Marbella [2007] QBCCMCmr 179 (26 March 2007)

Last Updated: 12 April 2007

REFERENCE: 0028-2007

ORDER OF AN ADJUDICATOR

MADE UNDER PART 9 OF CHAPTER 6

BODY CORPORATE AND COMMUNITY MANAGEMENT ACT 1997

Number of Scheme:	28007
Name of Scheme:	Marbella
Address of Scheme:	QUEENSLAND

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

the body corporate,

I hereby order that, within one month of the date of this order, Strata Title Management (Tweed Heads) Pty Ltd (STM) of the corner of Bay and Enid Streets, Tweed Heads, NSW 2485, must reimburse the body corporate for Marbella the amount of $1,354.10.

STATEMENT OF ADJUDICATOR’S REASONS FOR DECISION - REF 0028-2007

"Marbella" CTS 28007

Scheme

Marbella community titles scheme 28007 (Marbella) was registered as a building format plan of subdivision on 4 May 2000, comprising nine lots and common property. The scheme is designed for residential purposes and is regulated by the Body Corporate and Community Management Act 1997 (Act) and the Act’s Standard Module Regulation (Standard Module).

Application

This application is brought by the body corporate for Marbella against its body corporate manager, Strata Title Management (Tweed Heads) Pty Ltd (STM), seeking an order for re-imbursement of a total amount of $1,354.10 which the body corporate alleges was spent without body corporate authorisation, as follows:

Authorised	Spent	Excess
$1,320.00	$2,282.50 (Invoice no. 00013751)	$ 962.50
$ 242.00	$ 633.60 (Invoice no. 3411)	$ 391.60
	TOTAL	$1,354.10

The background to the dispute can be summarised as follows:

	Quotations were submitted at the AGM of 26 July 2005 to waterproof a shared wall between lot 7 and lot 8 and a wall at the rear of lot 8.
	At the meeting it was decided that only one side of the wall should be waterproofed at a quoted cost of $1,320 (see motion 12 – passed by 6 votes for and 1 against) and repairs made to the rear wall of lot 8 at a quoted cost of $242 (see motion 11 – passed with 7 votes for and nil against).
	The contractors for both the rear wall and the dividing wall (Building Maintenance & Painting and Southworth Enterprises Pty Ltd, trading as Wetfix Waterproofing) attended the site and carried out works during August and October 2005, respectively. The work was under the direction of the owner of lot 8, Mr Alf Neville.
	Both contractors were instructed by Mr Alf Neville to carry out work for the greater quoted amounts of $2,285.50 and $633.60. Quotes for these higher amounts were rejected in preference of the quotes for the lesser amounts at the AGM on 26 July 2005.
	The cost of the work was invoiced to Mr Alf Neville and the invoices were forwarded on to STM for payment.
	The invoices for the greater amounts were paid from the body corporate’s sinking fund by STM.
	When the amounts appeared on a general ledger transaction list dated 6 July 2006, the committee questioned STM over the matter. The body corporate has been requesting re-imbursement from STM for a period of some five months prior to lodging this application.

The body corporate argues that the invoices were paid by STM without any authority from the committee and were in excess of amounts approved at the 2005 AGM.

Submissions

Submissions in response to the application were sought from the body corporate manager, STM, and all owners. The body corporate manager made a submission to the following effect:

	As the invoices came from Mr Neville, from the building, who was co-ordinating the work, involved the lot of the current chairman and had not been forwarded direct to them but via an owner and ex-committee member, no further check on the payment of the account was made and the invoices were subsequently paid.
	Although the minutes of the AGM held on 26 July 2005 reflect that partial approval only was given for the work and authorisation for the payment was not sought, the fact remains that an owner directed the tradesmen to carry out certain additional work on the common property without body corporate authorisation.
	The tradesmen carried out the work in good faith and under the direction of an owner and ex-committee member. STM advised the committee that the matter should be taken up with the owner of lot 8 as he arranged the work.
	From advice from the tradesmen, the body corporate had necessary work carried out on the common property which was not completely approved by the committee which was carried out under instructions from an owner.
	STM are not responsible for the reimbursement of monies which reflect the difference between the amount approved at the AGM and the invoiced amounts for work received by the body corporate at the request of an individual owner.

A submission was also received from an individual owner stating his belief that the payments in question were unauthorised.

The body corporate did not inspect the submissions made nor make a reply to them.

Jurisdiction

An adjudicator to whom an application is referred has jurisdiction to make an order that is just and equitable to resolve a dispute about claimed contraventions of the act, the exercise of rights or powers under the act and certain claimed contractual matters with body corporate managers, service contractors and letting agents (Act, 276). The order may require a person to act in a way stated in the order (Act, 276(2)). Without limiting either of these subsections, an adjudicator may make an order of the type listed in Schedule 5 of the Act (Act, 276(3)). Further provisions about specific types of orders of an adjudicator relate to orders appointing an administrator, consent orders, interim orders, orders about damage to property, and orders about the changing of the financial year of the body corporate (Act 276(4), 276(5), 279, 281, 283).

An adjudicator must investigate each application to decide whether it would be appropriate to make an order on the application (Act, 269). Relevant to this application, an adjudicator may make an order about the exercise of rights or powers under the Act (Act, 276(1)(b)).

The term "dispute" for the purposes of the Act is limited to disputes between certain parties relevant to the context of a community titles scheme. The particular meaning of "dispute" with bearing on this application is the definition of "dispute" as being a dispute between the body corporate for a community titles scheme and a body corporate manager for the scheme (Act, 227(1)(c)).

The body corporate claims that its body corporate manager paid two particular invoices without appropriate authorisation and seeks reimbursement of the money paid to the contractors from the body corporate’s funds, in excess of the amount authorised at the AGM held on 26 July 2005. STM claim that they are not responsible for the reimbursement of monies which reflect the difference between the amount approved at the AGM and the invoiced amounts for work received by the body corporate at the request of an individual owner. I am satisfied that there is a "dispute" within the meaning of the Act (Act, 227).

Decision

The substance of this application is a dispute between the body corporate and its body corporate manager regarding whether the body corporate manager paid contractors in excess of its powers or otherwise contrary to the legislation. This will require consideration of the powers of a body corporate and its body corporate manager to enter into arrangements for the provision of goods and services to the body corporate (Act 95, 97, 100). It will also require consideration of whether there has been a contravention of any of the financial management provisions of the legislation. (Act 150, Standard Module Part 7).

Applicable law

To state the applicable law, I quote from my colleague’s decision in 36 Windorah Street Stafford^[1], as follows:

Powers to enter into agreements on behalf of the body corporate

Every agreement entered into by the body corporate should be authorised by a resolution of the body corporate. This applies irrespective of whether the agreement is a formal written agreement or an informal verbal agreement. Authority to enter into the agreement must be either:

•

By resolution of owners in general meeting - Owners can pass a resolution in general meeting to authorise someone to enter into an agreement on the body corporate’s behalf; or

•

By resolution of the committee - Owners vote for individuals to represent them on the committee and decisions made by that committee will then be effective as a decision of the body corporate (Act, 100).[2] The committee has the power to decide most day to day issues concerning the body corporate but some issues are restricted for consideration of owners in general meeting including decisions like altering the rights of owners, altering or improving the scheme, or engaging in spending above certain monetary limits.

Prior to 4 March 2003, however, there was an exception to the need for every agreement entered into by the body corporate being authorised by a resolution of the body corporate or committee. Before that date, a body corporate could delegate to its body corporate manager some or all of the powers of the body corporate committee.^[3]

This meant that a body corporate manager could enter into any agreements on behalf of the body corporate that the committee had power to enter into.

Since 4 March 2003 a body corporate has not been able to delegate its decision making functions (Act, 97). The only exception to this is that owners may appoint a body corporate manager to perform the duties of the committee in limited circumstances where there are insufficient persons willing to form a committee (Act 120, 121).

Powers of individuals to act for the body corporate

Individuals, including individual committee members, do not have any power to make decisions on behalf of the body corporate. As discussed above, committee members need to ensure that a proper resolution has been passed before they enter into an agreement on behalf of the body corporate or make representations that another individual has the authority of the body corporate to negotiate or enter into an agreement.

However, once a resolution has been passed by the body corporate, the committee is under a statutory duty to ensure lawful decisions of the body corporate are put into effect (Act, 101).^[4] The only way in which decisions can be implemented is through the actions of individuals. A resolution may authorise a particular individual to make an agreement with a third party on behalf of the body corporate. Otherwise, particular individuals may be authorised to affix the body corporate’s seal to any agreement authorised by resolution.

Routine administration of the agreement will also involve activities by a committee member or other authorised person. This may include activities like inspecting work performed and making payments pursuant to the terms of the contract. There is no need for any additional resolution to authorise routine administration activities as these activities will have been authorised by the initial resolution authorising entry into the agreement. However, non-routine matters involving the making of any decision on behalf of the body corporate will need to be put back to the body corporate to determine in committee or in general meeting as applicable.

The other occasion when committee members have authority to act on behalf of the body corporate without any specific resolution authorising those actions is when the legislation specifically places a statutory duty on the person. For example, the secretary has a duty to provide owners with notices of meetings and copies of minutes. These statutory duties can sometimes be delegated to a body corporate manager but the officeholder must retain the ability to exercise the statutory power themselves and can direct the body corporate manager about how to exercise the power (Act, 119).

Individuals acting in excess of power

An individual should not act on behalf of the body corporate unless they can identify a statutory provision or a resolution of the body corporate authorising them to act on the body corporate’s behalf. If an individual does act without this authority then they are acting in excess of their power. The consequences for the body corporate of an individual acting in excess of their power vary depending upon whether the body corporate had done something to make it appear to a third party that the individual was acting with the authority of the body corporate.

The body corporate will normally be bound by the actions of an individual acting in excess of power if the body corporate has done something to make outside persons dealing with the individual believe that the individual is acting within power. For example, if a caretaker buys pool chemicals on account of the body corporate and the body corporate pays the accounts without objection for a period of time then the chemical seller will be entitled to assume that the caretaker has the authority of the body corporate to make purchases of this nature. The body corporate will therefore be bound to pay for purchases of this nature until the body corporate tells the chemical seller that the caretaker has no authority to make purchases on the body corporate’s account.

The relevant provision of the legislation provides that "If a person, honestly and without notice of an irregularity, enters into a transaction with a member of the committee for the body corporate for a community titles scheme or a person who has apparent authority to bind the body corporate, the transaction is valid and binding on the body corporate " (Act, 310).^[5] A broad reading of this provision would indicate that the act of electing a person as committee member may be enough to confer apparent authority on that person to act on behalf of the body corporate. However, if a person other than a committee member is purporting to act on behalf of the body corporate then an outsider seeking to rely on that person’s actions would need to show some conduct of the body corporate establishing that person has apparent authority to act for the body corporate. The outsider may also be expected to have made reasonable enquiries about the person’s authority.

Where the body corporate has not done anything to make outside persons think that the individual is acting within power then the body corporate is not bound by the arrangement and the individual is solely liable to compensate the relevant person.

Financial Management Arrangements

The Act provides that the financial management arrangements applying to a community titles scheme are those stated in the regulation module (Act, 150).^[6] The Standard Modulet contains detailed provisions regarding financial management. Key provisions are:

1.	The body corporate in general meeting must adopt an administrative fund budget and sinking fund budget for each financial year and contributions to be levied on owners must be fixed on the basis of these budgets (Standard Module 94, 95(1));
2.	If a liability arises for which there is no provision, or inadequate provision, in the budget then the body corporate in general meeting must fix a special contribution to be levied on owners to meet this liability (Standard Module, 95(2));
3.	All amounts received by the body corporate must be paid into the body corporate’s administrative or sinking fund which must be accounts kept solely in the name of the body corporate at a financial institution and all payments from the administrative or sinking fund must be made from the financial institution account (Standard Module, 100). Since December 2003, all payments may be made only on receipt of a written request for the payment or on written evidence of the payment (Standard Module, 100(8));
4.	The committee may only carry out a proposal involving spending above the relevant limit for committee spending for the scheme if the spending is authorised by ordinary resolution, all owners have given written consent, or the spending is pursuant to an order (Standard Module, 103);
5.	Spending above the relevant limit for major spending must ordinarily only be carried out after owners have voted on at least two different quotations (Standard Module, 104); and
6.	The body corporate must keep proper accounting records and statements of accounts (Standard Module, 105).

The strict statutory limits imposed by the Act and the various limits on expenditure were recognised by the District Court in the appeal of an order of an adjudicator concerning expenditure by a caretaker without authorisation by the body corporate.^[7] In that instance the body corporate was required to pay $8,522.90 for various consumables the manager purchased on behalf of the body corporate and various repairs made for the body corporate’s benefit. However, the manager was refused recovery of payments for some other work that the body corporate had not approved before the work was performed. The court stated that even if the contractual provisions did not apply to extra work done by the manager then the various limits on expenditure will still apply "either because of the Act or because of a resolution of the body corporate" and that "usually there can be no recovery where work is done without the approval or consent of the property owner".

The detailed provisions regarding financial management make it clear that any person engaging in spending on behalf of the body corporate should be able to point to a resolution authorising the spending.

I have determined that STM paid the two invoices in question in excess of their authority to do so. The body corporate had passed ordinary resolutions in general meeting authorising payment of the amounts of $1,320 and $242 only for certain specified work. The invoices actually paid were for additional work for amounts in excess of those approved by ordinary resolution in general meeting and in fact, had been considered by owners and decidedly rejected by the approval of the less expensive quotes for the less extensive work. I do not accept STM’s assertion that submission of the invoices to them by an individual owner was sufficient justification for them to pay them from body corporate funds without any further investigation. Mr Neville did not have any actual authority to act on behalf of the body corporate, nor has it been submitted that Mr Neville had any apparent authority to so act. STM admits that Mr Neville was not even a committee member, describing him as an "ex-committee" member. Further, as the work was carried out after the amendments to section 106,^[8] STM cannot rely on a delegation of the committee’s powers to authorise the increased payment. In any event the total of the excess expenditure exceeded the relevant limit for committee spending.^[9]

There is clear error by STM. As a body corporate manager, it had no unilateral power to approve payment of the invoices in excess of what had been approved by owners in general meeting. It could not act on the instructions of an individual owner who, as previously stated, has no unilateral power. I consider that STM’s conduct constitutes a failure in understanding fundamental legislative concepts for the protection of bodies corporate.

Reimbursement

I have found that the actions of STM have caused the affairs of the body corporate to be conducted otherwise than in accordance with the detailed provisions of the legislation relating to agreements between the body corporate and third parties and the strict statutory limitations on expenditure of body corporate funds. The type of order sought, being reimbursement of body corporate funds spent in excess of authority, is an order that could be made pursuant to general law claims of an agent acting in excess of authority or spending money without proper authorisation. However, it is appropriate that the body corporate seek resolution of the dispute in this office rather than pursuant to a claim under the general law.

This is because the dispute is between the body corporate and its body corporate manager (Act, 227) and has involved detailed consideration of the Act based on allegations that the body corporate manager’s actions were contrary to the Act and in excess of powers under the Act (Act 228, 229). An adjudicator has a broad discretion to make an order that is "just and equitable" to resolve a dispute, in the context of a community titles scheme, about a claimed contravention of the Act or the exercise of rights or powers, or the performance of duties, under the Act (Act, 276(1)). The examples of orders in Schedule 5 of the Act do not specifically refer to the making of an order requiring a body corporate manager to reimburse the body corporate for any body corporate funds improperly spent. However, I consider the general power to make an order that is just and equitable to resolve a dispute includes a power to make orders requiring reimbursement of funds improperly spent by a body corporate manager. This has been affirmed by the District Court in Sail Isle v Body Corporate for Surfers Aquarius^[10] where it was held that Section 276(2) of the Act extends to an order to pay money. In that case it was it was held that there is exclusive jurisdiction for an adjudicator under Section 276 to determine a dispute about reimbursement by the body corporate of moneys paid by a lot owner for repairs to a balcony slab that was the responsibility of the body corporate.

At first instance, the body corporate has established its claim that its funds were spent without authority and should be reimbursed. However, STM has made submissions to the effect that it should not be required to reimburse the body corporate because the work was necessary and owners actually received the benefit of the work done by the contractors. I will therefore consider whether it is just and equitable to make an order requiring STM to reimburse this amount to the body corporate in light of these claims.

While the work may have been carried out in a professional and workmanlike manner (there has been no submission to the contrary), STM have not satisfied me that the lesser work authorised by the body corporate at the AGM held on 26 July 2005, to be completed by the same contractors, was insufficient for the body corporate to fulfil its legislative obligation to maintain the common property in good condition.

I cannot deny that the body corporate has obtained some benefit from having had the extra work done. As the scheme is a building format plan, the body corporate is responsible for maintaining the external surfaces of the building in good condition. However, I cannot allow this to excuse STM’s ignorance of the legislation, especially in circumstances where it has not been submitted that the lesser work authorised by the body corporate was insufficient. Further, STM have been reprimanded by this office for the same error (acting without appropriate authority) previously^[11].

On balance, I am not satisfied that the body corporate has derived any appreciable additional benefit in having had additional, unauthorised work, done to the building. I conclude that the entire amount spent in excess of authority should be reimbursed to the body corporate by STM.

STM may have some cause of action against the owner of lot 8, however, that is not a matter that can be brought before this office.

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^[1] [2005] QBCCMCmr 366
^[2] Prior to 4 March 2003, section 92 of the Act.
^[3] Prior to 4 March 2003, section 106 of the Act.
^[4] Prior to 4 March 2003, section 93 of the Act.
^[5] Prior to 4 March 2003, section 257 of the Act.
^[6] Prior to 4 March 2003, section 113 of the Act.
^[7] Ellimont Pty Ltd v The Proprietors Ti-Tree Building Units Plan No 70782, District Court (Brisbane), D1293/2000, Brabazon DCJ, 15 September 2000 at 23,24. This was an appeal of a decision of a departmental adjudicator in Ti-Tree [2000] QBCCMCmr 81, PJ Hanly, 0550-1998, 17 February 2000.
^[8] Since 4 March 2003, section 119 of the Act.
^[9] $1,125 for Marbella, see Standard Module Dictionary
^[10] [2006] QDC 109
^[11] See C G Young, Kirra Gardens, 0122-2003, 26 May 2003