Marcoola Beach [2007] QBCCMCmr 4 (4 January 2007)

Number of Scheme:	30404
Name of Scheme:	Marcoola Beach
Address of Scheme:	885 David Low Way MARCOOLA QLD 4210

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

I hereby order that the Body Corporate shall, within thirty (30) days of the date of this order, reimburse the applicant, Christine Bracken, the amount of $3,013.32 paid by the applicant for debt recovery charges, unless and until the Body Corporate receives judgement from a court of competent jurisdiction in respect of any of those monies.

I further order that the application is otherwise dismissed.

STATEMENT OF ADJUDICATOR’S REASONS FOR DECISION - REF 0485-2006

"Marcoola Beach" CTS 30404

The Marcoola Beach community titles scheme (Marcoola Beach) consists of 125 lots and common property. The community management statement for Marcoola Beach indicates that the Body Corporate and Community Management (Accommodation Module) Regulation 1997 (Accommodation Module) applies to the scheme.

APPLICATION

Pursuant to the Body Corporate and Community Management Act 1997 (Act), this application was made by Christine Bracken, owner of Lot 66 (applicant) on 28 June 2006. The applicant sought orders against the Body Corporate for Marcoola Beach (respondent) in the following terms:

PROCEDURAL MATTERS

In August 2006 the Commissioner’s Office organised a conciliation session to assist in the resolution of this dispute. Unfortunately conciliation was not successful.

Under section 243 of the Act, a copy of the application was provided to the Body Corporate and to all owners, with an invitation to the committee and all owners to respond to the matters raised in the application. A submission was made on behalf of the respondent and by one three owners. The applicant inspected the submissions received and made a written reply (see sections 246 and 244 of the Act respectively).

A dispute resolution recommendation was made referring the dispute to departmental adjudication.

MATTERS IN DISPUTE

The application seeks reimbursement of administrative, legal and interest fees charged by the Body Corporate. The facts of the dispute, as outlined in the application, submissions and reply to submissions, can be summarised as follows.

The application alleges mismanagement of the scheme, including neglect of the property and use of body corporate funds on inappropriate projects. The application mentions the apparently poor state of the grounds, the lack of maintenance compared with the level of administrative and management fees, and the fact that the groundskeeper is not qualified. In addition, the application objects to the conduct of the body corporate manager, including that they mark current contribution statements as past due and refuse to explain their accounting practices.

Communication related to the dispute has occurred since 4 January 2005 when the applicant sent an initial letter expressing concern about several issues which they say have still been responded to. The applicant suggests that no attempt has been made by the Body Corporate or its various agents to communicate in a civil manner and that she has been ignored in the interests of profit.

The application appears, therefore, to be seeking reimbursement of administrative fund contributions paid since 24 March 2004 (from when she first owned the lot) on the basis that the contributions she has paid are not "...reflective of the service or conditions expected and promised when we purchased our unit." She is also claiming the reimbursement of legal fees and interest charges imposed in pursuit of unpaid fees.
In addition, the applicant comments that they have lost $49,000 in the value of the property because of the ‘mismanagement and negligence from all that parties involved’, although accepts that she can make no claim for this alleged loss.

The Body Corporate’s submission notes that:

One owner’s submission agrees that body corporate fees are exorbitant for the work done, maintenance is not sufficient, he has removed his unit from the rental pool because the charges are as much as the rental income, and his past requests for explanations of costs have not been responded to. Another owner agrees that the body corporate fees are so high that potential purchasers will not even consider their unit.

Another owner, who is an original owner, submits that the applicant has never, to their knowledge, attended a body corporate meeting and notes that the lack of a quorum has delayed decision-making in the past. The owner says the applicant’s contribution to meetings (in terms of the quorum and suggestions) would have been helpful and that problems should be raised at meetings. The submission comments that the applicant was continually in arrears which did not assist the work of the committee. The owner also notes that only property held over a long term will guarantee a return.

In her reply to submissions claims that:

JURISDICTION

Section 227 of the Act defines the allowable parties to a dispute under the dispute resolution provisions. At the time the application was lodged the applicant was an owner and therefore was a party to a dispute in respect of which an adjudicator could make an order. The applicant has since sold the lot, although it seems the transfer is in abeyance. The applicant is still listed as the registered owner but even if the transfer proceeded, she still has a valid interest in that the fees are in dispute. This situation is distinguishable from a dispute involving, for example, a by-law contravention, where, upon the sale of the party’s lot, an order regarding a by-law contravention would usually be irrelevant. Accordingly, I am satisfied that this is a matter which falls within the dispute resolution provisions (see sections 227, 228, 276 and Schedule 5 of the Act).

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)).

DETERMINATION

The main issue for consideration in this matter is whether the applicant is responsible for the administrative fund contributions, legal fees and interest charges imposed by the Body Corporate. However the applicant has raised much broader issues regarding the management of the scheme.

Management of the scheme

The applicant asserts that the substantive issue in this application is the administration and maintenance of the scheme by the Body Corporate and its agents. She objects that the response from the Body Corporate does not address these issues. However, for the following reasons, I do not consider that these are matters that I can properly consider or investigate in this application.

First, there is a question that the applicant has sold her lot and if so, while she would have a valid interest in disputed fees, she would have no continuing interest in the operation of the scheme.

Second, even if she is still an owner, as I will outline below I do not consider there is any nexus between her concerns about the operation of the scheme and her responsibility for financial contributions to the Body Corporate.

Third, the applicant has provided no real evidence to support her allegations. She presents a vague selection of allegations, with little detail of the factual circumstances of each issue and little substantiation in the documentation submitted. Moreover, she has not sought any orders to address the concerns that she has with the operation of the scheme. The Act provides that the Commissioner’s Office is to provide a dispute resolution service and that adjudicators are to make orders to resolve disputes. The orders sought in this application do no seek to resolve the alleged dispute in that they do not aim to rectify the concerns that the applicant appears to have with the management of the scheme. Moreover, adjudicators do not have a general power to provide compensation.

The only particular issue that I am able to comment on from the information provided by the applicant is her allegations of poor communication by the Body Corporate and its agents. While the applicant may not have received the response she was looking for, I see no evidence from the volume of letters and emails provided in the application that the Body Corporate and its agents have not communicated with the applicant. Moreover I have not seen anything particularly unreasonable, inappropriate or tardy of the correspondence provided.

Validity of contributions and interest charges

Section 93 of the Act specifies that a Body Corporate must levy contributions on each owner on the basis of its budgets for the financial year. Section 96 of the Act specifies that the Body Corporate may, by ordinary resolution, agree to penalise owners for late payment of contributions by way of interest of no more than 2.5% for each month the contribution is in arrears.

At no point in her application does the applicant dispute that the contributions levied on her were not in accordance with the amounts set in the budgets agreed to by the Body Corporate at is annual general meetings. She has not alleged that she did not receive the contribution notices or that there was anything improper about the issuing of the notices or the amounts in them. She has not alleged that the Body Corporate was not entitled to impose interest penalties or that the interest penalties were incorrectly calculated. It seems the sole reason for the applicant claiming reimbursement of the fees is that she did not get ‘value for money’ in terms of the services provided by the Body Corporate (often through its contracted agents) relative to the amount of the contributions.

On the basis of the material provided, I am inclined to agree with the assertion in the submission of the Body Corporate that the applicant "...did not understand and was not prepared to learn about the financial process involved in the operation of a Body Corporate, the roles of the Body Corporate Manager in administrating the Body Corporate and the legal obligation of the Applicant to pay contributions levied on the Applicant as owner of Lot 66." An owner is not legally entitled to withhold payment of body corporate contributions because they dispute the way the body corporate is spending those contributions. Nor are they entitled to a reimbursement of paid levies.

The Body Corporate has entered into contracts with the body corporate manager (to deliver administrative services) and with the caretaking service contractor (to provide caretaking and letting services). An individual owner is not a party to these contracts and cannot simply choose not to pay for the services. They are obliged under the Act to pay all body corporate levies (which are allocated to various items including insurance, sinking funds, and paying contractors). If they consider the contractors have breached the contract they should raise this with the Body Corporate – through the committee and at general meetings – with a view to having the breaches addressed or the process to terminate the contract for breach commenced.^[1] Alternatively, if owner has concerns with the remuneration or other terms of a contract with a service contractor, they could encourage the Body Corporate to seek legal advice about the scope for the Body Corporate to review the terms of the contract.^[2] An owner had no legal status under the contract to raise any concerns directly with the contractor (although ideally body corporate managers and caretakers will seek to address owner concerns directly and without recourse to legal action under the contract).

Similarly, if an owner has concerns with other aspects of the Body Corporate’s operation or expenditure, they should raise their concerns with the committee and if they are not satisfied with the response should submit motions to a general meeting for all owners to consider and vote on. Owners should remember that the ultimate decision-making forum for a body corporate is all owners voting at a general meeting. All owners – rather than contracted agents - share the collective responsibility for the operation of the scheme.

Validity of recovery costs imposed

The Body Corporate has incurred significant costs in pursuing the belligerent indebtedness of the applicant. The body corporate legislation mandates the imposition of levies and it is appropriate that bodies corporate pursue debts to ensure that the scheme remains on a sound financial footing. In fact the legislation requires that bodies corporate must take debt recovery action to recover contributions that have existed for more than two years. Given the applicant’s justification for not paying her contributions, I consider that debt recovery action was entirely warranted. However the question here is whether the Body Corporate was entitled to directly bill the applicant for the debt recovery charges it incurred.

Numerous adjudicators’ decisions have considered the capacity of a body corporate to recover legal or debt collection fees associated with outstanding contributions (recovery costs). Section 97(1) of the Accommodation Module (as follows, my underlining) allows the body corporate to recover costs reasonably incurred by the body corporate in recovering outstanding contributions. This is a broader basis of recovery than the standard court scale of costs.

(c) any costs (recovery costs) reasonably incurred by the body corporate in recovering the amount.

(b) a person (including a mortgagee in possession) who becomes an owner of the lot before the debt is paid.

However it is well established in previous adjudications^[3] that it is not for a body corporate to determine what costs are reasonable. A body corporate does not have an automatic right to recover costs incurred when they hand a debt over to a debt collection agency or lawyer. Rather, the legislation determines that recovery costs must be pursued as a debt.

There is a particular significance to this classification. It means that the costs allegedly incurred by the body corporate must be pursued in a court of competent jurisdiction. The body corporate must be able to satisfy the court that the costs were reasonably incurred and can only charge an owner for recovery costs that a court has determined are reasonable. If this were not the case there would be no check on the amounts that a body corporate could seek to pass on to owners.

By-law 32 of the Marcoola Beach Community Management Statement provides for debt recovery. It specifies that owners shall pay on demand the Body Corporate’s expenses, to be deemed a liquidated debt, incurred in recovering charges levied under the body corporate legislation or the by-laws. It goes on that if such amounts are not paid within 30 days they will attract interest at the rate set by the Body Corporate, and that the body corporate may take action in a court of competent jurisdiction to recover unpaid amounts and to enforce judgements obtained.

As parties have not addressed this issue in submissions and it is not a substantive issue in the application, I will not make an order regarding the by-law itself. However I am of the view that By-law 32 is not valid. Section 180(1) of the Act specifically provides that a by-law is invalid if it is inconsistent with the Act or a regulation module. Therefore to the extent that the by-law attempts to impose costs beyond those provided for in the Accommodation Module it is inconsistent with the regulation module. More importantly, section 180(6) of the Act provides that by-laws cannot impose a monetary liability on an owner or occupier except in respect of recovery of amounts payable under an exclusive use by-law. Clearly this by-law does not relate to an exclusive use by-law but it is purporting to impose monetary liabilities.

In total the Body Corporate has imposed $3,826.62 in legal costs. On 21 October 2005 the Magistrates Court made an order against the applicant which included $813.30 in costs. The respondent asserts that the $3,826.62 includes the $813.30, and the invoices provided by the respondent appear to include the amounts covered by the statement of claim filed in the court in August 2005. The applicant believes the court ordered costs may be in addition to the $3,826.62, but are unable to substantiate this claim.

It is clear that $813.30 in ‘recovery costs’ has been determined by a court to be reasonable. On balance, I am satisfied that a further $3,013.32 has been imposed by the Body Corporate for which no court judgement has yet been obtained. In the absence of a court judgement I do not consider the Body Corporate was entitled to impose these further charges.

Misconceived and without substance

The Body Corporate claims that the application is misconceived and accordingly ask the application be dismissed and that they be compensated the maximum amount of $2,000 towards the costs incurred by the Body Corporate relation to the application.

Section 270 of the Act provides as follows (my underlining):

(a) it appears to the adjudicator that the adjudicator does not have jurisdiction to deal with the application; or

(b) the adjudicator is satisfied the dispute should be dealt with in a court or tribunal of competent jurisdiction; or

(c) it appears to the adjudicator that the application is frivolous, vexatious, misconceived or without substance; or

(d) the applicant fails, without reasonable excuse, to comply with a requirement of the adjudicator under section 271(1).

(2) The adjudicator’s power to make an order under this section may be exercised--

(3) If the adjudicator makes an order under subsection (1)(c), the adjudicator--

(a) may order costs against the applicant to compensate the person against whom the application was made for loss resulting from the application; and

Legal expenses reasonably incurred by the person in relation to the application.

(b) in ordering the costs, may have regard to previous applications made by the applicant.

(4) The amount of costs ordered under subsection (3) must not be more than $2000.

But for the issue of imposition of debt recovery charges raised above, I agree with the Body Corporate and would have seriously considered ordering costs against the applicant. The applicant has entirely misunderstood her rights and obligations under the body corporate legislation and has presented no legal justification for the reimbursement of her contributions and associated interest charges. The fact that she has been successful in respect to her claim for reimbursement of some legal fees is not based on any of the arguments she has presented.

Notwithstanding that, I consider the applicant is entitled to recover some of the legal fees charged and in that respect has been partly successful in her claim. For that reason, it is not appropriate to dismiss her application under section 270(1)(c) and so there is no scope to order costs against her.

Conclusion

The applicant is misguided if she thinks she can own a lot for over two years, not pursue the actions available under the legislation to an owner to address her concerns with Body Corporate expenditure, and then expect other owners to cover her share of the expenditure incurred by the Body Corporate on behalf of all owners. It is akin to a citizen saying they don’t like the way a government is running the country and expecting to be excused from paying tax on that basis. A citizen does not achieve change in government administration by withholding tax – they do it by actions such as exercising their vote, contacting the relevant bodies and elected officials to express their concerns, and running for public office themselves to effect change from the inside. There is no indication that the applicant has made any attempt to submit motions about her concerns to general meetings or otherwise contribute constructively to the operation of the scheme. But even if she had taken such steps and failed, she could not avoid her legislative obligation to pay her body corporate contributions.

Accordingly, I find that there is no basis for the applicant to be reimbursed the contributions, and associated interest penalties, imposed by the Body Corporate during her time as owner. However, I do consider that she should be reimbursed in the amount of $3,013.32 for debt recovery charges which have been imposed by the Body Corporate by were not the subject of a court judgement. This order does not prevent the Body Corporate from taking action in a court of competent jurisdiction to seek an appropriate judgement in respect of these recovery costs.

It should not be inferred by this order that there are no problems with the performance of the body corporate manager and caretaking service contractor, or the terms of their contracts, or the management generally of the scheme. I simply do not have sufficient information to comment on these matters and, moreover, it is not appropriate for me to investigate these matters further in light of the limited information provided by applicant and the nature of the orders sought. However it may well be that valid concerns exist. If this is the case, current owners should give careful consideration to their under the body corporate legislation and the avenues available to them to pursue their concerns. They may wish to contact the Information Service in the Commissioner’s Office on 1800 060 119 for general information about the legislation or seek legal advice.

Finally I note that the applicant appears to expect government to be solely or primarily responsible for protecting her investment in her unit. While the body corporate legislation sets out a detailed framework to govern the way in which bodies corporate operate, and provides information service and dispute resolution mechanisms to address problems that arise, the Act establishes ‘self-management’ as a guiding principle. As with any form of investment, property owners must take responsibility for their own investment.

^[1] See for example, section 84C of the Accommodation Module regarding the termination of a body corporate manager or service contractor for failure to comply with a remedial action notice.

^[2] Section 129 and 130 of the Act provide the opportunity for a body corporate to seek a review of a service contract in some circumstances, dependent upon the terms of the individual contract entered into between the body corporate and the service contractor. Section 129 provides a limited power to review the remuneration payable under the contract and will expire on 30 June 2007. Section 130 was introduced in 2003 with the aim of ultimately replacing section 129 and extending the power of review to include both the duties and remuneration of a service contractor. These provisions are not intended to prevent a body corporate from reviewing the terms at any other time by negotiation with the service contractor or, for example, if the body corporate is considering an extension to the term of the service contract.

^[3] For example, The Manhattan (0355-2006), MA Schmidt, 17 August 2006; Sun City Resort (0332-2006), MA Ricardo, 22 September 2006; Anchorage (0693-2006), D Toohey, 22 November 2006

	Refund of $6,216.18 in Administrative fees paid from 24/03/2004.
	Refund of $3,226.02 (all of) in Legal Fees charged by the body corporate in this matter.
	Refund in $356.24 in interest charges.

	The applicant failed to pay any levies or gas usage charges by the due date.
	It is clear that the applicant deliberately chose not to pay body corporate levies, and sought to use this as a ‘tool’ to get her concerns with the caretaker (S8) addressed.
	The Body Corporate consistently explained that the applicant was obliged to pay levies and that her dispute with the caretaker was not a justification to not pay her levies.
	Section 97(1) of the Accommodation Module and By-law 32 allow the Body Corporate to recoup costs reasonably incurred in recovering Body Corporate debts.
	The Body Corporate took extensive steps to seek to recover outstanding debts, including action in the Maroochydore Magistrates Court.
	A default judgement was obtained against the applicant in October 2005 in the amount of $1,112.36, including $37.86 in interest and $813.30 in costs. An enforcement warrant issued by the court on 25 November 2005, and this debt was paid in March 2006.
	Between July 2005 and July 2006 the Body Corporate incurred legal and other costs of $3,826.62 in recovering outstanding levies from the applicant. The Body Corporate asserts these recovery costs were proper and reasonable.
	A copy of the relevant tax invoice was received by the Body Corporate for legal expenses were attached to the tax invoice issued to the applicant for those recovery costs.
	The First Annual General Meeting of the scheme, held on 23 December 2002, resolved to impose an interest rate of 2.5% per month as a penalty for late payment of contributions.
	From April 2005 to June 2006 the applicant was charged $405 in interest penalties.
	Almost half of the contributions and charges owed by the applicant to the Body Corporate during her time as owner were paid in August 2006, apparently to enable the sale of the Lot.
	The Body Corporate disputes the calculations provided by the applicant.
	The Body Corporate denies that it failed to communicate with the applicant.
	The Body Corporate submits that the application is misconceived and without substance. The Body Corporate claims it has incurred costs of $3,725.25 in distributing and responding to this application and seeks compensation of this amount from the applicant.

	Efforts were made to communicate and attend meetings but their efforts were ignored and they were told they would not be allowed to be heard in meetings.
	Specific amounts and calculations in the Body Corporate’s submission are disputed.
	Prior to her first letter of complaint all payments were made on time.
	She does not dispute the gas charges.
	The Body Corporate has ignored the basic argument of the claim – they simply refer to the obligation to pay fees without addressing the management of the scheme.
	The reasonableness of the legal fees charged, in general and in some specifics, is disputed.

Queensland Body Corporate and Community Management Commissioner - Adjudicators Orders

Marcoola Beach [2007] QBCCMCmr 4 (4 January 2007)