Tank Tower [2007] QBCCMCmr 613 (1 November 2007)

Last Updated: 13 November 2007

REFERENCE: 0530-2007

ORDER OF AN ADJUDICATOR

MADE UNDER PART 9 OF CHAPTER 6

BODY CORPORATE AND COMMUNITY MANAGEMENT ACT 1997

Number of Scheme:	30813
Name of Scheme:	Tank Tower
Address of Scheme:	30 Tank Street BRISBANE QLD 4000

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

Marcos Mateo, the Owner of lot 1701

I hereby order that within 2 months of the date of this order, the body corporate committee is to call and hold an Extraordinary General Meeting, and the secretary of the body corporate must include on the agenda of that general meeting, the following motion to be submitted by the committee: That the body corporate ratify the decision made by the committee on 6 June 2007 to accept the ProtecSys proposal (involving installation of Digital video recorder with 16 camera capacity and inbuilt CD burner, GE Challenger card reader system for the garage door and Commander 1000VA UPS back-up power supply and other items included in the proposal from ProtecSys dated 1 June 2007) at a cost not exceeding $27,000. I further order that the agenda for the Extraordinary General Meeting may include any other motions properly submitted.

STATEMENT OF ADJUDICATOR’S REASONS FOR DECISION - REF 0530-2007

"Tank Tower" CTS 30813

THE SCHEME

Tank Tower Community Titles Scheme is a scheme 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). It consists of 62 lots registered on a Building Format Plan of subdivision.

APPLICATION

The Applicant seeks the following Final Outcomes:

a. An order invalidating the decision taken by the committee at the meeting of 6 June 2007 to spend up to $27,000 on a security system to be provided by ProtecSys.

b. the provision of two quotes from unassociated trading entities detailing the full cost of adopting an appropriate complete building security system, broken down for comparison purposes and if necessary, scaled implementation over time.

c. An explanation of how any changes to security arrangements will affect residents, details of any management or operational arrangements under the new system and information about any ongoing costs to the body corporate as a result of the new system.

The Applicant previously sought an Interim Order preventing expenditure of body corporate funds by the committee for the provision of a security system until such time as the Body Corporate has considered two quotes and voted appropriately at a general meeting.

On 13 July 2007 I declined to make the requested interim orders as the body corporate had already entered into the contract with Protecsys and arranged for a deposit of $11,807 to be paid some 5 days before the application was lodged.

BACKGROUND

The applicant states that at the 2005 AGM, the body corporate resolved to authorise the committee to engage a suitable contractor to install and commission a full security access system which would restrict access to all fire escape doors, lift, access doors from the car park and entry points into the building.

After considering two quotes, the body corporate resolved to engage the Australian Security Company, or another suitable contractor, at a cost of up to $29,632.70 including GST, to supply and install a security system. The sum of $32,000 was raised by way of a special levy to fund the installation of the security system. However, the Australian Security Company subsequently withdrew the quote.

At the 2006 AGM on 27 April 2006 the body corporate resolved (i) to continue to seek an appropriate security system, and (ii) that the committee would prepare a request for a quote document in order to seek at least two tenders to be brought to the 2007 AGM for a further vote.

At a committee meeting held on 14 February 2007, building security was discussed and an update provided. The minutes refer to clarifications being requested from the companies that provided quotes, including Chubb, Protecsys, Fireguard and Aztec Fire. It was also resolved that an EGM would be held to consider proposals for an upgrade to the security at Tank Tower as the agenda for the 2007 AGM scheduled for 27 February 2007 which had already been distributed, did not include a motion regarding building security. However no EGM has been held to date.

The minutes of a committee meeting held on 6 June 2007 record that the committee considered costs of $90,000 to be too high and noted that Protecsys offered a "diluted system" , the cost of which could largely be covered by the levies raised following the AGM two years ago.
The applicant believes that as the committee spending limit is $7,750 it was not entitled to authorise spending of up to $27,000 on the "diluted system" without being specifically authorised by an ordinary resolution of the body corporate. Rather, the only proposal approved by the body corporate was the Australian Security Company proposal for a full security system, approved at the 2005 AGM.

The "diluted system" involves extra camera surveillance with an option for 16 cameras and a garage card reader system, which differs considerably from the full security system previously approved at the 2005 AGM involving only one camera and extended security access to the entire building. The applicant submits that the body corporate should have the option to vote against any project or proposal and the committee cannot rely on the resolution carried at the 2005 AGM as authority to spend $27,000. The applicant further submits that the committee has not complied with section 102 of the Accommodation Module regulation which requires that two quotations be presented to lot owners whereas the minutes of the committee meeting on 6 June 2007 refer only to one quote.

SUBMISSIONS

At the Interim stage I previously sought submissions from the body corporate committee and all owners pursuant to section 243 of the Act.

The "interim submission" of the body included the following:

At the AGM on 17 March 2005 the body corporate resolved to authorise the committee to engage a contractor to supply, install and commission a full security access system and the following options were put to the body corporate:

Option A - Australian Security Company or another suitable contractor be engaged at a cost of up to $29,632.70 to be funded from a special sinking fund levy of $32,000.

Option B – that Siemens be engaged at a cost of $92,347 to be funded by a special sinking fund levy of $95,000.

Option A received 14 affirmative votes while there were 0 votes for option B . Although Australian Security Co subsequently withdrew its quotation, the body corporate raised funds in accordance with option A and these moneys were paid into the sinking fund special account.

At the AGM on 27 April 2006, the body corporate resolved to continue to investigate an appropriate security system and to bring the results to the 2007 AGM. This was because the quote from the Australian Security Company did not include certain items that were considered necessary. This resolution did not rescind the earlier resolution of 17 March 2005 and it was the understanding of the committee that any new quotes would come within the limit previously approved on 17 March 2005.

At the committee meeting on 14 February 2007, the issue of building security was discussed and it was proposed to hold an EGM in April 2007 to consider security issues as the quotes were not ready for the 2007 AGM, as the applicant, who was looking after security issues, would be overseas for some six weeks during this period.

At its 6 June 2007 meeting the committee considered the various security options and resolved to engage Protecys as their quotation was within the expenditure previously approved by the Body Corporate in general meeting.

The following quotations were previously obtained and provided to the committee Chairperson:

• Aztech Fire Pty. Ltd., 6 February 2007;

• Chubb, 12 February 2007;

• Fireguard, 13 February 2007;

• Otis, 14 February 2007;

• Fireguard, 21 February 2007;

• Protecsys, 26 February 2007;

• Protecsys, 26 February 2007.

These quotations exceeded the level of expenditure previously approved by the body corporate at the 2005 AGM.

At the same time the new on-site managers requested installation of security cameras to detect overcrowding of units by people staying in the units when they were not listed in lease documents.
The committee requested Protecsys to refine its quote which was provided on 1 June 2007 and provided for external exits to be covered by a total of 7 cameras and installation of a card reader on the gate to the garage to replace the previous remote control system. This system can be expanded in the future when the body corporate has sufficient funds. At present the body corporate has only budgeted for, and raised, funds of approximately $32,000 by means of the special levy approved at the 2005 AGM. The body corporate does not have funds to install the $90,000 system proposed by the applicant.

Following the committee meeting of 6 June 2007, the body corporate formally accepted the Protecsys proposal and this acceptance was faxed to them on 7 June. The body corporate manager arranged for a deposit of $11,807 to be paid to Protecsys on 13 June 2007.

The body corporate disputed that it has breached sections 101 or 102 of the accommodation Module Regulation as the committee was specifically authorised by the 2005 AGM to spend up to $29,632.70. The committee has considered several quotes and concluded that the quote from Protecsys fulfils the current needs of the body corporate and can be upgraded in the future. The orders sought by the applicant could have the effect of invalidating the decision of the committee made on 6 June 2007 and could put at risk the deposit paid to Protecsys.

The committee submitted that it acted in good faith and obtained advice from the body corporate manager that they could so spend the moneys raised by way of the special levy. They believe that they have complied with the wishes of the majority as the motion to spend $90,000 on a security system was not approved. However, should the applicant wish to upgrade the system he is entitled to submit a motion to the next general meeting. Following the committee meeting on 6 June 2007, minutes of the meeting were circulated to all owners and no responses or objections were received.

In addition to the committee submission, submissions were also received from two individual lot owners who both oppose the application. These submissions included the following:

• On 17/3/2005 it was resolved that the body corporate committee be authorised to engage a contractor to undertake the supply, installation and commission of a full security system and "that Australian Security Company" or other suitable contractor be engaged at a cost of up to $29,632.70 to supply and install this system and the purchase will be funded from a special sinking fund levy of $32,000;

• At the same meeting, it was resolved that the committee investigate the feasibility of swipe card security being fitted to the building;

• On 27 April 2005 the committee resolved to engage Australian Security Company to install the proposed security access system. However, the committee subsequently noted that the quote from Australian Security Company would not provide the required functions and facilities. It would appear that Australian Security Company withdrew its initial quotation and declined to provide a new quote;

• At a committee meeting on 6 June 2007 it was noted that quotes obtained for installation of a security system were in the vicinity of $90,000 which was considered too high. It was also noted that Protecsys offered a system which could be paid for with the special levies previously raised. The Protecsys quote involved installation of 16 cameras, garage card reader system and computer and it was resolved that the Protec system be installed at a cost not exceeding $27,000.

• There are numerous practical difficulties with the security measures proposed by the applicant;

• It is believed that the system proposed at the meeting of 6 June 2007 would be sufficient to make the building secure.

Following my interim decision of 13 July 2007, I sought further submissions from the body corporate and all lot owners regarding the Final Outcomes sought by the applicant. A further submission was made on behalf of the body corporate as well as 10 individual submissions from lot owners.

The body corporate made the following additional submissions:

• There have been numerous security incidents in the scheme giving rise to the need for the proposed security system these incidents include

- an unprovoked assault on 2 residents which was recorded by camera but footage of the incident could not be copied or downloaded as the current security system is so out of date and material stored is of such poor quality people or vehicles recorded by cameras cannot be identified;

- unbolting of entrance door to allow entry without keys;

- vandalism in common property toilet area;

- overcrowding of units by international students who came and went at all hours and mistreated common areas.

• The body corporate manager advised the body corporate that that the committee could decide to purchase a security system provided the amount spent did not exceed $32,000 and in reliance on this advice the committee decided to purchase a security system for a price not exceeding $27,000;

• When the committee decided to contract with Protecsys to install a security system the committee was not aware of any wrongdoing on their behalf and the applicant had not raised any concerns;

• The committee does not intend to cancel the contract and thereby forfeit the deposit already paid;

• The committee believes that this is the total of submissions that it is able to make at this point in time;

Nine submissions from individual lot owners supported the committee and included the following:

• Until April 2007, up to 90% of the units were occupied by international students and backpackers, units were overcrowded and common areas including lifts were dirty and continually damaged;

• As there was no controls over who came and went, security was almost non existent;

• Since April 2007 measures have been taken to identify occupants and reduce damage to common areas but it is still possible for people to enter the building undetected;

• The current security system consists of (a) three surveillance cameras covering half of the foyer, half the driveway part of the pool; (b) One camera recording unit and one small monitor in the manager’s office. The hard drive is out of date and it is a laborious to review the contents which are poor quality.

• It is believed that the Protecsys system will provide excellent security for the perimeter of the building as it has the following features:

Card entry to the garage with entry & exit card readers;

7 additional cameras to cover the front door, foyer, fire escape door, garage, pool area & recreation area;

• The Australian Security Company (ASC) quote for $29,047.70 was given on the understanding that lift cabling costing $14,098.70 had been done or was to be done by another contractor;

• Therefore the ASC system would have only included card access to the front door, garage and pool area; alarms on fire doors, lift room door, front doors and main office and 1 additional camera in the foyer

• The ASC quote did not therefore include card access to lifts and card access to individual floors

• The cost of installing a full security system would have been in the vicinity of $100,000

• The Protecsys quote obtained by Mr. Mateo on 26 February 2007 included : using the existing 3 cameras and recording equipment; card readers for front door, side entry to foyer, roller door entry and exit, lift 1,lift 2 & level 5 pool/ gym door; lift call function for intercom handsets; hardware, software, memory chips, control panel, LCD code pad, power boards, power supply, batteries, access cards, installation etc. This could not be considered a full security system because it did not include cabling between card readers in lifts and lift motor room or cabling between lift motor room and Protecsys lift controller and therefore no card access to lift and no restricted card access to individual floors.

• While the applicant has stated that the Protecsys quote obtained by the committee on 7 June 2007 differs considerably from the system previously proposed and approved at the 2005 AGM, neither the ASC system nor the quotation from Protecsys by Mr Mateo, could be described as full security systems;

• The committee has acted in good faith in the best interests of the scheme;

• Despite the authority given to the body corporate committee at an AGM in 2005, lot owners are now faced with the prospect of having to fund a very expensive and unnecessary full security system, or continuing with the current archaic system or incur expenditure on a further EGM;

• It should be noted that a previous motion to purchase a Siemens security system at a cost of $92,347, to be funded by a special sinking fund levy of $95,000 was soundly defeated;

• The contracted Protec system will deal with the problems that derive from the building’s lack of perimeter surveillance and inadequate & deficient camera system as well as controlling access to the car park area.

One submission from an individual lot owner supported the applicant in the following terms:

• Submissions made on behalf of the committee contained factual errors;

• He attended the 2005 AGM and voted for installation of a security system that includes swipe card access to the lifts and the building.

• The system ordered by the committee is completely different and therefore any decision to proceed with it should be ratified by a majority of lot owners at an EGM.

In reply, the applicant made the following submissions:

• At the 2005 AGM it was resolved to obtain quotes for a full security access system involving restriction of access to all fire escape doors, lifts, access doors from the car park and entry points to the building rather than a camera surveillance system;

• Quotes were obtained and steps taken to raise additional monies but before this could occur, a decision was taken to spend the money on another type of system;

• Motion 9 of the 2005 AGM was for a full security access system that would restrict access to all fire escape doors, lift, access doors from the car park and entry points to the building. The motion was not for a camera surveillance system as decided by the committee on 6 June 2007 nor for changing the remote control system on the car park roller door to a card swipe system;

• Results of voting on this motion were 14 votes in favour of a full security access system, 1 vote against and 1 abstention;

• At the 2006 AGM it was resolved that the body corporate would continue to investigate an appropriate security system which would restrict access to all entry points to the building, lifts, floors, access doors to and from the car park and fire escape doors. A motion to return the monies raised in 2005, was withdrawn;

• It was also resolved that at least 2 tenders would be brought to the 2007 AGM for a further vote.

• The resolutions of the 2006 AGM rescinded and superseded the earlier resolution of the AGM held on 17 March 2005;

• As early as 28 July 2005 the committee was aware that the full security system was going to cost more than the $32,000 approved at the AGM on 28 July 2005;

• At the committee meeting held on 12 January 2006, and reconvened on 9 February, the resident manager provided a quotation (dated 1 August 2005) for $39,904 from Protecsys, and a quotation from Otis for $14,098.70 - total cost $54,002.70.

• Lot owners would not necessarily be required to fund a very expensive and unnecessary security access system as a result of the application.;

• The body corporate does not have 24/7 monitoring of the security system and the caretaking agreement does not require the resident manager to provide it;

• There is no evidence that any money would be lost it the committee’s decision is reversed;

JURISDICTION

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)).

DETERMINATION

The first matter for consideration in this dispute are whether the body corporate has failed to comply with sections 101 and 102 of the Accommodation Module Regulation as alleged by the applicant.

Section 101 of the Accommodation Module Regulation provides as follows:

Spending by committee
(1) The committee may only carry out a proposal involving spending above the relevant limit for committee spending for the scheme if--
(a) the spending is specifically authorised by ordinary resolution of the body corporate; or
(b) the owners of all lots included in the scheme have given written consent; or
(c) an adjudicator is satisfied that the spending is required to meet an emergency and authorises it under an order made under the dispute resolution provisions; or
(d) the spending is necessary to comply with--
(i) a statutory order or notice given to the body corporate; or
(ii) the order of an adjudicator; or

(iii) the judgment or order of a court.
(2) For this section, if a series of proposals forms a single project, the cost of carrying out any 1 of the proposals is taken to be more than the relevant limit for committee spending if the cost
of the project, as a whole, is more than the relevant limit.
(3) Section 102 applies to the proposal in addition to this section if--
(a) subsection (1)(a) or (b) applies in relation to the proposal; and
(b) the proposal involves spending above the relevant limit for major spending; and
(c) the proposal does not involve spending mentioned in subsection (1)(c) or (d).

Section 102 of the Accommodation Module provides as follows:

Quotes for major spending decided by body corporate
(1) This section applies if--
(a) a motion to be moved at a general meeting of the body corporate proposes the carrying out of work or the acquisition of personal property or services, including the engagement of a body corporate manager or service contractor, but not including the engagement of a service contractor who also is, or is to be, a letting agent; and
(b) the cost of carrying the proposal into effect is more than the relevant limit for major spending for the scheme.
(2) The lot owners must be given copies of at least 2 quotations for carrying out the work or supplying the personal property or services.
(3) If the motion is proposed by the committee, the committee must obtain the quotations.
(4) If the motion is not proposed by the committee, the person proposing the motion must obtain the quotations and give them to the secretary.
(5) Copies of the quotations or, if voluminous, summaries of the quotations and advice about where the complete documents may be inspected, must accompany the notice of the meeting
at which the motion is to be considered.
(6) If, for exceptional reasons, it is not practicable to obtain 2 quotations, a single quotation must be obtained and must accompany the notice of meeting.
Example--
If goods to be acquired by the body corporate are obtainable from only 1 source, a quotation for supplying the goods must be obtained from the source and circulated with the notice of meeting. The fact that goods with the necessary characteristics are only obtainable from a single source would be an exceptional reason for not obtaining 2 quotations for the supply of the goods.
(7) Unless subsection (6) applies, the motion must be stated as a motion with alternatives in the agenda and on a voting paper for the meeting.
(8) Each quotation obtained under this section must be retained as an attachment to the minutes of the meeting at which the quotation is considered.
(9) For this section--
(a) the cost of engaging a body corporate manager or a service contractor includes any payment for the body corporate manager’s or the service contractor’s services, provided for under the engagement, for the term of any right or option of extension or renewal of the
engagement; and
(b) if a series of proposals forms a single project, the cost of carrying out any 1 of the proposals is taken to be more than the relevant limit for major spending for the scheme if the cost of the project, as a whole, is more than the relevant limit.

As there are 62 lots in this scheme, the relevant limit for committee spending is $7,750 (i.e. 62 x $250) and therefore the question arises as to whether the engagement of Protecsys was authorised by a resolution of the body corporate in general.

As stated in my interim order, I note that at the AGM held on 17 March 2005 it was resolved that the committee was "to undertake the engagement of a suitable contractor to install and commission a full security access system which would restrict access to all fire escape doors, lift, access doors from the car park and entry points into the building". It was also resolved that "Australian Security Company or another suitable contractor be engaged at a cost of up to $29,632.70 to be funded from a special sinking fund levy of $32,000". Further, the minutes of this meeting record that there were 14 votes for this option and 0 votes for the other option which involved expenditure of $93,247.

At first glance it is noted that both the Australian Security Company and Protecsys proposals relate to building security systems. However the problem that arises is that the proposed expenditure of $29,632.70 relates to a specific type of security system i.e. a full security access system which will restrict access to all fire escape doors, lift, access doors from the car park and entry points into the building. On the other hand, the Protecsys quote involves installation of 16 cameras, garage card reader system and computer is materially different from the proposal previously authorised by the body corporate in general meeting.

Notwithstanding that the committee have acted in good faith and followed the advice of the body corporate manager that they could spend the moneys raised by way of special levy, it would seem clear that the engagement of Protecsys by the committee was not properly authorised.
Given the circumstances outlined above, it also follows that section 102 has not been complied with.

However, it should also be noted that notwithstanding the invalidity of a committee resolution to enter into a contract, section 310 of the Act provides as follows:

310 Protection of persons dealing with body corporate
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.

Essentially, this provision is a restatement of the indoor management rule, also referred to as the rule in Royal British Bank v Turquand^[1] (Turquand's Case). The indoor management rule operates to protect an innocent third party who enters into a contract with a person who purports to act for a corporate entity but who does not have the relevant authority. To protect outsiders who deal with a body corporate in good faith and who had no means of establishing that all the necessary internal approvals and requirements had been satisfied, the contract is nevertheless binding on the body corporate. In the event that the body corporate decides not to comply with its contractual obligations, the third party is entitled to be compensated by the body corporate for breach of contract.

While the applicant has expressed his opposition to the committee resolution to contract with Protecsys, submissions from other lot owners expressed strong support for the committee.
There is considerable authority including a recent decision of the Queensland Court of Appeal (Banks v Body Corporate "Noosa on the Beach" CTS 6417[2000] QCA 146) which confirms that a body corporate can ratify a step that was taken by a person purporting to act for the body corporate without proper authority.

In the circumstances I believe it is just and equitable for me to make an order giving members of the body corporate an opportunity to ratify the contract with Protecsys. Accordingly I propose to order that an extraordinary general meeting be called for the purposes of determining whether the body corporate in general meeting wishes to ratify decision of the committee. Obviously, a decision not to ratify the contract does not absolve the body corporate from liability to Protecsys pursuant to section 310 (supra).

Accordingly, I will order that within 2 months of the date of this order, the body corporate committee is to call a general meeting of the body corporate, and the secretary of the body corporate must include on the agenda of that general meeting, the following motion:

That the body corporate ratify the decision made by the committee on 6 June 2007 to accept the ProtecSys proposal (involving installation of a Digital video recorder with 16 camera capacity and inbuilt CD burner, GE Challenger card reader system for the garage door and Commander 1000VA UPS back-up power supply and other items included in the proposal from ProtecSys dated 1 June 2007)) at a cost not exceeding $27,000.

I would also suggest that the Explanatory Notes accompanying the motion should refer to this order and the reasons why the motion must now be considered by the body corporate in general meeting.

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^[1] (1856) 119 ER 886