in the scheme; and
• water penetration and other damage to the stairwell walls, including whether the damage is being caused by water penetration from within lots,

and to facilitate the inspection I order that lot owners must provide reasonable access for the structural engineer to inspect their respective lots.

I further order that the body corporate must consider the structural engineer’s report in general meeting and determine how the problems identified may be best rectified by the body corporate in respect to common property, and owners in respect to their lots, in order that the body corporate and owners properly discharge their respective maintenance duties under the legislation.

STATEMENT OF ADJUDICATOR’S REASONS FOR DECISION - REF 0613-2004

"Fletcher" CTS 13178

The applicants, Ruby Smith and the Estate of Collin Smith of Lot 3, and Margaret Smith of Lot 4, have sought the following order of an adjudicator under the Body Corporate and Community Management Act 1997 ("the Act") -

JURISDICTION:
This is a dispute between owners (the applicants representing Lots 3 and 4) and the body corporate (the respondent) concerning the following matters: the validity of resolutions to remove and replace committee members and to remunerate the chairperson; to reduce the Administrative Fund Budget; and to give effect to two rejected motions for the necessary repair of common property structures. These are matters that fall within the dispute resolution provisions of the legislation (see sections 227, 228 and 276 of the Act) and may be determined by a departmental adjudicator.

General powers of an Adjudicator in making an order:
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) of the Act). An adjudicator’s order may contain ancillary or consequential provisions the adjudicator considers necessary or appropriate (section 284(1) of the Act).

APPLICATION AND SUBMISSIONS:
In accordance with section 243 of the Act, a copy of the application was provided to the respondent body corporate (committee) and the only other owner, Resort Corporation (No.2) Pty Ltd (the owner of Lots 1, 2, 5 and 6) with an invitation to each to respond to the matters of dispute raised in the application. A submission was received from Hickey Lawyers (Sean Whittle) with advice it acted for the body corporate in the matter. The applicants viewed the submission and subsequently lodged a reply (see sections 244 and 246 of the Act).

The brief facts of the matters are as follows.

The scheme was developed by the original owners of the land, Collin and Ruby Smith, and the applicants Margaret Smith and Jennifer Greenslade are their daughters. It is near 30 years old but occupies a prime waterfront position on Pacific Parade, Currumbin Beach. The scheme was self-managed by various family members with no properly functioning body corporate until, by Order 565-1999 dated 23 September 1999, Margaret Smith was appointed administrator of the body corporate for the purposes of calling a general meeting to re-establish the body corporate as a functioning body operating in accordance with the legislation. A meeting to that purpose was held on 7 November 1999.

Since then, Resort Corporation (No.2) Pty Ltd ("Resort") has purchased four of the six lots. The applicants state that Resort has also purchased adjoining property. At the annual general meeting held on 29 January 2004, Jamie Bolic of Hickey Lawyers exercised the vote for Resort as its notified company nominee. By motion proposed by Resort and by its majority vote, Stewart Silver King and Burns (Gold Coast) Pty Ltd ("SSKB") was engaged as the replacement Body Corporate Manager. Motion 14 submitted by Resort was to set the Administrative Fund contribution at $3,000 per lot entitlement/owner (equal lot entitlements) and the Sinking Fund contribution at $5,000 per lot entitlement/owner (ditto). This was ruled out of order as there were no budgets supporting the motion. The alternative budgets proposed by the then committee were rejected on the majority vote of Resort. Nominations by Resort for three executive and four ordinary member committee positions were declared invalid as the nominator had not signed the multiple nomination form.

By notice dated 28 May 2004, Resort (through Hickey Lawyers then acting for Resort) sought a "requested extraordinary general meeting" ("the meeting") under section 61(1) of the Body Corporate and Community Management (Standard Module) Regulation 1997 ("Standard Module"). The request included the following motions: the ouster of all three members of the committee and their replacement by 6 persons associated with Resort; a contribution of $3,000 and $5,000 per lot entitlement/owner for the Administrative and Sinking Funds respectively; and a motion for the refurbishment of the common property for a quoted price of $687,000 plus GST. The applicants submitted two motions which were also included in the agenda for the meeting, being for repair of the stairwell and rectification of concrete corrosion.

The requested meeting was held on 15 July 2004. The outcomes relevant to this application are as follows:

I shall address each of these dispute issues under "Determination" when I shall take into consideration both the applicant’s grounds to the application and their reply to the submission of the respondent body corporate, and the submission of the body corporate,

DETERMINATION:
"Fletcher" was registered as a building units plan (now termed a building format plan) on 12 December 1975 and comprises 6 lots. It is regulated by the Body Corporate and Community Management (Standard Module) Regulation 1997 ("the Standard Module").

I shall determine each of the orders sought by the applicants under separate heading, assessing the evidence of the parties against the applicable legislative provisions.

1. Ouster and replacement of Committee.
Section 25B of the Standard Module provides that a committee member may be removed from office by ordinary resolution of the body corporate, and may be replaced at that same meeting by the appointment of a person eligible to be a member of the committee. At the meeting, the three members then constituting the committee were removed and six replacement members appointed, presumably in reliance on this provision.

The "required numbers of members for committee’ for this scheme is 6 members (see definition in the Dictionary Schedule and section 22(4) of the Standard Module) which is the number of appointments made at the meeting, presumably made in reliance on this provision.

The removal and replacement of the committee is unlawful for a number of reasons; the relevant legislative provisions have been in force since 1 December 2003 and should be well known to committees and professionals.

The means for choosing a committee with a number of members in excess of those who initially nominated, is set out in section 22(4) which refers specifically to the annual election of members. The provisions relating to the filling of vacant committee positions (see Division 5A of Part 1 of the Standard Module) does not similarly provide that additional members may be sought and appointed; it only provides that persons may be appointed to vacant positions. That is, where the number of positions filled at the annual election meets the minimum required number of members criteria then the membership number is fixed for that year. One might argue, in a general way, that the benefit of wider membership being the basis for section 22(4) would also be of benefit during the term of a committee, particularly where a complete ouster of a committee (for whatever reason) requires a completely new committee be chosen. However, this argument has little merit against the language and purpose of Division 5A which is quite clear; certainly it is not supported by anything given in the explanatory notes to the relevant amending legislation, Body Corporate and Community Management Legislation Amendment Regulation (No.1) 2003 ("the explanatory notes").

In any case the appointment of the new committee is invalid on other grounds as well. Section 25E of the Standard Module makes specific provision regarding the nomination of persons to fill vacant committee positions, in stating –

This provision mirrors the restriction imposed on nominations by lot owners under sections 13(2) and 13A of the Standard Module relating to nominations for annual elections, specifically that a lot owner may only nominate one person (whether themself, another lot owner or a person eligible under section 10) whether to one or more positions (see 13A(2)(b)). It would be incongruous if an owner had a wider nominating power in filling vacancies than for the annual election of committee.

Accordingly, in section 25E the term "to any of the following" refers to the ability to nominate a particular person for different positions, and not multiple persons to a different position each.

In both instances lot owners are limited to one nomination: for individuals, themself or another lot owner or a person who may be nominated by a lot owner; and for persons other than an individual (such as Resort), a lot owner or a person who may be nominated by a lot owner under section 10(b)(ii) or (iii) of the Standard Module.

The person a lot owner may nominate for a vacancy must be eligible to be a member of the committee (see section 25E(1) of the Standard Module). Eligibility for a person where the nominating entity is a corporation, such as Resort, is defined in section 10(1)(b)(ii) of the Standard Module as, apart from a member of the body corporate, a director, secretary or other nominee of the corporation.

That is, Resort is a lot owner and like any lot owner can only nominate one person for one position, or one position and alternative positions. The fact that it owns 4 lots does not allow it to nominate more than 1 person.

The reason for limiting the nominating power of multiple lot owners is explained in the explanatory notes at page 83 -

The provisions relating to nominations by multiple lot owners is analogous to the provisions relating to a quorum in that a multiple lot owner is still only counted as 1 person for the purposes of determining whether a quorum exists or not.

In viewing the removal and replacement appointment motions, the appointment resolution is lawful and effective for the first appointment, that of Paul Brinsmead as chairperson, but the following five appointments are unlawful. In my order I have severed the appointment of Brinsmead from an otherwise unlawful nomination of persons and his appointment in lieu of Margaret Smith stands.

While the removal resolution for all three members could stand, it seems to me that the just and equitable solution in the circumstances (see section 276 of the Act) is for the balance of the removal motion to be dispensed with in that it was based on the false belief that Resort could make appointments to the other two positions as well (and more), and for the former holders of the positions of secretary & treasurer (Jennifer Greenslade) and ordinary member (Alan Dale) retain their positions.

The resulting committee will in fact reflect the highly probable composition of the committee in the future when all three owners (or their individual nominees) will comprise a committee of three.

Accordingly, I have included in my order a declaration that the committee comprises in total Brinsmead as chairperson, Greenslade as secretary & treasurer, and Dale as ordinary member.

2. A motion by Resort for refurbishment of the common property as per attached quote for $687,000 excluding GST was withdrawn by Brinsmead for Resort.
While this motion was withdrawn by the proposer, Resort and is not directly part of an order sought, it has importance in providing background and reasons for the events relevant to the remainder of the orders sought.

Resort put the same motion, though differently worded, to the annual general meeting on 29 January 2004 and the meeting on 15 July 2004, namely –

The attached tender in the first instance was for $616,000 and the sketch plans show that the whole of the building was to be remodelled. It was ruled out of order by the chairperson. In the second instance only one of the two tenders provided by Resort to SSKB were submitted – Resort withdrew the motion. However, the tender submitted and served on owners with the notice of meeting is from Eastview (Australia) Pty Ltd for $687,000 (excluding GST).

The immense cost of the proposed renovations, probably near $.75m with GST included, for a six lot building, and the sketch plans, reveal that Resort is desirous of the building and environs being completely renovated to approximate the appearance of a contemporary building.

The original motion was wrongly put as requiring only an ordinary resolution, however this error was corrected at the more recent meeting. Section 113 of the Standard Module provides that improvements by the body corporate to common property that form a single project (as in this case) require authorisation by special resolution, unless the cost is below the "improvement limit" for the scheme (6 lots x $300 = $1,800). Section 106 of the Act provides that a special resolution is obtained when at least 2/3rds of the votes cast are in favour of the motion and the votes counted against the motion are not more than 25% of the number of lots in the scheme. That is, with the applicants holding 2 of the 6 votes they constitute more than 25% of the 6 lots and therefore a special resolution will not pass provided they both vote and both remain eligible to vote (eg are financial).

Presumably Resort is aware that the major renovations can only be achieved with the cooperation of at least one of the two other owners, and from the comments in this application that may be a difficult task.

The applicants have stated that a representative of SSKB offered to negotiate the sale of their lots to Resort, and that is of course an alternative means for Resort achieving its goal. Whether the representative actually said this or not (if so it would put SSKB in a position of conflict which it would have to resolve), is not known and I have no need to know in determining the orders sought. However what I will say is that the situation may well be one where this office needs to take care in both ensuring the rights of the minority applicant owners are protected but at the same time not be used as a means for their being placed in a position of commercial advantage in the possible sale of their lots. In other words this is not the first time a dispute has been brought for adjudication where a developer or other party has acquired a majority of lots and/or the voting power, and wishes to buy out the remaining owners to achieve some purpose whether re-development, a total refurbishment, student accommodation etc.

3. Motions for the stairwell repair and concrete rectification were lost on Resort’s opposition.
These motions were proposed by the applicants on the basis of an inspection and report by Solutions IE Pty Ltd ("the report") as a sinking fund analysis incorporating estimated costs for repairs and replacements for the next 9 years.

The applicants have submitted that when Motion 2 (stairwell repairs) was tabled, Brinsmead said that he would vote against the motion "as this work should be co-ordinated with a major renovation". Presumably, if this was actually said, the reference was to the renovations discussed in "2" above; also Resort’s vote against Motion 3 might well have been for the same reason.

In regard to Motion 3 (concrete corrosion), at page 12 of the report (along with two photographs of damaged areas), it states that "concrete spalling was evident in several locations... we recommend a report from a structural engineer...to best advise on any remedial action required" and later (with the report’s emphasis) "Several steps were showing signs of significant deterioration on the first flight up from the first floor, these should be repaired/replaced as soon as possible"

Section 109 of the Standard Module imposes a duty on the body corporate to maintain the common property in good condition and in a structurally sound condition. Accordingly, if the stairs are not in good condition or structurally sound, then the body corporate has an obligation to repair them as soon as possible.

However, the advice by Solutions IE Pty Ltd for the engagement of a structural engineer was not followed and I am loath to order the body corporate carry out repairs before that advice is acted upon. Accordingly my order is for the body corporate to engage a structural engineer to carry out the inspection suggested, and report to the body corporate on its findings. The body corporate should act if it is clear from the report that it has a duty to do so.

Motion 2 is an unusual mixture of proposed owner and body corporate obligations, and explanatory notes placed within the wording of the motion itself. There is clearly a problem with water penetration into the stairwell walls that needs to be remedied. The suggestion by the body corporate at paragraph 69 in its submission to the application (through Sean Whittle of Hickey Lawyers) that these repairs should form part of the major renovations to the building, is not a viable alternative as it seems unlikely from the comments of the applicants that they will agree to a special resolution to authorise Resort’s proposal.

It seems to me that this problem might also be investigated by the structural engineer engaged in respect to Motion 3. I understand that the applicants and Dale, as the former committee, have had tradesperson inspections carried out, however an engineer’s determination of the source and recommended remedial action, will provide a fresh and independent view of the problem and I have so ordered.

4. A Resort motion for the chairperson to be remunerated $1,200 annually was passed.
The appointed chairperson, Paul Brinsmead, is a principal of Resort and it was Resort that proposed the motion for the chairperson to be remunerated and it was Resort’s sole voting power that passed the motion. Doubtless Resort would have considered its voting power would see Brinsmead appointed and the recipient of the remuneration.

It is my experience as a referee for Building Units and Group Titles and as an adjudicator for community title schemes for over 10 years, that it is rare for a chairperson or other committee member to be remunerated. It is not a commercial position but one, like the instant one, of serving on a body overseeing the rights of owners regarding their homes. Membership is almost invariably voluntary even in larger schemes but especially in smaller ones of only 6 residential lots such as this.

Apart from this, the amount of up to $1,200 annually is far beyond what would be reasonable for the small amount of work the position involves. The amount is even more unreasonable when it is considered that the body corporate has engaged a professional Body Corporate Manager to do what secretarial and treasury duties there are, and to advise on the legislation. Also, the duties of a chairperson under the legislation are solely concerned with only the conduct of both committee and general meetings; no "presidential" or unilateral powers attach to the position.

Apart from these points, the major consideration for striking down this resolution is that Resort as the majority voter has, by advantage of that voting power, given one of its director/principals a financial benefit. Put another way, Resort has exercised its voting power for the benefit of a principal rather than in the interests of the body corporate. I shall explain this further.

The legislation does not expressly confer equitable jurisdiction on an adjudicator, however section 276 of the Act does impose on an adjudicator the overarching duty to make an order that is "just and equitable in the circumstances" to resolve a dispute. An adjudicator has jurisdiction to declare a resolution void if it is unreasonable, or to give effect to a motion if opposition to the motion is unreasonable (see section 276 and Items 8 and 10 of Schedule 5 "Adjudicator’s Orders" to the Act), and "unreasonableness" can arise from the application of equitable principles.

In the present matter, it is my view that the remuneration resolution attracts the application of the equitable doctrine of a fraud on a power, or more particularly, a fraud on a minority. This was recently addressed in an order (Order 521-2004) by an adjudicator colleague dealing with the situation of a majority corporate owner voting itself a service contract with the body corporate for a sum that was unreasonable. A relevant extract from the statement of reasons for the order reads –

I have already set out my reasons why I consider the remuneration decision was an exercise of Resort’s majority voting power in the interests of its principal rather than for the benefit of the body corporate. I would also point out that the term "fraud" here does not have its common connotation of criminality, as the relevant conduct does not need to be dishonest or immoral to constitute a fraud on a power. In that regard, the sum of $1,200 is not a princely sum but in the context of a payment to a chairperson at "Fletcher" it is an unreasonable amount.

For the above reasons I have declared by order the resolution passed in respect of Motion 8 to remunerate the chairperson, void.

5. A Resort motion for an Administrative Fund budget contribution of $3,000 per lot entitlement/owner was passed.
Under the wide powers granted by section 276 of the Act, an adjudicator has power to reduce or increase budget contributions where those decided are unreasonable (see Item 11 of Schedule 5 to the Act).

The body corporate committee compiled an Administrative Fund budget and proposed it to the January annual general meeting where it was rejected by the majority vote of Resort. The budget was for a gross amount of $4,000 with a $667 contribution for each lot entitlement/owner (equal lot entitlements). Resort proposed an alternative budget of $18,000 gross or $3,000 per owner. This motion was ruled out of order as no supporting budget was presented.

At the (July) meeting, the committee proposed a revised Administrative Fund budget for a gross amount of $2,978 and a contribution of $500; its budget was again rejected by Resort. Resort resubmitted its Administrative Fund budget for the same amount but with an itemised supporting budget.

By including the Body Corporate Management fee of $2,000 omitted by the committee, the budgets stand at $5,000 for the committee and $18,000 for Resort, a significant difference of $13,000 in the year’s costs.

It is not an adjudicator’s role to question budget decisions and choices by bodies corporate, except where there are conflicts with the legislation or exceptional circumstances.

The applicants have always carried out some of the lawn and garden maintenance themselves, but have paid $20 for mowing/weeding every 2-3 weeks as necessary (approximately $500 annually). Resort can require, by its majority vote, that the maintenance be carried out professionally and to professional standards. It cannot go beyond that to improvements without requiring the authorisation I have referred to earlier in these reasons. However, even where no improvements are involved, it will depend on the amount as to whether a service may be merely included in the budget or must meet other legislative requirements. For instance, the item "Contract Cleaning & Gardening" for $4,420 cannot be merely included in a budget without meeting the Major Spending requirements of section 104 of the Standard Module (cost exceeds threshold of 6 lots x $250 = $1,500).

That is, at least two tenders for the contract must be provided to owners by way of an alternative motion for owners to decide. A reading of sections 103(3) and 104 shows that owners cannot relinquish this choice to the committee let alone authorise it as a line item in a budget.

The applicants have submitted that the common property lawn is less than 5 metres by 15 metres in area and the estimated cost of $4,420 for cleaning and gardening is grossly excessive. It is a difficult task for me to decide a reasonable cost, though here because of the error I have only to strike out the item as being in contravention of the legislation and leave it for the body corporate to meet and determine the matter in the proper manner, and for a cost that is reasonable in terms of market cost. The tenders obtained by the committee should be independent and at market value.

I do not intend to examine each of the budget items except to say that while the $1,750 cost for "R & M Garden & Grounds" is an improvement (which the accompanying notation "rejuvenation" identifies as such) within the limit for an ordinary resolution (and I accept that its description and separation here is sufficient in meeting legislation requirements) the service provider must still be chosen it according to the Major Spending requirements. The committee should review the budget items and their reasonableness of cost with the above information in mind.

Accordingly, my order is to reduce the budget from $18,000 to $13,580 by the removal of the $4,420 item. It may be that there are other budget items that are excessive as the applicant’s contend however without any evidence in support of the contention no excess is obvious and, as I have stated, I am loath to intervene in budget choices. The committee should review them, and owners may of course monitor the selection of service providers, the services performed and the costs expended or proposed to be expended in comparison to market costs.

In summary, the meetings have not followed the legislation in quite a number of areas and, for the reasons given, I have made orders to remedy those contraventions and omissions. Resort should also be aware that while it has a majority vote, both the legislation and the common law provide protection to the applicant minority owners.

^[1] Gambotto v WCP Ltd [1995] HCA 12; (1995) 182 CLR 432.
^[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] East Pont Du United Lead Mining Co v Merryweather (1864) 2 H&M 254.
^[6] Peters American Delicacy Co Ltd v Heath [1939] HCA 2; (1939) 61 CLR 457

Number of Scheme:	13178
Name of Scheme:	Fletcher
Address of Scheme:	738 Pacific Parade CURRUMBIN BEACH Q 4223

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 this Act or the community management statement; or
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

Fletcher [2005] QBCCMCmr 85 (15 February 2005)