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19th Avenue [2006] QBCCMCmr 503 (6 October 2006)

Last Updated: 19 December 2006

REFERENCE: 0467-2006

ORDER OF AN ADJUDICATOR

MADE UNDER PART 9 OF CHAPTER 6

BODY CORPORATE AND COMMUNITY MANAGEMENT ACT 1997

Number of Scheme:	6625
Name of Scheme:	19th Avenue
Address of Scheme:	2 - 10 19th Avenue PALM BEACH QLD 4221

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

L and S St Ledger and R and J Giles, the Owner(s) of lots 47 and 16

I hereby order that the application for an order that:

1. In accordance with the adjudication handed down (ref. 0527-2005), we request that the new community management statement adopting the accommodation module, be of no force or effect.

2. Consequently, the motion for the Body Corporate to agree to a 25 year agreement be ruled out of order.

3. If the adjudicator agrees that industry standards have not been presented accurately, then the body corporate should be made aware of those findings.

is dismissed

STATEMENT OF ADJUDICATOR’S REASONS FOR DECISION - REF 0467-2006

"19th Avenue" CTS 6625

APPLICATION

This application is by L and S St Ledger and R and J Giles, the Owner(s) of lots 47 and 16
(the applicants) against the body corporate (respondent). The applicants are seeking final orders that:

1. In accordance with the adjudication handed down (ref. 0527-2005), we request that the new community management statement adopting the accommodation module, be of no force or effect.

2. Consequently, the motion for the Body Corporate to agree to a 25 year agreement be ruled out of order.

3. If the adjudicator agrees that industry standards have not been presented accurately, then the body corporate should be made aware of those findings.

JURISDICTION

"19^th Avenue" Community Titles Scheme 6625 is a 78 lot 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-

(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)).

BACKGROUND

In December 2005 this scheme resolved to move from the Standard Module to the Accommodation Module. On 13 June 2006, the above applicants sought to have this resolution of the annual general meeting overturned and to rule a motion to agree to a 25 year service agreement out of order.

The Regulation Module applying to the scheme has implications for the length of contract that can be entered into for management rights. Specifically, adoption of the Accommodation Module enables the Body Corporate to enter into a service contractor agreement for 25 years. A 25 year term is said to be beneficial to the service contractor in terms of the structure and availability of bank funding arrangements.

The current service contracting arrangements are between the Body Corporate and two family companies, Hi Ryzers P/L (for the Brett family) and Baringa Management P/L (for the McNab family) as Trustee for the McNab Family Discretionary Trust. Both families are guarantors under the existing service contract.

The Brett Family lives on premises as the service contractor and has a 75% share in the partnership, while the Baringa/McNab interest is 25% and described as silent. Hi Ryzers/Brett is the managing partner.

APPLICATION OUT OF TIME

The application was lodged at the Commissioner’s Office on 19 June 2006, some 6 months after the relevant meeting was held on 9 December 2005. Accordingly, there is a question of jurisdiction under the time limiting provisions of section 242 of the Act which states -

242 Time limit on certain applications

(1) This section applies to an application for an order declaring void--

(a) ...
(b) a resolution of the committee or body corporate; or
(c) ...

(2) The application must be made within 3 months after--

(a)...
(b) if subsection (1)(b) applies--the meeting at which the resolution was passed or purported to be passed; or
(c)...

(3) However, if the making of the application does not comply with subsection (2)--

(a) the commissioner must deal with the application (including making a dispute resolution recommendation for the application) as if the making of the application complied with subsection (2); and
(b) an adjudicator to whom the application is referred for specialist or department adjudication may, for good reason, waive the non-compliance.

(NOTE: Adjudicator’s emphasis)

Under paragraph (2)(b), an application to invalidate a resolution of a general meeting must be brought within 3 months of the meeting.

However, paragraph (3)(b) makes provision for the 3-month limit to be waived by an adjudicator where the applicant can show "good reason". The applicants have sought such a waiver. As a matter of jurisdiction, it is appropriate that I deal with this question at the outset.

The applicants have addressed the request to overturn the resolution out of time as follows:

We were advised at the recent BCCM meeting that we are outside the usual 3 month limit for questioning results from an AGM. However, as the Carrington Court decision was not general public knowledge at that time (early March), and as it does not appear to have been challenged, our advisor suggested we proceed and request adjudication under these special circumstances. (It was in the Unit Owners News and in a Body Corporate Management publication in late April that made us aware of the precedence that had been established by the Carrington Court ruling).

On June 1^st, 2006 we attended a BCCM meeting and the information presented by the QRAMA Guest Speaker regarding time frames need for loans by Managers contradicted the information that had been presented by our committee".

In the appeal of an adjudicator’s order in the matter of Weeks v. Commissioner for Body Corporate (Maroochydore District Court Appeal 13/99), Judge Dodds made the following statement about section 242 (then section 193) at pages 4 and 5 of his statement of reasons:

"... the objects of the Act, for instance section 5(a) and (h) militate against too strict or legalistic a view about good reason for waiving non-compliance with the time limit. What will be required is a balancing of the length of the delay; the reason for the non-compliance; the effect of delay on others who are affected by the matter in dispute and importantly, whether apart from the question of non-compliance with the time requirement, an applicant will be entitled to the relief sought. The applicant, being the person seeking a waiver, will have the task overall of satisfying the adjudicator that the time limit should be waived in all the circumstances."

The Court therefore specified 4 issues (length of delay; reason for non-compliance; effect of delay on others; and whether entitled to relief) which might be examined by an adjudicator to determine whether there was good reason to waive the 3-month time limitation.

Length of Delay

In this matter, the applicants are challenging the resolution after over double the period allowed. This is a significant delay in light of other persons relying on the resolution as passed.

Reason for Non-compliance

The resolution was passed on 9 December 2006. However, the applicants state that the reason for non-compliance is that they did not find out about the decision in Carrington Court until April 2006. I note that the Carrington Court order was made on 15 December 2005. The Unit Owners Association of Queensland reported the decision in their Unit News newsletter number 89, described as "Autumn 2006". "RN" (Resort News) which is a monthly magazine for the accommodation industry, reported the Carrington Court decision in their January 2006 edition. I understand the BCCM meeting the applicants refer to was on 1 June 2006. Their application is dated another 12 days after this and was not received by this office until 19 June 2006. No reason is given for this delay.

Effect of Delay on Others

It is alleged that in this instance the change to the Accommodation Module was required to enable Baringa Management Pty Ltd to sell its interest in the management rights business to its partner, Hi Ryzers Pty Ltd. Hi Ryzers Pty Ltd states it was unable to obtain satisfactory finance to assist the purchase unless the remaining term of the management agreement was greater than 10 years.

The respondents advise that they waited until 9 March 2006 before commencing the necessary steps to complete the sale by Baringa Management Pty Ltd to Hi Ryzers Pty Ltd.

They state that after the lapse of the deadline prescribed by Section 242 of the Act they arranged for:

• Preparation of a Profit & Loss Statement for the management rights business to assist in the determination of an appropriate price for Baringa Management Pty Ltd’s interest in the partnership. The cost of obtaining this Profit & Loss Statement was $1,250;

• A valuation of the management rights business to be conducted at a cost of $2,400;

• Lawyers to act on behalf of Baringa in relation to the sale of its interest in the partnership to Hi Ryzers. Baringa states they have been billed an amount of $446.82 and a further amount of $754.00 remains unbilled;

• Hi Ryzers solicitors to act on their behalf in relation to the purchase of Baringa Management interest in the partnership. To date, Hi Ryzers Pty Ltd have incurred legal costs approximating $2,500;

• Sale of one of the McNabs other businesses (a Jax Tyre franchise) situated in Southport. This sale was part of a sequence of sales and acquisitions the McNabs had planned for their own future. Settlement took place on 31 May 2006. They have lost the income from this source in the meantime and cannot proceed with the rest of the plan and are incurring significant interest expenses on their loan. This interest will continue to accrue if the resolutions of Motions 10 and 11 are now declared void.

Whether Entitled to Relief

This will necessitate a full discussion of the issues at hand.

DISCUSSION

The application grounds, submissions and response to submission are quite substantial. I will therefore limit my notes in relation to the issues raised to their barest minimum.

Application Grounds

The applicants’ grounds relate to the following issues:

They say the only beneficiary of the decision to move to the Accommodation Module is the resident unit managers and the Body Corporate has no responsibility for the financial wellbeing of potential management rights operators. They suggest that the need for a long term contract is an indicator of financial instability.

They state that Resident Managers can get loans for management rights, where the term is 7 years, but the chairperson and resident owners are alleging they need a longer term in order to obtain suitable finance and attract a pool of suitable operators. The applicants allege the chairperson has therefore misled the Body Corporate. They state that the QRAMA said that body corporate managers could readily obtain their loans under 7 year agreements. They say the Unit Owners Association is not convinced that 7 years agreements are necessary and favour short term interest only loans.

They provide evidence the chairperson is of the view they were better off keeping small operators, rather than becoming vulnerable to a financially stronger large corporation. The applicants’ view is that longer length of management rights, make them even more vulnerable to sale of the management rights to the likes of Breakfree.

They allege the chairperson presented the argument that the building was more suited to the Accommodation Module on the basis that more than 50% of the lots (at that time 78%) were for "holiday" use (includes letting and "lock-ups"). The applicants allege the chairperson has therefore misled the Body Corporate. At the date of the AGM (9 December 2006) only 51 of the 78 lots (65%) were in the letting pool and this is less than the required percentage to be meet the need for "predominance" within the Carrington Court precedent.

They note procedural or date irregularities in the committee meeting agendas and minutes and in relation to the issue of the management rights contract and at the annual general meeting.

They note that the vote of lot 18 was declared un-financial, that one set of voting papers for an owner of 2 lots never arrived through the post and that another vote did not arrive through the post until the Monday after the Friday meeting.

They say there was intense lobbying and attach some extensive material they distributed themselves before the AGM. This material includes statements such as:

• "No regulation or requirement stating that this building should be operating under the Accommodation Module";
• "25 year agreement";
• "no advantages for owners";
• "changes in spending, standard module the limit is $125 x 78 = $9,750, accommodation module the limit is $450 x 78 = $35,100";
• "25 years, exceedingly valuable and appealing to large corporations resulting in disadvantages to owners";
• "the agreement can be sold at any time";
• "for independent advice" (and gives this office’s number and the Unit Owners Association of Queensland).

Motion 10 was voted 46 in favour and 19 against. The text for motion 10 was:

That the Body Corporate resolves to record a new community management statement to adopt the Accommodation Module as the Module to regulate the scheme in accordance with the Body Corporate and Community Management Act 1997 and to restrict the committee’s spending limit to $125 per lot as is currently in place under the Standard Module regulation and that the Body Corporate enter and sign all necessary documents to give effect to the adoption of the Accommodation Module and recording of a new community management statement.

The explanatory note for Motion 10 was:

The committee and manager have been advised that the Accommodation Module is the more appropriate module to regulate the Body Corporate given that the building is mainly holiday accommodation and ask that owners vote in favour of this motion. All the holiday buildings in Palm Beach e.g. Regency on the beach, Princess Palm, Royal Palm, Palm Springs, Currumbin Sands and Surfers Horizon to name a view are now regulated under the Accommodation Module as well as most along the coast. The spending limit of the committee will remain the same as before at the lower level prescribed in the Standard module.

Under the Body Corporate and Community Management Act 1997, the difference in the modules is minimal. Owners should be aware that the enclosed Form BCCM 19 explaining the differences between the modules is a State Government issued form. That form contains all of the facts relating to the modules that the government thinks are important.

Motion 11 was voted 51 in favour and 19 against. The text for motion 11 was:

That the Body Corporate, following the registration of a new community management statement adopting the Accommodation Module as the regulation module for the scheme but not subject to it:

1. Enter into and sign under seal a deed of engagement and deed of authorisation in the same form as is attached to this agenda with Hi Ryzers Pty Ltd ..... and Baringa Management Pty Ltd ......; and
2. be authorised to insert a commencement date and termination date in the deed of engagement and deed of authorisation (with the commencement date being the date on which the new community management statement adopting the Accommodation Module as the regulation module for the scheme is recorded).

The explanatory note for Motion 11 was:

1. The retention of the Standard Module maximum 10 year term makes it harder for future individual owner operators to raise the necessary finance to purchase the management rights whilst it poses no problems to a large consortium company like Breakfree.
2. The existing managers have silent partners who seek to terminate their involvement this year. The managers wish to remain at 19^th Avenue but to do so must purchase their partners’ share, necessitating refinancing. The banks are unwilling to undertake the larger loan with only a maximum of 10 years but will do so under the longer accommodation agreement.

These are the primary factors behind the request to adopt the Accommodation Module as under the present length of agreement they will be unable to remain as your managers.

If you support the continuance of individual owner operator management rights at 19^th Avenue on the Beach and the retention of the incumbent managers, then the committee believes that you should vote yes to this motion".

They argue that the unspecified dates in Motion 11 invalidate the resolution.

They observe that in 2003, the existing managers stated that it was their intention to stay within the Standard Module.

In a supplementary document, the applicants also observe that when the Body Corporate sought legal advice, the Body Corporate solicitor understood that the resident managers had proposed the motion, rather than the committee. They suggest this has flavoured the advice given.

Submissions

Submissions were received from the owners of a total of 18 lots, plus one from the Committee and another from the management rights partners. Four of the submissions from the owners of lots voiced continuing support of the decision to move to the Accommodation Module. The submission from the committee holds firm to the view that a move to the Accommodation Module is appropriate.

The owners of 14 of the lots (10 owners in effect), oppose the move to the Accommodation Module for the following reasons:

• Some have no interest in the financial problems of the management;
• If the current managers stayed under a 25 year contract, they would be 85 years old at the end;
• They bought under the Standard Module and thought that is the way it would stay;
• Fear that the Body Corporate might lift the committee spending limit to $450 per lot at a later general meeting;
• They consider that finding out about the move to the Standard Module for the first time in late October, was too close to the date the decision had to be made;
• Under the Accommodation Module, you cannot object to a decision of the Committee;
• There is no advantage in a 25 year contract;
• Carrington Court decision;
• Conflict between 78% Holiday lots or 65% accommodation lots has been misleading;
• Failure on the part of the committee to provide accurate information;
• One submission tries to align the duty of care of a committee member to that of a company director;
• The current resident managers must have paid too much in the first place;
• Attracting a large corporation that specialises in the holiday market would be more expensive;
• A financial analysis by one owner concludes that the longer term is being sought for the purpose of increasing saleable value of the future cash flows associated with a longer term;
• An enquiry the applicants made of another bank as to the availability of loans under the standard module;
• Risk of on-sale to larger management rights entrepreneurs. S8 is mentioned specifically and the impact this can have on income after fees are levied against the rent received;

The owners of 4 of the lots (4 owners) that support the Accommodation Module, give the following reasons:

• they received all the arguments for and against the motion before the meeting;
• they believe that at two thirds accommodation, they are in a predominantly accommodation scheme;
• can an adjudicator’s decision made after the annual general meeting be made to apply retrospectively to a valid decision;
• information provided by the committee was "adequate, factual, comparative information";
• the committee has to identify a reasonable balance in how much information it presents and the BCCM does provide a good information service to those who would like to know more detail;
• industry views on appropriate finance do not necessarily go to the detail of individual cases;
• the current managers have made "an immense and positive difference to the resort";
• change of module does not remove the owners capacity to remove a non-performing manager

The Committee has made submissions through the body corporate manager and includes the following observations:

• no "good reason" exists to allow the application out of time;
• the committee decided to unanimously support the motion of the resident manager and so the motions became committee motions. They did so in the belief that it was in the best interests of the scheme to support the motions, as it offers flexibility in operations;
• They state that on a lot entitlement basis, 24,419 lot entitlements out of 100,000 were against the motion. It was therefore carried as a special resolution;
• This modified special resolution process was adopted for significant matters and its requirements have been met;
• In relation to alleged voting irregularities, the applicants have had ample time in which to lodge and appeal and did not do so;
• They seek costs of $2,942.94 on the basis of section 270(3) of the Act.

The current management rights owners have made a lengthy submission through their solicitors. Their points are:

• The applicants could have lodged an appeal quite some time ago and located Carrington Court within the 3 months, had they fully investigated their grounds. Ignorance of the law is no excuse;
• The statements attributed to the QRAMA (regarding length of loans) have been misconstrued;
• The applicants had done a great deal of research before the meeting and distributed a lot of information. The information in relation to financing terms was available to them, well before the BCCM meeting of 1 June 2006, if they had looked for it;
• There was plenty of time after the meeting and before the application period was up, to lodge an appeal in relation to the votes that were not included in the minutes;
• They suggest that in terms of the definition of an Accommodation Lot given in Section 3 of the Body Corporate and Community Management (Accommodation Module) Regulation 1997,10 lots in the scheme that are described as "lock-up" would be "immediately available to be the subject of a lease or letting for accommodation for long or short term residential purposes". This is asserted whether or not the owners had immediate intentions to lease the premises. They state this brings the percentage of accommodation lots to 79.49%;
• They state Carrington Court is not binding and that the adjudicator did not have access to certain legal authority and other evidence;
• That a special resolution only requires 66.66%, not 75%;
• They site two legal authorities, both from the New South Wales Administrative Decisions Tribunal, where the members concerned referred to dictionary type definitions of "predominantly"; ^[1] ^[2]
• They refer to the Explanatory Notes which accompanied the Body Corporate and Community Management Bill 1997 which state:

The second is the Accommodation Module which provides for management processes that are significantly less regulated than under the Standard Module. This second module is intended for schemes used predominantly as holidaying letting or serviced apartment operations, under the control of an accommodation manager. It may also be suitable for certain hotel or resort projects where the majority of owners are investors^[3].

In this regard, they highlight the use of the word "majority" in the last sentence and observe that in their view, only a majority in excess of 50% is required.

• They observe that the letter by the chairperson distributed to owners in response to the applicants’ material, was written in his capacity as an owner, not as chairperson;
• They produce an affidavit by John Anderson (of QRAMA) who gave the talk referred to by the applicants, where he summarises that "I am of the opinion that the statements made by (the chairperson) in his correspondence of 29 November 2005 and in the Chairman’s Report are true and accurate and are not in any way misleading or deceptive to the unit owners at 19^th Avenue on the Beach";
• The applicants have not produced any corroboration of their understanding of what the Unit Owner’s Association position is;
• The fact of the matter is that the resident managers did not originally intend to ask to move to the accommodation module and only made the request when other circumstances intervened;
• They produce evidence that Hi Ryzers have approached at least three different banks for finance to buy out Baringa. None were prepared to fund where the term to run was less than 10 years. Suncorp, a Queensland Bank has stated "the increased funding does not meet our credit requirements for lending over the remaining term of you management agreements". Macquarie Bank states that "when the unexpired term reduces below 10 years, your repayment program would increase to a level which would significantly reduce your disposable income". They suggest the could again enter discussions if the remaining term is 15 years;
• The committee took appropriate steps in exploring their legal position with solicitors and have not done anything outside the requirements of the legislation;
• Owners were given ample time to examine the applicants’ viewpoint through the material they distributed;
• The decision was up to the owners, and the applicants themselves made this abundantly clear;
• The QRAMA’s position is that 7 years left to run on a contract, is the minimum period against which finance might be available;
• They append the statements of the owners of 48 lots (some comprising standard text), stating that they are fully aware of the implications of their decision and that they made their decision on a fully informed basis. The statements include support that the scheme is predominantly an accommodation scheme. One observes that retrospective application of the decision in Carrington could potentially destabilise the management rights industry. There are a significant number of statements expressing frustration about a group of minority owners causing disruption;
• They seek costs on the basis that the application is frivolous, misconceived and without substance. They attach other correspondence they suggest indicates a course of conduct.

Under my investigative powers, I have obtained a copy of the tally sheets from the annual general meeting. From these sheets I am able to establish that none of those making submissions have changed their position since voting at the annual general meeting.

I am also able to establish that of the 3 voting papers that did not make it into the minutes of the annual general meeting, one would have been in favour of the accommodation module and two would have been against the accommodation module.

Response to Submissions

In their response, the applicants make reference to the ruling of Judge Dodds raised earlier under the heading of Application out of time. They have used a solicitor for this response, who likewise points out their lack of legal skills in locating the decision made in Carrington Court.

They argue that because a Body Corporate newsletter published in early April 2006 said "now that we have bought our partners out", they thought that it was too late to challenge the resolution. They advise they became aware of Carrington Court between 4 and 6 April. They sent the decision to the committee for consideration.

At the BCCM meeting on June 1, it is said that the applicants became fully aware of the implications of Carrington Court.

They argue that the submitters have not raised enough material to demonstrate that they would be disadvantaged by a reversal of the resolution, because the sale of Baringa’s interest to Hi Ryzers is not yet finalised. They say that the indirect disadvantage to the owners of Baringa is insufficiently quantified and that the McNabs have not "demonstrated other practical options to overcome the apparent inconvenience that has now arisen".

They say the loss to Hi Ryzers of expenses incurred to date needs to be weighed against the substantial gain that would arise with a 25 year agreement.

They say that one of the "lock ups" identified, is actually owner occupied on a full time basis. Further, they point out that the firm acting for the resident managers has previously published an article expressing the view that "lock ups" were not in the accommodation category.

They refer to the additional parameters for special resolutions they say are contained in Section 107 of the Act. This refers to additional parameters in relation to the maximum dissenting lots or lot entitlements.

They say that reference to the explanatory notes is unnecessary, when there is already an interpretation by an adjudicator.

They include an extract of an email from QRAMA to the directors of Hi Ryzers:

Your financial situation of re-financing has been used to confuse the issue. It is unfortunate that you are using a bank that lacks Queensland experience in financing management rights. Those banks that trade with Queensland experience (NAB, Suncorp, ANZ, BoQ etc) accept 7 or 8 years and avoid the "change module" issues. Maybe you need to decide if you really must go over 10 years to meet your financial plans as this may be giving Giles etc some ammunition against you. With all her careless handling of facts, Giles is claiming (para 6) that the change module is about accommodation (sic) your financing needs. She expands on this matter on page 5.

The applicants therefore believe they can assess that "for the specific financing desires of Hi Ryzers Pty Ltd in obtaining "interest only" facilities, a term not exceeding 10 years would have sufficed". They argue that a top up term should have been negotiated.

They repeat the belief that the Body Corporate was under informed. They suggest it may be unlawful for the committee to disguise a motion by the resident managers, as their own motion.

DETERMINATION

Procedural Irregularities

The applicants have raised a number of procedural concerns, including but not limited to:

• The committee discussing a change of module when it was not included on the agenda;
• Failure to document correspondence regarding the change of module to in the committee meeting minutes;
• Partial attendance of parties at the committee meeting and existence of proxies;
• Submission of private motions relative to the end of the financial year;
• Submitter of motion changed to committee.

I am of the view that none of these issues should have any bearing on my decision for a number of reasons. Firstly, if the applicants had felt that anything turned on these issues, many were within their knowledge well within the 3 month time limit to make an application. They did not make an application on that basis within the time frame.

Secondly, this office will not necessarily void decisions for minor procedural irregularities. The courts have recognised that the very detailed provisions of the regulations make it almost inevitable that from time to time there will be non-compliance with the legislation. Non-compliance 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.^[4]

Further, while the applicants allege that earlier notice to members of the Body Corporate would have enabled lot owners more time in which to research their position, as I discuss below, I believe this assertion is unfounded. The applicants have failed to demonstrate any detriment to lot owners, due to the departures from procedure.

Financial Viability

The applicants observe that "the committee has the responsibility to assess the financial position of applicants wishing to purchase management rights"^[5]. The applicants phrasing of this is a misuse of the actual wording of the section which includes the statement that "In deciding whether to approve a proposed transfer, the Body Corporate may have regard to ...... the financial standing of the proposed transferee". The wording of this section only states this may be an issue in considering an engagement and it is not a "responsibility to assess".

The applicants have it firmly planted in their mind, that if there are 7 years to run on a management agreement, finance is available. In my view this is a misinterpretation of the information given to them. It is something like arguing with a shop keeper about the cost of a $60 item of clothing on a rack that says "From $30". Those $30 items can be few and far between. The response by Macquarie Bank that they would be prepared to reassess the position if the remaining term were 15 years, suggests to me that the constraints on the Bretts is their ability to clear the debt in 10 years and not a willingness on the part of financiers to offer such terms to a business with sufficient cash flow.

Further, while an industry body might have a view that 7 year terms are the minimum against which finance might be secured, it does not make it their recommended guideline either. I do not find the alleged views of the Unit Owners Association as persuasive evidence given that the applicants have not provided any corroboration of this position.

The applicants have not in my mind established that 7 years is an industry standard or that it was misleading to state that the banks were willing to undertake the larger loan without an increase in the contract term.

Misinformation

I have given my views in relation to the notion that the committee has misinformed the Body Corporate in relation to the terms of finance available. Even the wording of the explanatory notes that are attached to the voting papers state only that the 10 year term "makes it harder for future individual owner operators to raise the necessary finance to purchase the management rights" and that "to do so (the existing managers) must purchase their partners share, necessitating refinancing. The banks are unwilling to undertake the larger loan with only a maximum of 10 years but will do so under the longer accommodation agreement". These explanatory notes even make reference to Breakfree.

It is blatantly stated that the motion is for the reason of assisting the managers. It is stated that the short term makes it harder to attract resident managers, not that it makes getting finance impossible. The required government documentation is attached to the voting papers. There is nothing invalid in the chairperson’s viewpoint that shorter terms could reduce the pool of available operators to care for the scheme when the current operators move on. There is nothing invalid in the applicants’ concerns in relation to the possibility of a large corporation subsequently vying to buy the longer contract. These are merely decisions for the Body Corporate to weigh and choose between.

I turn also to the allegation, that the chairperson has wrongly advised the status of the scheme, in relation to the application of the Accommodation Module. It is common for lay people to fail to identify the definitional significance of words, and in this case the chairperson has interchanged the words "accommodation" and "holiday". The applicants have also attributed a "responsibility to assess" to the committee, based on the provision that they "may" have regard to financial standing. The applicants have included a statement in their flyers that "Accommodation Module – the Limit is $450 x 78 = $35,100". All these issues may be slightly misleading in their own way but not to the extent that it would be just and equitable for an adjudicator to override the voting that took place. In particular there is a lack of evidence from owners to the effect that they actually had been misled.

I do not regard any of these statements as having been made in any way but good faith. Further, ultimately I do not believe that the chairperson’s use of the term "holiday" rather than accommodation can itself be taken to have misled lay lot owners.

However most importantly, neither the chairperson nor the applicants could have located the ruling made in Carrington Court before the annual general meeting, as the decision did not issue until 15 December 2005. Therefore the chairperson did not ill inform or fail in any duty of care to locate the information and the applicants were not deprived by a shortage of time, in locating it. It simply did not exist at that time.

Duty of Care to brief lot owners

I find the argument that owners have somehow been disadvantaged in this regard, lacking for 2 reasons.

Firstly, unlike a company where directors are elected to carry out decision making on behalf of the shareholders, the committee for a Body Corporate has an extremely limited range of decision making ability^[6]. In fact in most schemes, spending in excess of $125 per lot is referred back to lot owners. Therefore lot owners retain far more control over the running of their "business" and, in my view, this is accompanied by a commensurate responsibility on lot owners to form their own opinions.

Most often, committee members are lay people with no expertise beyond that of their fellow lot owners who offer their time and energy on a voluntary basis to attend to routine operational issues. Lot owners, who vote for the committee, should be aware of these limitations and therefore retain the responsibility to inform themselves on those matters which the legislation requires to be referred to the attention of the Body Corporate as a whole.

Secondly, the applicants had themselves done a rather impressive job of bringing lot owners’ attention to the downside risks of moving to the accommodation module. By distributing their own material on 23 November 2005, it allowed plenty of time for owners to digest the issues before the meeting was held some 2 weeks later.

I have formed the view that the lot owners who voted in favour of the change to the accommodation module have done so on an informed basis.

Intentions of Existing Managers and Committee

The applicants have referred to the fact that when the current resident managers were interviewed by the committee, they indicated that they had no intention of asking for the scheme to move to the Accommodation Module. The applicants have provided me with no evidence that this was in fact not the resident managers’ state of mind at the time. I do not regard the fact that they have later requested that a change be considered, to be either wrongful or indicative that was always their intention. There is no law against changing your mind and no law against requesting to renegotiate a contract.

In addition, the applicants appear to regard the committee as somehow traitorous in that they were willing to consider the change of module at a later date. Like the resident managers, there is no onus on committee members or lot owners to remain fixed in their views or assessment of relevant considerations. And, as stated earlier, the issues of the applicable regulation module and also the committee spending limit, is a matter for the Body Corporate as a whole. Therefore, lot owners are not at risk from the views of the committee on these issues.

Uncounted Votes

As noted earlier, there are two valid votes that either did not arrive for the annual general meeting, or arrived too late for the annual general meeting.

For some reason, both of these owners state "I would appreciate any action by the Adjudicator to explain why my vote ... was not recorded". The body corporate manager has denied the receipt of one of the votes and advises the other arrived too late. This is all that has been presented to me. If the applicants wish to allege any untoward activity, it is for them to present evidence of that.

I regard the missing votes as an issue that was known to the applicants well before the expiry period for an application to this office. While the applicants might have been entitled to relief on this basis, I am of the view that there is no good reason for failing to lodge an application on that basis within the 3 months. Therefore I am not inclined to allow the application in relation to the missing votes.

Unspecified Dates

Again, nothing turns on this aspect of the application. I note that included in one of the letters they enclose from Short Punch & Greatorix dated 9 November 2006 is the comment:

"Naturally, the Motion allows for the commencement and expiry dates to be inserted in the Deed once known".

Legal Advice

I am a little confused as to exactly what the applicants are trying to say in this part of their submission:

"AGM motions were initially prepared and submitted by the Manager’s Solicitor and Deeds of Engagement and Authorisation were provided on behalf of the Managers ... ... The Body Corporate solicitors were not aware that the committee had decided ... ... to propose the motions. The Body Corporate was never aware that the initial motions came from the managers. All the solicitor’s advice was based on the false premise that the Managers proposed the 2 motions for the AGM. They could not act in the best interests of the Body Corporate, their client, without accurate facts. It is obvious that the Solicitor was unaware that the financial need of the Management Company was the primary cause for the proposed changes".

In my mind, the duty of the solicitor to the Body Corporate remained the same, regardless of who was proposing the motion. In their letter of 28 October 2005 the solicitor is clearly aware that "The only reason the Manager is seeking to change the Module is because it allows for (the) terms of the caretaking and letting arrangements to be for a maximum of twenty-five years".

Further, even if the motion had gone to the annual general meeting with the managers as the proposer of the motion, it was open to the committee to lend its support to the motion and endorse it within the scheme in any event.

Carrington Court

The final aspect I must consider in relation to the applicant’s entitlement to relief is the issue raised in Carrington Court in relation to meeting Section 3(2)(a) of the Accommodation Module^[7]. In that matter the adjudicator noted that:

"... ... I do not consider that this Module could apply to a scheme where no more than a bare majority of lots are accommodation lots. In my view, if this was the intent of the legislation, then the word ‘majority’ would have been used rather than ‘predominantly’. I consider that the use of the word ‘predominantly’ suggests circumstances which are more substantial and the number of accommodation lots must prevail or have supremacy over non-accommodation lots. In my opinion, this prevalence is capable of being quantified by relating it to the other essential element to be satisfied to identify a different regulation module to apply to a scheme, which is the criteria used to count votes for the special resolution.

Consequently, the minimum requirement of ‘predominantly’ is the prevalence of accommodation lots which would satisfy the basic requirements of a special resolution and demonstrate supremacy or ascendancy. In quantifiable terms, this would be demonstrated if, given the number of accommodation lots in the scheme, a motion to adopt the Accommodation Module would be successful if the adoption of this Module was acceptable to a significant proportion of the owners of the accommodation lots, and the owners of the lots in the scheme which were not accommodation lots were largely powerless to prevent this outcome. Given the requirements for counting votes for a motion requiring a special resolution^[8], I consider that the minimum number of accommodation lots must be 75% of the lots in the scheme for the section 3(2)(a) entry requirement to be satisfied. The existence of this number of accommodation lots allows the presentation of a motion to owners, and it is then a matter for all the owners to consider and determine whether to accept the module."

I have received a number of arguments against this interpretation. Firstly, it is argued that the 15 lock up lots in the scheme are "immediately available" to be let.^[9] On this basis the percentage of lots qualifying as accommodation would be in excess of 79%.

I am not persuaded by this argument. I consider the definition is really aimed at premises that are let and those that are intended to be. Realistically, none of us can know whether a lock up is immediately available for letting. It may not be fully furnished, it may be furnished in a way that is not marketable, and it may be occupied by the owner’s personal belongings such as clothing, medicines, photos and the like. However, the argument does highlight difficulties in deciding the appropriateness of an exact percentage as representative of "predominantly" for all schemes, across all periods of time.

Secondly there is an argument that a special resolution is passed on the basis of 66.66% of those in attendance at a meeting, not 75%. I understand that the decision of the adjudicator in Carrington Court is based on the second of the requirements of Section 106 of the Act that "the motion is passed by special resolution only if ...... the number of votes against the motion are not more than 25% of the number of the lots included in the scheme".

There is a third argument that the definition put forward by the adjudicator in that decision was not fully informed. They note that the precedent created by that decision is not binding on subsequent adjudicators. I have been referred to two decisions of the Administrative Decisions Tribunal in New South Wales which are also not binding on an adjudicator, though they have a more qualitative interpretation, rather than strictly quantitative. I have been referred to yet another dictionary definition.

Through my own investigations I have located 2 legislative definitions of predominant from the United States of America. One defines predominant at no less than 85%^[10] while the other says provides that predominantly means over 50%.^[11] Within Australia, the Goods and Services Tax Act indicated that predominantly was in the vicinity of at least 70%.^[12]

My investigations of various applications of the term "predominantly" have also led me to appreciate the importance of considering predominance in terms of a span of time, rather than just a snap shot in time.

I have also been referred to the explanatory notes that issued with the original bill. The statement made in the explanatory notes which the resident managers rely on is "It may also be suitable for certain hotel or resort projects where the majority of owners are investors". I have made enquiries on the internet in relation to the facilities that are advertised as available within both Carrington Court and 19^th Avenue.

Facility	Carrington	19^th Avenue
Pool	X	X
Spa		X
Sauna	X	X
Solarium		X
Steam Room		X
Gym	X	X
Plunge Pool		X
Kiddies Pool		X
Tennis Court	X	X
Squash Court		X
BBQ Areas	X	X
Table Tennis		X
Pool Table	X	X
Arcade Games	X	X
Tour Bookings	X	X
In-house Restaurant		X

In my mind, the extent of facilities offered by 19^th Avenue are certainly characteristic of a resort. Carrington Court appears to be only slightly less well appointed.

With this in mind, Carrington Court needs to be interpreted not just in terms purely of a percentage count of units in the letting pool or currently let, but also the nature of building as a whole, including the types of facilities on offer and the extent to which the scheme is given over to attracting recreational visitors. For example, based on the size of the restaurant, reception and managers’ residence alone, 19^th Avenue has devoted over 5.5% of its floor space to attracting guests, while Carrington Court has devoted only 2%.

Unlike the by-laws of Carrington Court, 19^th Avenue also makes provision for the Management Lot in by-law 30. Without the consent of the Body Corporate, they are entitled to display signs or notices in regarding sales, letting and the provision of services.

I am also of the view that any accommodation percentage identified as suitable for a scheme, must be tempered by the reality that a percentage calculated can change at any time. For example, say in a 100 lot scheme, a general meeting agenda proposed a change to the accommodation module. It would be absurd in this situation if 75 of its lots were in the letting pool at the time the motion was proposed, to find that on the sale of one lot after distribution of the agenda, it is no longer appropriate to be considered for the accommodation module. Even within 19^th Avenue, 5 lots changed hands between 9 December 2005 and 19 June 2006. Within the course of a year then, it is feasible that 12% of the lots in the scheme could change hands. Figures of this magnitude could cause a significant swing in the number of lots falling within the definition of "accommodation".

In my mind, given the legislators did not place a percentage figure in Section 3 of the Accommodation Module but rather relied on a qualitative term such as "predominantly", they did not intend to create a hard and fast percentage based rule for the purpose of all schemes. Rather, the use of the word "predominantly" indicates that a different prevalence of accommodation lots would be required for different types of scheme. The evidence available in this particular application indicates that 19^th Avenue has sufficient lots available that it could properly be described as an accommodation style scheme made up predominantly of accommodation lots.

Decision

I observe that in this matter, I have been asked to declare a 10 month old resolution invalid based primarily on a precedent that did not exist at the time of the resolution. Since that time, one of the parties currently contracted to the scheme has prudently waited until the appeal period was over. Then, and only then, that party disposed of an income generation source. Both parties have incurred legal costs in furtherance of their reliance of the stability of the resolution passed.

I have received a submission suggesting that it was incumbent on the McNabs to mitigate their income losses. The McNabs only became aware that the arrangement was under threat in June. They have disposed of a cash flow and security source which one assumes involved considerable research on their part to buy and considerable research on the part of the new owner to buy. The purchase and sale of a business is not a quick turnover process. Where a short lived dispute is hanging over the future, it appears that mitigation of losses does not extend to the purchase of replacement business in the interim.

The effect on the currently contracted resident managers of the delay, would in my view have been sufficient to defeat any entitlement to relief, even had I regarded the Carrington Court decision as completely applicable to the scheme.

Finally, I have been asked for a costs order against the applicants under Section 270(1)(c) of the Act. For me to make this order I need to form the view that the application is frivolous, vexatious, misconceived or without substance. While the applicants have been unsuccessful, and despite having been shown to have a history of pursuing details that many people might not, I am not of the view that this particular application satisfies the criteria of this section. I will not make an order for costs.

The application is dismissed.

^[1] Randi Wixs Pty Limited v Pokana Pty Limited [2002] NSWADT 205 (18 October 2002) - http://www.austlii.edu.au//cgi-bin/disp.pl/au/cases/nsw/NSWADT/2002/205.html?query=randi%20wixs
^[2] Wood & Wilson -v- Bergman [2003] NSWADT 82 (23 April 2003) - http://www.austlii.edu.au//cgi-bin/disp.pl/au/cases/nsw/NSWADT/2003/82.html?query=wood%20&%20wilson

^[3] Body Corporate and Community Management Bill 1997 Explanatory Notes Page 3

^[4] Wei-Xin Chen v Body Corporate for Wishart Village CTS 19482, Appeal 4080 of 2000, District Court Brisbane, 29 May 2001.
^[5] Section 84(3)(b) Body Corporate and Community Management (Standard Module) Regulation 1997
^[6] Section 26 of the Standard Module and 24 of the Accommodation Module
^[7] For this regulation to apply to a community titles scheme the lots in the scheme must be predominantly accommodation lots.
^[8] Section 106, Act.
^[9] Section (3) Accommodation Module
^[10] Proposed amendment to Section 240.3b-18 Securities Exchange Act of 1934 – see http://www.sec.gov/rules/proposed/34-46745.htm
^[11] Cal. Code Regs. SS23183 subsection (b)(1) – see http://www.ftb.ca.gov/law/rulings/active/lr94_2.html
^[12] Section 87-24(3) A New Tax System (Goods and Services Tax) Act 1999

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URL: http://www.austlii.edu.au/au/cases/qld/QBCCMCmr/2006/503.html

1.	The retention of the Standard Module maximum 10 year term makes it harder for future individual owner operators to raise the necessary finance to purchase the management rights whilst it poses no problems to a large consortium company like Breakfree.
2.	The existing managers have silent partners who seek to terminate their involvement this year. The managers wish to remain at 19^th Avenue but to do so must purchase their partners’ share, necessitating refinancing. The banks are unwilling to undertake the larger loan with only a maximum of 10 years but will do so under the longer accommodation agreement.

•	Some have no interest in the financial problems of the management;
•	If the current managers stayed under a 25 year contract, they would be 85 years old at the end;
•	They bought under the Standard Module and thought that is the way it would stay;
•	Fear that the Body Corporate might lift the committee spending limit to $450 per lot at a later general meeting;
•	They consider that finding out about the move to the Standard Module for the first time in late October, was too close to the date the decision had to be made;
•	Under the Accommodation Module, you cannot object to a decision of the Committee;
•	There is no advantage in a 25 year contract;
•	Carrington Court decision;
•	Conflict between 78% Holiday lots or 65% accommodation lots has been misleading;
•	Failure on the part of the committee to provide accurate information;
•	One submission tries to align the duty of care of a committee member to that of a company director;
•	The current resident managers must have paid too much in the first place;
•	Attracting a large corporation that specialises in the holiday market would be more expensive;
•	A financial analysis by one owner concludes that the longer term is being sought for the purpose of increasing saleable value of the future cash flows associated with a longer term;
•	An enquiry the applicants made of another bank as to the availability of loans under the standard module;
•	Risk of on-sale to larger management rights entrepreneurs. S8 is mentioned specifically and the impact this can have on income after fees are levied against the rent received;

•	they received all the arguments for and against the motion before the meeting;
•	they believe that at two thirds accommodation, they are in a predominantly accommodation scheme;
•	can an adjudicator’s decision made after the annual general meeting be made to apply retrospectively to a valid decision;
•	information provided by the committee was "adequate, factual, comparative information";
•	the committee has to identify a reasonable balance in how much information it presents and the BCCM does provide a good information service to those who would like to know more detail;
•	industry views on appropriate finance do not necessarily go to the detail of individual cases;
•	the current managers have made "an immense and positive difference to the resort";
•	change of module does not remove the owners capacity to remove a non-performing manager

•	no "good reason" exists to allow the application out of time;
•	the committee decided to unanimously support the motion of the resident manager and so the motions became committee motions. They did so in the belief that it was in the best interests of the scheme to support the motions, as it offers flexibility in operations;
•	They state that on a lot entitlement basis, 24,419 lot entitlements out of 100,000 were against the motion. It was therefore carried as a special resolution;
•	This modified special resolution process was adopted for significant matters and its requirements have been met;
•	In relation to alleged voting irregularities, the applicants have had ample time in which to lodge and appeal and did not do so;
•	They seek costs of $2,942.94 on the basis of section 270(3) of the Act.

•	The applicants could have lodged an appeal quite some time ago and located Carrington Court within the 3 months, had they fully investigated their grounds. Ignorance of the law is no excuse;
•	The statements attributed to the QRAMA (regarding length of loans) have been misconstrued;
•	The applicants had done a great deal of research before the meeting and distributed a lot of information. The information in relation to financing terms was available to them, well before the BCCM meeting of 1 June 2006, if they had looked for it;
•	There was plenty of time after the meeting and before the application period was up, to lodge an appeal in relation to the votes that were not included in the minutes;
•	They suggest that in terms of the definition of an Accommodation Lot given in Section 3 of the Body Corporate and Community Management (Accommodation Module) Regulation 1997,10 lots in the scheme that are described as "lock-up" would be "immediately available to be the subject of a lease or letting for accommodation for long or short term residential purposes". This is asserted whether or not the owners had immediate intentions to lease the premises. They state this brings the percentage of accommodation lots to 79.49%;
•	They state Carrington Court is not binding and that the adjudicator did not have access to certain legal authority and other evidence;
•	That a special resolution only requires 66.66%, not 75%;
•	They site two legal authorities, both from the New South Wales Administrative Decisions Tribunal, where the members concerned referred to dictionary type definitions of "predominantly"; ^[1] ^[2]
•	They refer to the Explanatory Notes which accompanied the Body Corporate and Community Management Bill 1997 which state:

•	They observe that the letter by the chairperson distributed to owners in response to the applicants’ material, was written in his capacity as an owner, not as chairperson;
•	They produce an affidavit by John Anderson (of QRAMA) who gave the talk referred to by the applicants, where he summarises that "I am of the opinion that the statements made by (the chairperson) in his correspondence of 29 November 2005 and in the Chairman’s Report are true and accurate and are not in any way misleading or deceptive to the unit owners at 19^th Avenue on the Beach";
•	The applicants have not produced any corroboration of their understanding of what the Unit Owner’s Association position is;
•	The fact of the matter is that the resident managers did not originally intend to ask to move to the accommodation module and only made the request when other circumstances intervened;
•	They produce evidence that Hi Ryzers have approached at least three different banks for finance to buy out Baringa. None were prepared to fund where the term to run was less than 10 years. Suncorp, a Queensland Bank has stated "the increased funding does not meet our credit requirements for lending over the remaining term of you management agreements". Macquarie Bank states that "when the unexpired term reduces below 10 years, your repayment program would increase to a level which would significantly reduce your disposable income". They suggest the could again enter discussions if the remaining term is 15 years;
•	The committee took appropriate steps in exploring their legal position with solicitors and have not done anything outside the requirements of the legislation;
•	Owners were given ample time to examine the applicants’ viewpoint through the material they distributed;
•	The decision was up to the owners, and the applicants themselves made this abundantly clear;
•	The QRAMA’s position is that 7 years left to run on a contract, is the minimum period against which finance might be available;
•	They append the statements of the owners of 48 lots (some comprising standard text), stating that they are fully aware of the implications of their decision and that they made their decision on a fully informed basis. The statements include support that the scheme is predominantly an accommodation scheme. One observes that retrospective application of the decision in Carrington could potentially destabilise the management rights industry. There are a significant number of statements expressing frustration about a group of minority owners causing disruption;
•	They seek costs on the basis that the application is frivolous, misconceived and without substance. They attach other correspondence they suggest indicates a course of conduct.

•	The committee discussing a change of module when it was not included on the agenda;
•	Failure to document correspondence regarding the change of module to in the committee meeting minutes;
•	Partial attendance of parties at the committee meeting and existence of proxies;
•	Submission of private motions relative to the end of the financial year;
•	Submitter of motion changed to committee.