Il Villaggio [2006] QBCCMCmr 620 (27 November 2006)

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

I hereby order that, except as provided below, the body corporate must not incur any further liability for legal fees or other expenses in relation to litigation pursuant to resolution 13 at the annual general meeting of 4 February 2006 (litigation).

I further order that, within three months, the body corporate must call and hold a general meeting to give owners the opportunity to consider whether or not to authorise any further spending in relation to the litigation and to consider any settlement proposals.

I further authorise the committee of the body corporate to, pending the general meeting, expend the minimum amount reasonably necessary to protect the rights or interests of the body corporate in respect of the litigation. This includes authorisation to instruct solicitors to file a defence to a counterclaim or seek an adjournment of proceedings pending the general meeting.

I further order that, within two weeks, the body corporate must send to all owners a copy of this order and reasons for decision.

I further order that the application is otherwise dismissed.

STATEMENT OF ADJUDICATOR’S REASONS FOR DECISION - REF 0396-2006

"Il Villaggio" CTS 28518

Il Villaggio Community Titles Scheme (Il Villaggio) is a 40 lot scheme under the Body Corporate and Community Management Act (Act) and the Act’s Accommodation Module Regulation (Accommodation Module).

This is an application by Geoffrey & Valda Ivett and Toni Leigh, the Owner(s) of lots 24 and 31 respectively (applicants) against the body corporate for Il Villaggio (respondent).

The dispute concerns the validity of a resolution on 4 February 2006 that the body corporate appoint Teys Legal Pty Ltd to start legal proceedings against nine former members of the committee in relation to alleged unauthorised legal expenses, alleged failure to pay the remuneration under the caretaking agreement, and alleged failure to approve the assignment of management rights.

The applicants have submitted that the resolution of 4 February 2006 was brought about by misrepresentation, involved a conflict of interest, failed to name three relevant committee members, resulted from a lack of full disclosure, and failed to provide for sufficient legal expenditure.

The former administrator and body corporate manager have made submissions disputing the application. In particular, information has been provided to the effect that the body corporate had spent $14,672.50 on legal action but had subsequently agreed not to pursue the action.

The applicants have provided a reply to the effect that, to this date, no agreement has been reached on a settlement of the legal action. It is further submitted that records indicate the body corporate has spent more than the $15,000 authorised by the resolution and that legal costs could be in the vicinity of $60,000 if the matter goes to trial.

A preliminary question is whether to waive the applicants’ failure to bring an application within the time limit established under the Act. Under the Act, an application to declare void a resolution must be made within three months unless an adjudicator, for good reason, waives the time limit (Act, 242).

In deciding whether to waive the time limit it is relevant to balance the length of the delay, the reason for the non-compliance, the effect of the delay and the entitlement of the applicant to the relief sought.^[1] In the present instance, the application was made within four months of the resolution being passed. It is also clear that the applicants had been in an ongoing dispute with the body corporate within the three month period. In fact, the applicants indicate that the present application has been made to separately deal with some of the outcomes that were originally sought to be considered in an application that was made within the three month time limit. The applicants have raised some serious questions about the validity of the resolution and it seems proper in all the circumstances to waive the time limit and consider the application on its merits.

Part of the explanatory note states that "The committee were given clear and unequivocal advice in writing by TEYS Strata (Brisbane) Pty Ltd on 19 July 2005, 21 July 2005 and 26 August 2005 that the body corporate’s financial circumstances were dire and that the body corporate was not in a position to pay any further accounts and that the committee had exceeded its expenditure limit in engaging Dibbs Abbott Stillman".

The applicants have highlighted parts of these letters that "Your solicitor has now agreed to provide us with a separate account for each of the different court cases this bill relates to and it appears that when this is done, the problem will be solved", "We have dealt with the position of the authority of the committee to incur expenses and provided the bills are delivered in the form promised, we do not anticipate any further issues in relation to this matter", and "We draw your attention to our previous advice ... in relation to instructing solicitors to incur legal expenses for which the body corporate may not be able to pay and in respect of which there is some doubt about the authority of the committee to incur".

In response, submissions on behalf of the committee are to the effect that the committee did ignore warnings and incurred further costs.

The letter of 19 July 2005 states that, in the circumstances, Teys advice was to "Immediately instruct your solicitors not to proceed any further with legal services for which you cannot pay and in respect of which there is some doubt about the authority of the committee to incur. We have not reached a final position on this matter although we have determined today that at least one of the accounts owning to your lawyers appears to be for just one matter and exceeds the committee’s authorised expenditure limit".

When reading the correspondence as a whole, it is clear that there were concerns expressed about the financial position of the body corporate, the committee was advised to instruct the solicitors not to proceed with any further legal services, and it appeared that at least one account would exceed the committee spending limit even though arrangements would be made to have a separate account delivered for each separate matter. The extracts from letters the applicants say are ambiguous appear to relate to attempts to resolve issues about spending that had already occurred rather than indicating there was any doubt about lack of authority to engage in further spending. In fact, surprisingly little is said about options for dealing with the ongoing litigation including the possibility to seek a court adjournment or to seek an emergency spending authorisation from an adjudicator pending an opportunity for owners to vote on the issue (Accommodation Module, 101(1)(c)).

On balance, the explanatory note does seem to over simplify a difficult situation in which the committee was facing a difficult situation regarding whether they should spend thousands of dollars on legal fees without authorisation or risk litigation against the body corporate succeeding and the court making the body corporate liable for hundreds of thousands of dollars in damages.

However, the applicants have not satisfied me that the explanatory note was so objectively misleading that the resolution should be declared void. In any event, all owners have been given the opportunity to make submissions and I have not received any submissions that satisfy me that owners felt they were mislead at the time and would have voted differently if they had different information.

Some concern was also expressed about the administrator Michael Teys of Teys Strata nominating Teys Legal Pty Ltd as solicitors.

I do not consider this to be a good reason for declaring the resolution void. There is nothing to prevent a person proposing the appointment of themselves or a related entity. The vote to appoint Teys Legal Pty Ltd was made by owners.
The shared name of the proposed solicitors should have made it particularly obvious to owners that there may be some relationship and owners could have made enquiries about this relationship if they had any concerns.

The applicants also express concern that three relevant committee members were not named in the motion and that a full report on the affairs of the body corporate was not provided to all owners.

If sufficient owners are satisfied that the resolution should have named other committee members or that additional information requires a different resolution then owners can vote to amend or revoke the original resolution. The concerns expressed are not sufficient in themselves to satisfy me that it is necessary or appropriate to declare the original resolution void.

The applicants raised questions about whether legal spending in the litigation against them was properly authorised. In this regard the applicants claim that total legal costs for the body corporate in respect of the litigation could be in the vicinity of $60,000. It was submitted that owners voting to commence the litigation may have assumed the amount of $15,000 mentioned in the resolution would be sufficient to fund the litigation.

After reviewing the submissions and documentation it appears that the potential legal expenditure relates to two separate potential actions. Firstly, an action to seek to recover amounts representing body corporate funds alleged to have been spent on lawyers by former committee members without proper authority. Secondly, an action to seek an indemnity from former committee members regarding any damages potentially payable as a result of their failure to consent to the assignment of the management rights for the scheme.

The material indicates that the only current legal proceedings are those to seek to recover body corporate funds from former committee members and that these proceedings commenced as third party proceedings in an action by the former solicitors against the body corporate.

There is little evidence beyond the bare assertion by the applicants that the total cost of these proceeding could be in the vicinity of $60,000. However, financial records indicate that the total cost has either already exceeded $15,000 or is about to exceed that amount. This is of particular concern given that two quotations should normally be provided for spending of more than $250 per lot on any one project.

Decisions about any sizeable litigation will almost always require decisions of owners in general meeting rather than committee decisions. Apart from the decision to commence or defend the litigation itself, common decisions include:

Another complication is that, to make an informed decision, owners may need access to legal advice about the prospects of success. It would not generally be appropriate to send this advice with the notice of meeting due to the privileged nature of the advice. The body corporate may therefore wish to consider alternative ways to provide this information to the persons needing to make these decisions. For example, the notice of meeting could invite owners to inspect the advice subject to a confidentiality agreement. Alternatively, some owners may instead grant proxies to a person who has accessed that information and allow that person to make a decision on their behalf. Otherwise, a court may grant orders restricting access to the privileged information or seeking to specify the appropriate parties to make decisions about the litigation.

The body corporate is engaged in litigation alleging former committee members spent too much on legal fees without proper authorisation. It is ironic that some of those committee members have demonstrated in the present application that there is no proper authorisation for the legal spending likely to be needed in the present litigation.

The applicants have not established any grounds that satisfy me the resolution authorising the commencement of the litigation is void. However, the applicants have satisfied me that body corporate spending on the litigation is likely to exceed the amount authorised by owners and may have already exceeded that amount.

An adjudicator is required to make an order that is just and equitable to resolve a dispute (Act, 276). The applicants have shown the initial resolution authorising the litigation is insufficient to authorise further spending on that litigation. Submissions from other owners indicate that the body corporate has subsequently authorised a settlement offer and some owners seem confused regarding whether or not this settlement offer has resolved the litigation. It is obvious in these circumstances that another meeting of owners will be required to allow any additional settlement offers to be considered and to determine if owners will authorise the additional expenditure likely to needed if the body corporate continues to engage legal representation.

I propose to order that the body corporate must have a general meeting within three months to give owners the opportunity to consider whether or not to authorise any further spending in relation to the litigation and to consider any settlement proposals. The committee may be able to obtain new estimates of legal fees and formulate an appropriate offer of settlement in sufficient time for these matters to be considered at the upcoming annual general meeting. If not, an extraordinary general meeting will need to be called.

I will order that, prior to owners being given this opportunity to review the litigation, the body corporate must not incur any further liability for legal fees or other expenses relating to the litigation. However, I will authorise as emergency expenditure the minimum amount reasonably necessary to protect the rights or interests of the body corporate in respect of the litigation. This is to avoid the body corporate potentially being subject to court orders for failing to take any necessary steps in the litigation pending owners in general meeting having an opportunity to determine the preferred course of action for the body corporate.

To ensure owners are aware of the issues raised, I will also order that the body corporate must send to all owners a copy of this order and reasons for decision.

^[1] Weeks v Commissioner for Body Corporate, Dodds DCJ, District Court (Maroochydore), Appeal 13/1999, 20 September 1999.

Number of Scheme:	28518
Name of Scheme:	Il Villaggio
Address of Scheme:	24 Radan Street, SUNNYBANK HILLS QLD 4109

Queensland Body Corporate and Community Management Commissioner - Adjudicators Orders

Il Villaggio [2006] QBCCMCmr 620 (27 November 2006)