The Phoenician [2006] QBCCMCmr 189 (18 April 2006)

Last Updated: 19 December 2006

REFERENCE: 0262-2006

INTERIM ORDER OF AN ADJUDICATOR

MADE UNDER PART 9 OF CHAPTER 6

BODY CORPORATE AND COMMUNITY MANAGEMENT ACT 1997

Number of Scheme:	27745
Name of Scheme:	The Phoenician
Address of Scheme:	24-32 Queensland Avenue BROADBEACH QLD 4218

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

Driftcove Pty Ltd, the Owner(s) of lots 17, 30, and 189

I hereby order that the application for interim orders is dismissed. The application for final orders remains outstanding. There will be an opportunity for persons likely to be affected by any final orders to provide submissions regarding the application for final orders in due course.

STATEMENT OF ADJUDICATOR’S REASONS FOR DECISION - REF 0262-2006

"The Phoenician" CTS 27745

Interim Application

The Phoenician Community Titles Scheme (The Phoenician) is a 286 lot scheme under the Body Corporate and Community Management Act (Act) and the Act’s Accommodation Module Regulation (Accommodation Module).

This is an application for interim orders. It arises out of an application by Driftcove Pty Ltd, owner of lots 17, 30 and 189 (applicant) seeking orders to require the body corporate (respondent).

Interim Orders Sought

The applicant is seeking an interim order to temporarily restrain the body corporate from holding an extraordinary general meeting proposed for 19 April 2006 or, alternatively, that the body corporate be restrained from considering particular motions at that meeting or from acting upon resolutions passed pursuant to those motions.

The motions in dispute can be summarised as:

• Motion 2 – That the body corporate appeal to the District Court against the specialist adjudicator’s interlocutory decision dated 9 March 2005 and defend the specialist adjudication applications 0454-2005 and 0369-2005 seeking the approval of a transfer of management rights by the applicant and the approval of a new nominee;
• Motion 3 – That the body corporate engage Gadens Lawyers for the purposes of appealing against the specialist adjudicator’s decision dated 9 March 2005 in accordance with an annexed quotation from Gadens Lawyers; and
• Motion 4 – That the body corporate engage Hynes Lawyers for the purposes of appealing against the specialist adjudicator’s decision dated 9 March 2005 in accordance with an annexed quotation from Gadens Lawyers.

Submissions

By way of background to the dispute the applicant refers to previous orders of adjudicators, a circular sent by the chairperson, the notice of the extraordinary general meeting and explanatory notes, various correspondences between the parties’ respective solicitors, and newspaper articles.

The applicant makes submissions to the effect that:

• Newspaper articles and the explanatory notes for the meeting reveal the body corporate has incurred unauthorised expenditure of around $87,000 or $100,000. The body corporate must recover this unauthorised expenditure from the members of the committee;
• The extraordinary general meeting is not valid because notice was sent late;
• That motion 2 proposing the body corporate lodge an appeal and defend the specialist adjudication applications is invalid because two separate motions should have been listed for firstly, defending the applications and secondly, authorising the appeal;
• Similarly, that motions 3 and 4 are invalid because they ought to have been drafted as two separate motions for the separate costs of the proposed appeal and the proposed defence of the applications;
• That the chairperson’s circular and the explanatory notes say that the extraordinary general meeting is called because the applicant has filed an application "attempting to prevent the Committee from further defending the rights of Owners and in essence to enable the practice of secret commissions to continue". This is misleading and untrue because the extraordinary general meeting is called because the body corporate is required to do so because of an adjudicator’s order and is required to do so as a matter of law to obtain authorisation for expenditure above the committee limit and if it wishes to proceed with an appeal; and
• The body corporate has a positive obligation to publish information to owners that is both truthful and not capable of misleading owners. It is not a sufficient response to say that it is open for the applicant to disseminate its own information in reply. The failure of the body corporate to fulfil its obligation is conduct of an unreasonable nature contrary to section 94(2) of the Act.

Submissions on behalf of the body corporate are to the effect that:

• Motions 2, 3, and 4 authorise the prosecution of legal proceedings including an appeal which will become time barred if the interim order is granted;
• Shortly put, the body corporate’s position is that the applicant has been engaged in unlawful activity that warrants the refusal by the body corporate to consent to a proposed assignment of management rights to a related corporation that proposes to continue that unlawful conduct. The applicant has engaged itself not on a debate about the merits but on interlocutory applications that appear designed to take technical or procedural points so that the real dispute will never be determined;
• Motion 2 authorises the committee to, firstly, prosecute an appeal against an interlocutory order of the specialist adjudicator striking out the above major contention of the body corporate and, secondly, to continue to defend the specialist adjudication. It is not the case that the appeal should be pursued but the application itself not defended. It is also not the committee’s view that the specialist adjudication should be defended without proceeding with the appeal as the purpose of the appeal is to ensure a major contention made by the body corporate is able to be agitated. Motion 2 is therefore properly drafted to reflect the authorisation that the committee seeks. There is no statutory requirement or precedent to the effect that each authorisation must be separate;
• Motion 3, proposing expenditure for both the appeal and the substantive applications does more than is required by the interim order. There is no statutory provision or case that would suggest this makes the motion invalid or unlawful;
• There is nothing that prevents the applicant publishing to owners any matters it considers relevant to the consideration of any motion. The applicant declines to do so and there is no authority for the submission that the body corporate is obliged to put forward both sides of the story. A committee is not obliged to do anything but put its case forcefully to its shareholders and is not obliged to put a contrary case, particularly one in which it has no belief in the merits^[1];
• The notice of meeting was given on 28 March 2006 for a meeting to be held on 19 April 2006, 22 days after the giving of the notice. There is no obvious merit in the contention that insufficient notice was given even if one construed the giving of the notice to the time at which the notice was received;
• Even if there is a serious question to be determined on the final hearing of the matter, no interim order should be made. The interim order sought would effectively give final relief by preventing the meeting without proper determination of the issues on a final basis. Courts are loath to make orders preventing a meeting especially when people may have already travelled to be present at the meeting.^[2] The incorrect grant of interim relief cannot be compensated for, rather if relief was declined the conduct of the meeting itself may render the application unnecessary or a subsequent declaration of the invalidity of the motions will be effective if necessary after consideration of the merits. Further, there has been unconscionable delay in the applicant lodging the application for interim orders.

Decision

Urgent interim relief

An interim order will not be granted unless is it necessary due to the nature or urgency of the circumstances to which the application relates (Act, 279). Further, any orders granted must be just and equitable in the circumstances (Act, 276).

Serious question for determination

Should the proposed appeal and proposed defence be dealt with separately?

As a matter of common sense, there would be no benefit for the body corporate in proceeding with an appeal of an interlocutory decision of the specialist adjudicator if the body corporate was not also intending to continue in the defence of the substantive applications at the same time. It therefore seems logical that any decision to appeal the interlocutory decision be concurrent with or subsequent to a decision to continue in the defence of the substantive applications.

Conversely, the body corporate could conceivably continue in the defence of the substantive applications without pursuing an appeal of the interlocutory decision. The question that is raised is whether the manner in which the committee has structured the motions has effectively deprived owners of the opportunity to decide themselves whether or not the appeal should be pursued if those owners consider it necessary that the body corporate defend the substantive applications. For example, if the majority of owners wish to take a certain course of action but are only given the opportunity to take that course of action in combination with another undesired course of action then this may arguably amount to the body corporate acting unreasonably through owners being deprived of a legitimate choice.

In these particular circumstances the committee has provided an argument that there is good reason for owners to vote on proceeding with the appeal and defence of the substantive applications jointly as the appeal will determine whether the body corporate can rely on a major contention put forward by the body corporate. That major contention being that the applicant has been engaged in unlawful activity that warrants the refusal by the body corporate to consent to a proposed assignment of management rights to a related corporation that proposes to continue that unlawful conduct.

I consider the respective arguments of the parties to be a serious question for determination prior to the making of any final orders.

Is the committee failing to act reasonably through publication of misleading information?

The applicant has submitted that the chairperson’s circular and the explanatory notes contain misleading and untrue information to the effect that the applicant has filed an application "attempting to prevent the Committee from further defending the rights of Owners and in essence to enable the practice of secret commissions to continue". It is submitted that this is misleading and untrue because the extraordinary general meeting is called because the body corporate is required to do so because of an adjudicator’s order and is required to do so as a matter of law to obtain authorisation for expenditure above the committee limit and if it wishes to proceed with an appeal.

There are also submissions to the effect that the body corporate has a positive obligation to publish information to owners that is both truthful and not capable of misleading owners and its failure to do this is conduct of an unreasonable nature contrary to section 94(2) of the Act.

On balance, I am satisfied that the applicants have at least raised a serious question about whether owners may be misled so as to render any resolution invalid as not being a decision of the body corporate "acting reasonably" (Act, 94(2)). If a significant number of owners provide statements to the effect that they were mislead or manipulated then that may be a basis upon which it is just and equitable in all the circumstances that an adjudicator declare the resolution void (Act 94(2), 276).

Other matters

A question has also been raised regarding whether notice of the meeting is only effective when received in the ordinary course of the post. This may amount to a serious question to be determined although I note that the applicants have not provided any evidence of when notices would have been delivered in the ordinary course of the post or any evidence from particular owners stating that they have been inconvenienced by short notice.

A number of other questions are also raised on the face of the notice. In particular, motions 3 and 4 deal with the appointment of alternative legal representation but are listed as separate motions even though they deal with the same subject matter and would be required by the legislation to be listed as alternative motions. If motion 3 was passed and motion 4 was then ruled out of order as being in conflict with a resolution that was already passed then questions would arise as to whether owners have been deprived of a legitimate choice. However, non-compliance with the legislation of an insubstantial nature should not be allowed to imperil the actions of bodies corporate or their committees, particularly in the instance of committees where actions are taken in good faith.^[3] If evidence provided before a final determination indicated that owners were given the opportunity to vote on both motions and one of these motions was clearly favoured by the majority then the failure to list those motions as alternatives would not necessarily invalidate the majority decision.

Further, on the face of the explanatory notes and the attached quotation there appears to be a conflict in the sense that the explanatory notes refer to a "total projected legal expense of $125,000" but the attached quotation refers to costs billed to date of $87,404 with additional "likely future costs" of $125,000. Again, what occurs at the meeting may be relevant to a final determination along with whether submissions ultimately indicate that sufficient owners were misled that the body corporate could not have been said to have acted reasonably in accordance with section 94(2) of the Act.

Similarly, it is not immediately apparent whether the body corporate’s budgets contain sufficient funds to allow for the proposed engagement of legal representatives and whether owners are aware of any need for a subsequent special levy to pay these costs. Again, details of what is said at the meeting and submissions from individual owners themselves will be relevant in determining if a significant number of owners have been mislead about these issues.

Inconvenience from an interim order

In considering whether to grant the interim order sought, it is relevant to balance the inconvenience caused by an interim order against inconvenience caused by waiting until a final determination to grant any necessary orders.

There are a number of submissions on behalf of the body corporate that persuade me that I should not make an order preventing the meeting from proceeding. These include submissions to the effect that the interim order sought would effectively give final relief by stopping the meeting from proceeding.

I further consider that a temporary restraint preventing the body corporate from enacting any resolutions passed should also be refused. The body corporate refers to a time limit to commence an appeal and I accept that a grant of interim relief preventing action by the body corporate when the body corporate should be entitled to take that action may cause significant harm to the body corporate in terms of depriving it of an opportunity to appeal. Of course, there may be alternatives including the body corporate seeking authorisation from an adjudicator for a new meeting on reduced notice or subsequently arguing before the District Court that it should be entitled to purse an appeal lodged out of time. However, both of these alternatives would also involve costs and inconvenience to the body corporate. Conversely, final orders could declare the resolutions invalid and prevent any subsequent steps in furtherance of the resolutions. There may be some inconvenience to the applicant in its capacity as an owner in terms of contributions towards potentially wasted expenditure of the body corporate if resolutions are acted on but ultimately declared invalid. However, on balance, it seems preferable to decline any interim relief and await submissions from owners and an opportunity for full consideration of the issues before granting any relief.

Order

For these reasons, the application for interim orders is dismissed.

The application will be allowed to proceed to submissions and a final determination in the normal course.

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^[1] Reference is made to Peel v London and North Western Railway Company [1907] 1 Ch 5; Campbell v AMP (1908) TLR 623; Graham v Melbourne Football Club and Ors, unreported, Beach J, 11/12 September 1996.
^[2] Reference is made to Split Cycle Technology Ltd v Gary L Janki Ltd, Supreme Court of Queensland, unreported, Dowsett J, 17 august 1998.
^[3] Wei-Xin Chen v Body Corporate for Wishart Village CTS 19482, Appeal 4080 of 2000, District Court Brisbane, 29 May 2001.