Longbeach Apartments [2007] QBCCMCmr 539 (10 September 2007)

Last Updated: 26 September 2007

REFERENCE: 0396-2007

ORDER OF AN ADJUDICATOR

MADE UNDER PART 9 OF CHAPTER 6

BODY CORPORATE AND COMMUNITY MANAGEMENT ACT 1997

Number of Scheme:	9388
Name of Scheme:	Longbeach Apartments
Address of Scheme:	QUEENSLAND

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

John Douglas and Frances Elaine Sceriha, the owners of lot 40

I hereby order that, within two weeks of the date of this order, the body corporate must pay the owners of lot 40, John Douglas and Frances Elaine Sceriha, the sum of $850 in respect of the cost of repairing water damage to lot 40 which was covered by the body corporate’s building insurance policy, but which cost less than the $1,000 excess payable under the policy. I further order that, in all other respects, the application is dismissed.

STATEMENT OF ADJUDICATOR’S REASONS FOR DECISION - REF 0396-2007

"Longbeach Apartments" CTS 9388

Application

This is an application by John Douglas and Frances Elaine Sceriha, the owners of lot 40, (applicants) seeking an order that the body corporate (respondent) reimburse the applicants $1,870.00 in respect of damage caused to lot 40 (unit 904) by faulty equipment in the unit above (lot 45, unit 1004), made up as follows:

Description Amount
Invoice from JP Plumbing Services – inspect
leakage 70.00

Invoice from J D Coast Wide Services – locate
origin of water leak, remove decaying wall and
skirting boards, make unit safer for occupying tenants 600.00

Invoice from JD Coast Wide Services – replace
water damaged wall in hallway, renew skirting
boards and paint above to match existing paint,
treat water affected areas to inhibit mould 850.00

Loss of Rent 350.00
Total $1,870.00


Jurisdiction

"Longbreach Apartments" community titles scheme was registered as a building units (now known as building format) plan of subdivision on 22 September 1983 comprising 111 lots and common property. It is regulated by the Body Corporate and Community Management Act 1997 (the Act) and the Body Corporate and Community Management (Accommodation Module) Regulation 1997 (the Accommodation Module).

This is a dispute between an owner and a body corporate and comes within the dispute resolution provisions of the Act (see ss.226, 227 & 228).

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

(c) a claimed or anticipated contractual matter about-

(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)).

Submissions

The applicant’s grounds are to the following effect:

• On 19 March 2007, the applicants received a phone call from their tenants in lot 40 advising that water was leaking between the corner of the hallway wall and the fridge. In his role as a licensed maintenance mechanic, trading under the name of J D Coast Wide Services, Mr Sceriha visited the apartment, inspected the area and re-positioned the fridge, asking the tenants to observe the location of any further water leaks.

• On 20 March 2007 the tenant advised the applicants that water was still leaking from the corner of the hallway wall in such amounts that it was pooling in the living room and they were constantly using towels to mop it up. Mr Sceriha again visited the apartment and inspected all plumbing work in the kitchen but could find no faults. Mr Sceriha advised the tenants not to use the shower, as he would re-seal it the following morning.

• On 21 March 2007, upon arrival at the apartment, Mr Sceriha was advised by the tenants that although they had not used the shower, water was still leaking from the hallway wall and pooling in the living room. Mr Sceriha still re-sealed the shower. Due to the health and safety issues involved, Mr Sceriha requested the tenants not to use the apartment at all during the day, as the amount of water running through the unit made it extremely difficult to walk on the tiled floor and there was the possibility of an accident. Mr Sceriha then contacted the Resort Manager and requested an inspection by the Resort Maintenance Mechanic. On inspection, the Resort Maintenance Mechanic suggested the leak could be coming from an adjoining unit and advised that he would inspect this when possible.

• On 22 March 2007, water was continuing to leak into the apartment. The Resort Maintenance Mechanic reported no evidence of any leak from adjoining units. Mr Sceriha then asked Resort Management to call the plumber used by the Resort. Lot 40 was attended by J P Plumbing Services. J P Pluming inspected the area and roof cavity and, despite Mr Sceriha’s assurance that no water was leaking from lot 40, advised the tenants not to use the shower until dry.

• On 23 March 2007 Mr Sceriha revisited lot 40, removed the kitchen kick-boards, the water saturated wall in the hallway and attempted to find the leak. He discovered water running over electrical wires and requested the tenants not to use any electrical applicance until the leak was found and repaired. Mr Sceriha discovered that the leak was actually originating from the wall opposite to and running along the wall cavity to the exit point.

• On 26 March 2007 Mr Sceriha requested the Resort Maintenance Mechanic to inspect the unit above for leaks but was advised by management that, as the unit was tenanted, a more thorough search could be conducted the following day when the tenants left.

• On 27 March 2007, the Resort Maintenance Mechanic reported that he had found a leak in unit 1004 (directly above lot 40) and Action Appliance Service were contacted to repair the leak.

• On 28 March 2007, a faulty hose connection to the dishwasher located in unit 1004 was repaired.

The applicants state that, at no time was any of the water leaking into lot 40 a result of any fault or damage in lot 40. Rather, they have been the innocent victims of faulty piping to the dishwasher located in the unit directly above theirs and they see no reason why they should be required to pay for the repair of the damage caused. In addition, they claim reimbursement for the loss of rent incurred during the incident.

Attached to the application is a letter from the body corporate’s insurer’s CHU, to the body corporate dated 23 April 2007, denying insurance coverage for the cost of finding and repairing the water leak ($600 invoice from J D Coast Wide Services plus $107.36 invoice from Action Appliance Service) on the basis that the cause of the damage (faulty dishwasher hose) was gradual deterioration over an extensive period of time, for which insurance cover is not provided. CHU does indemnify for resultant damage caused by the water leak but notes that the quote of $963 from All Hours Walls & Ceilings is less than the policy excess of $1,000 and therefore states that it is unable indemnify the body corporate in this instance. The claim for $350 for loss of rent is also denied, on the basis that CHU did not consider lot 40 uninhabitable for a sudden and unforeseen insurable event.

The applicants’ request that the body corporate pay the insurance excess in respect of a claim was considered at a committee meeting on 21 April 2007 where the following resolution was made:

"Insurance claim: Lot 904 requesting the body corporate pay the $1,000 excess. IT WAS RESOLVED that in accordance with the legislation, the lot owner pay the excess as the claim related to one lot only. The committee requested that Capital BCA respond to the unit owner in accordance with this resolution.

VOTING – YES 6 NO 0 ABSTAIN 0"

Submissions in response to the application were sought from all owners (excluding the applicants) and the committee. Only one submission was received, from the owner of lot 45, stating that the body corporate should be paying the claim and that the excess is too high to allow any claims. Despite the committee requesting an extension of time within which to make a submission, and this office allowing an additional two weeks for this purpose, no committee submission was forthcoming.

Applicable Law

Requirement to Insure Building

In a Building Unit Plan of subdivision (now called a "Building Format Plan" of subdivision) such as is created in this community titles scheme, the body corporate must insure for full replacement value, each building in which is located a lot included in the scheme (Section 127(2) Accommodation Module). The owner of each lot that is included in the scheme is liable to pay a contribution levied by the body corporate that reflects the interest schedule lot entitlement for the lot (Section 129(1)(a) Accommodation Module).

Excess

In putting the insurance in place, the body corporate must ensure the arrangements for the liability for an excess under the insurance would not impose an unreasonable burden on the owners of individual lots (Section 132(2) Accommodation Module).

Further, section 132(3) et seq states as follows-

(3) For an event affecting only 1 lot, the lot owner is liable to pay

the excess unless the body corporate decides it is

unreasonable in all the circumstances for the owner to bear the

liability.

Example for subsection (3)--

If a shower screen is damaged in a lot and an insurance claim is made

under the body corporate’s reinstatement insurance, the owner of the lot

would be liable under subsection (3) to pay the excess unless the body

corporate decides it is unreasonable for the owner to be required to pay

it. However, if there is a fire within a lot caused by a short circuit in

electrical wiring located in an internal partition, the body corporate

might decide it would be unreasonable for the lot owner to be required

to pay the excess.

(4) For an event affecting 2 or more lots, or 1 or more lots and

common property, the body corporate is liable to pay the

excess unless the body corporate decides it is reasonable in all

the circumstances for the excess to be paid for by the owner of

a particular lot, or to be shared between owners of particular

lots, or between the owner of a lot and the body corporate, or

between owners of particular lots and the body corporate.

In other words, the legislation gives the body corporate a discretion to apportion the excess which may be payable, (such excess itself being a sum which would not "impose an unreasonable burden on the owners"). The exercise of that discretion is not fettered, that is, it may be exercised
in accordance with the concept of ‘fault’, or ‘ability to pay’ or ‘compassionate grounds’ provided that the body corporate acts reasonably in the decision to which it comes.

The reason behind the provision is that bodies corporate may be able to obtain a cheaper premium if they agree on a higher excess with the insurance company, and in such circumstances, it might be considered "unreasonable" for one lot owner to bear the excess, when the benefit of the reduced premium was for the whole body corporate. The decision whether to seek the excess or not, is one that can be made by the committee without calling a general meeting. Section 94 of the Act requires that the body corporate (through its committee, or at general meetings) acts reasonably in anything it does.

The wording of section 132(3) also needs special attention. The wording is "for an event affecting only one lot ....". The section specifically does not say "where damage is caused to only one lot". In both examples given in that section about the shower screen breaking and the internal fire, the damage arose in one lot, there is no damage to any other lot and only one lot is "affected". However, where a leak in one lot causes damage to another lot, whilst only one lot is damaged, two lots, and possibly the body corporate (depending on what infrastructure or parts of the building have been traversed by the leak) are "affected." The "event" must affect the lots, that is, the "event" against the happening of which the body corporate is insured, and not the "damage".

Decision

Based on the above, I consider that the "event" mentioned in section 132 and against which the body corporate lodged an insurance claim, is the event which caused the water damage to the building (the faulty dishwasher pipe) and the "event" occurred in lot 45 (unit 1004) and caused damage to lot 40. The event therefore affected two lots. As such, the body corporate is prima facie liable to pay the excess on the insurance policy. The body corporate has a discretion to decide, if it is reasonable in all the circumstances, that the excess be paid for by the owner of a particular lot, or be shared between owners of particular lots, or between the owner of a lot and the body corporate, or owners of particular lots and the body corporate. I do not consider the committee decision to refuse to pay the excess in this instance a "reasonable" decision. The applicants are the innocent party. Section 108(3)(b) Accommodation Module states that the owner of the lot is responsible for maintaining utility infrastructure..... in good order and condition, to the extent that the utility infrastructure relates only to supplying utility services to that lot. Whilst the owners of lot 45 may have maintained the dishwasher to the best of their ability, they must bear the responsibility for the fact that the inlet pipe was defective, or became defective. The owners of lot 45 have failed in their statutory duty to maintain the dishwasher and its associated plumbing. In my view, if any party other than the body corporate should be liable for the excess, it is the owners of lot 45.

I note that the meeting at which the committee refused to pay the excess on the insurance claim submitted by the body corporate was held before the body corporate received the advice from the insurance company that the claim was rejected. A perusal of that advice (letter dated 23 April 2007) reveals that, while the majority of the claim was rejected, the cost of repairing the water damage to lot 40 was covered, although the quotes for the repairs were less than the excess payable (highest quote was for $963). In these circumstances, I consider it just and equitable for the body corporate to pay for the cost of the repairs to lot 40, which amounted to $850. Whether or not the body corporate then seeks to recover this sum from the owners of lot 45 is a matter for the body corporate.

Because the remaining amounts sought by the applicants ($70 JP Plumbing Services, $600 JD Coast Wide Services, $350 Loss of Rent) were not covered by the body corporate insurance and the owners of lot 45 were responsible for the applicant incurring these expenses, I cannot order that the body corporate pay the applicants these amounts. However, the applicants may have a claim against the owners of lot 45 in respect of these amounts.

I have therefore ordered that the body corporate pay the applicants the sum of $850.