Westaway Towers [2007] QBCCMCmr 645 (16 November 2007)

Last Updated: 24 December 2007

REFERENCE: 0727-2007

ORDER OF AN ADJUDICATOR

MADE UNDER PART 9 OF CHAPTER 6

BODY CORPORATE AND COMMUNITY MANAGEMENT ACT 1997

Number of Scheme:	13352
Name of Scheme:	Westaway Towers
Address of Scheme:	40 Verney Street CALOUNDRA QLD 4551

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

Glenda Bertram, the Owner(s) of lot 12

I hereby order that the application for an order for: "An external audit of the accounts of Body Corporate of Westaway Towers CTS 13352" is dismissed.

STATEMENT OF ADJUDICATOR’S REASONS FOR DECISION - REF 0727-2007

"Westaway Towers" CTS 13352

Application

Glenda Bertram, the Owner(s) of lot 12 (the applicant) has sought the following:

"An external audit of the accounts of Body Corporate of Westaway Towers CTS 13352".

Jurisdiction

Westaway Towers CTS 13352 is a 30 lot scheme under the Body Corporate and Community Management Act 1997 (Act) and the Body Corporate and Community Management (Standard Module) Regulation 1997 (Standard Module).

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 of the Act)). An adjudicator's order may contain ancillary and consequential provisions the adjudicator considers necessary or appropriate (section 284(1)of the Act).

Grounds

The applicant has enclosed the copies of the minutes of the last 5 annual general meetings, all of which indicate that the body corporate has resolved not to be audited for each period. She states that she has been informed by the secretary that there has not been an audit in at least the last 20 years. She states that the residents vote not to audit because of the expense and threats by the treasurer to resign if there is an audit.

The applicant also expresses misgivings because the vote not to audit is made prior to completion of the relevant financial year. She regards this as giving someone a blank cheque.

Submissions

Five submissions were received, four of which are from committee members including the treasurer. All of the submissions are opposed to the application. The reasons put forward include:

•	The wishes of the majority of owners have been expressed 20:1 and there was no duress;
•	The books of account are open for inspection at any time;
•	The books of account are tabled at every annual general meeting;
•	The committee has implemented safeguards such as requiring two signatures on every cheque;
•	The committee does not delegate administrative or financial control to any other person;
•	The committee consists of well qualified staff including the treasurer who was a bookkeeper for 45 years another member who is a certified practising accountant;
•	The requirements of Section 106(1)(b) of the Standard Module have been complied with;
•	An audit would be superfluous; and
•	No owner has ever raised their own motion to have an audit initiated.

Relevant Documentary Evidence

Contrary to the one submission that no motion to have an audit has ever been tabled, I note the relevant motions for the 2007 detailed in the notice of annual general meeting were as follows:

5(a) AUDIT (Proposed by owner unit 9)

That there be an outside audit of the Body Corporate books of account.

5(b) AUDIT (Special Resolution)

That pursuant to section 106(1) of the Body Corporate and Community Management Act 1997 (standard module) the books and accounts of the Body Corporate in respect of the financial period 1^st July 2007 to 30 June 2008 shall not be audited.

BACKGROUND

The Body Corporate and Community Management Act 1997 provides that accounts be audited unless it is resolved, annually, that audit is not required. Traditionally the Body Corporate for ‘Westaway Towers’ have elected not to audit.

The minutes themselves state:

AUDIT

The proposal that there be outside audit of Body Corporate books of account failed to obtain majority support. It was resolved (with one dissenting vote) that pursuant to section 106(1) of the Body Corporate and Community Management Act 1997(standard module) the books and accounts of the Body Corporate in respect of the financial period 1^st July 2007 to 30^th June 2008 shall not be audited.

Section 106 of the Standard Module – Audit

(1) The body corporate must have its statement of accounts for each financial year audited by an auditor unless--

(a) the scheme is a basic scheme; and

(b) the body corporate resolves by special resolution not to have the statement audited.

(2) If the body corporate is required under subsection (1) to have its statement of accounts audited, the auditor to be appointed must be agreed to by ordinary resolution of the body

corporate.

(3) The motion for agreeing to the auditor to be appointed--

(a) must be included in the agenda for the general meeting at which the motion is to be considered; and

(b) must include the name of the auditor proposed to be appointed; and

(c) is not voted on if, under subsection (1), it is resolved not to have the statement of accounts audited.

(4) Even if the body corporate resolves not to have its statement of accounts for a particular financial year audited, the body corporate may, by ordinary resolution, resolve to have its accounting records for a particular period, or for a particular project, audited and appoint an auditor for the purpose.

(5) A member of the committee, a body corporate manager, or an associate of a member of the committee or a body corporate manager, can not be appointed to audit the accounting records

or the statement of accounts of the body corporate.

(6) On finishing an audit of the body corporate’s statement of accounts for a financial year, the auditor must give a certificate--

(a) stating whether the statement of accounts gives a true and fair view of the body corporate’s financial affairs; and

(b) if the statement of accounts does not give a true and fair view of the body corporate’s financial affairs--identifying the deficiencies in the statement.

(7) A copy of the auditor’s certificate must accompany the notice of the next annual general meeting held after the certificate is given.

(8) The motion for a special resolution under subsection (1) must be--

(a) in the form ‘that the body corporate’s statement of accounts for the financial year (state the financial year concerned) not be audited’; and

(b) accompanied by a note ‘NOTE: If you want the accounts to be audited, vote ‘no’; if you do not want the accounts to be audited, vote ‘yes’.’.

Determination

Upcoming Financial Year

I recognise the applicant’s reasoning in relation to this point. However it is normal practice for the resolution in relation to audit to be for the upcoming financial year. This is to enable the committee sufficient time to ensure that the books and accounts are processed for the audited accounts to be presented to the annual general meeting.

However, even if the Body Corporate resolves not to have the accounts audited on a preliminary basis, Section 106(4) of the Standard Module states that an audit can still be invoked for a period in hindsight.

Given this, it is still open to the applicant to submit a motion for ordinary resolution that an audit be undertaken for an identified historical period.

Validity of the Resolution

Administering a Body Corporate in accordance with the Act can be a complicated matter. Therefore, while I must address the following irregularities in process, it is not meant as a criticism of those lot owners who voluntarily offer their services to do what can be a thankless job.

Quite correctly (in accordance with Section 106(8)(a) of the Standard Module), the motion not to audit has been proposed in the negative in the Notice of AGM. Further the notice correctly recognises the requirement in Section 106(1)(b) that the motion not to audit must be carried by a special resolution to be effective. However, on a procedural basis I note that the motion fails to meet the notation requirement in Section 106(8)(b) of the Standard Module i.e. the note included in the notice does not say "NOTE: If you want the accounts to be audited, vote ‘no’; if you do not want the accounts to be audited, vote ‘yes’.".

This office will not necessarily void decisions for minor procedural irregularities. The courts have recognised that the very detailed provisions of the regulations make it almost inevitable that from time to time there will be non-compliance with the legislation. Non-compliance of an insubstantial nature should not be allowed to imperil the actions of bodies corporate or their committees, particularly in the instance of committees where actions are taken in good faith.^[1]

In those circumstances, it therefore becomes appropriate for me to examine whether or not the failure to comply with the strict requirements of the legislation has materially affected the outcome of the vote. In this instance I am of the view that the omission of the voting instruction has not muddied the outcome. This is because:

1. While not meeting the circumstances anticipated under Section 42B(2)(a) of the Standard Module, the motion is proposed by way of alternatives; and

2. The layout of the voting paper reinforces the notion that those voting must turn their mind specifically to the issue of whether to audit or not to audit.

Therefore in my mind, these two factors have combined to overcome the risk (that requiring the motion to be proposed in the negative) Section 106(8) of the Standard Module seeks to address i.e. voters had to specifically chose between the negative and the affirmative.

I note that at the meeting itself, the owners of 18 lots were present in person, with the owners of a further 6 lots present either by proxy or voting paper. The owner of Lot 9 who proposed the audit was not present at the meeting, however the applicant was. If I assume that the applicant was the only dissenting vote, then that dissent represents only:

• 1 vote of the 19 votes that one assumes must have been cast by those present in person or proxy. This represents only 5.26% of those present in person or 4.17% of all potential voters (Section 106(3)(a)(ii) of the Act).

• 1 lot of 30 lots represents only 3.33% of the total lots (Section 106(3)(b) of the Act); and

• 1 lot entitlement of a total of 30 lot entitlements, likewise equals only 3.33% of the total lot entitlements (Section 106(3)(c) of the Act).

Even if Lot 9 were to have cast a vote in favour of its own motion, the requirements of Section 106(3)(a)(ii), 106(3)(b) and 106(3)(c) of the Act would have been satisfied for the purposes of passing a special resolution.

I therefore conclude that the motion was passed as a special resolution and that the non-compliance with the notation requirements of Section 106(8)(b) of the Standard Module has not influenced the outcome.

Is Audit Warranted?

The applicants seek to have the resolution not to audit the 2007/2008 annual accounts overturned. Normally owners decide whether they want an audit of accounts for a particular financial year at the annual general meeting at the start of that financial year (Section 45(3) of the Standard Module). As indicated above, if there are good reasons for subsequently auditing the accounts then owners can at any time propose that the accounts be audited. However, despite demonstrating that the body corporate has chosen to not audit for at least 5 years and probably more than 20 years, the applicants’ submissions fail to provide good reasons to overturn the majority’s opposition to an audit.

The applicants can inspect the financial records. If they find discrepancies then there would be a stronger argument that votes opposing an audit should be overruled by an adjudicator. The present arguments from the applicants that an audit is necessary are not persuasive.

In the circumstances, I am unable able to make the orders sought, and dismiss the application accordingly.

As an afterthought, I also bring the committee’s attention to the requirements of Section 106(2) and (3) of the Standard Module. These provisions require that an auditor be identified and included in the agenda of an annual general meeting, in case the body corporate resolves to audit. It is appropriate that these provisions also be complied with in the future.

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^[1] Wei-Xin Chen v Body Corporate for Wishart Village CTS 19482, Appeal 4080 of 2000, District Court Brisbane, 29 May 2001.