Heritage Village Ormiston West [2007] QBCCMCmr 683 (25 September 2007)

Last Updated: 13 October 2008

Office of the Commissioner for Body Corporate and
Community Management

SPECIALIST ADJUDICATION
(Caretaking Contractual Matter)

Number: 0274A-2007

Applicant: FIRST RESPONSE MAINTENANCE PTY LTD Respondent: BODY CORPORATE FOR HERITAGE VILLAGE ORMISTON WEST COMMUNITY TITLES SCHEME 19720

INTERIM ORDER
30 April 2007

ORDER under section 279(1) of the Body Corporate and Community Management Act 1997 that the Respondent refrain from taking any further action in reliance on either or both of the Notices of Breach of Caretaking Agreement, each dated 14 March 2007, until such time as this order expires or the application on which this order is made is finally determined, whichever first occurs. FURTHER ORDER that the applicant be granted leave to seek further interim orders on the application should the need arise.

Gary Bugden OAM
Specialist Adjudicator

Office of the Commissioner for Body Corporate and
Community Management

SPECIALIST ADJUDICATION
(Caretaking Contractual Matter)

Number: 0274A-2007

Applicant: FIRST RESPONSE MAINTENANCE PTY LTD

Respondent: BODY CORPORATE FOR HERITAGE VILLAGE ORMISTON WEST COMMUNITY TITLES SCHEME 19720

INTERIM DETERMINATION
30 April 2007

1. This application relates to a dispute between a Caretaking Service Contractor (the applicant), which is also a Letting Agent, within the meaning of the Body Corporate and Community Management Act 1997 (“Act”) and a community title body corporate (the respondent). The application was made under section 238(1) of the Act and referred by the Commissioner for specialist adjudication pursuant to section 265(1) of the Act.
2. The application seeks both interim and permanent relief and it has been referred to me at this stage so that I can consider whether an interim order should be made pending the processing of the application and its final referral and determination.
3. The applicant is “the Manager”, by assignment, under a Management and Letting Agreement dated 17 May 1993, which was varied by Deed on 2 October 1998 (“Agreement”). The Second Schedule of the Agreement, as amended by clause 3 of the variation Deed, sets out the duties of the Applicant. The applicant also has a similar role in an adjoining community title scheme, Heritage Village Ormiston East.
4. If the Manager fails to perform its duties under the Agreement provision is made in the Agreement for either immediate termination, or termination after failure by the Manager to rectify a notified breach, depending upon the seriousness of the breach.
5. Section 118(1)(b) of the Act provides that a code of conduct set out in Schedule 2 of the Act applies to “a caretaking service contractor in performing obligations under the person’s engagement as a service contractor”. That code contains a number of obligations and prohibitions, many of which are very general in nature. If there is a breach of the code and the body corporate is required by an ordinary resolution of a general meeting, decided by secret ballot, to give the letting agent a “code contravention notice”, then the body corporate must give that notice.
6. If the letting agent does not comply with that notice, or further contravention of the code occurs in certain circumstances, then the body corporate can give a “transfer notice”. A transfer notice effectively requires the letting agent to transfer their “management rights” within a stated period to an unrelated third party. This is effectively a forced sale of the management rights to a new manager who the body corporate has the right to approve, within certain guidelines.
7. In this case the body corporate purportedly passed an ordinary resolution by secret ballot on 18 September 2006 authorizing service of both a code contravention notice and a transfer notice. The body corporate then served a code contravention notice dated 6 October 2006 on the applicant alleging a number of contraventions of the code of conduct. Shortly after that the body corporate served a transfer notice dated 16 November 2006 on the applicant alleging that the earlier notice had not been complied with as well as continuing breaches of the code of conduct.
8. On 28 February 2007 Mahoney Lawyers wrote to the body corporate’s solicitors, Herdlaw Solicitors, disputing the validity of the 2 notices and responding to the alleged breaches of the code of conduct. Certain correspondence then passed between the 2 solicitors about whether or not the breaches of the code occurred and whether the notices were valid.
9. The body corporate then served 2 notices of breach of the Agreement pursuant to the breach procedures in the Agreement; alleging failures on the part of the applicant to perform duties in the agreement, one being a failure to follow a direction to remove watering systems “from all units in Heritage Village West” and the other alleging failure to cut certain hedges. These notices were met by a strong rebuttal from the applicant’s solicitors, as well as an accusation that the body corporate was effectively acting in bad faith.
10. Because of the nature of applications for an interim order, neither the body corporate’s allegations against the applicant, or the applicant’s rebuttal of those allegations, have been tested. It is sufficient to say that, on the papers before me, the applicant has established a prima facie rebuttal of the matters on which the various notices were founded. Of course, that does not mean that, in due course after the application is fully dealt with, the applicant’s rebuttal will prevail. But for the moment the applicant has at least an arguable case.
11. That brings me to the question whether it is appropriate to make an interim order. If an interim order is not made the body corporate may, in reliance on one or both of the breach notices, move to terminate the Agreement and thus deprive the applicant of an asset of considerable value. An interim order would preserve the status quo while the application is determined. However, it would prevent the body corporate moving to terminate the Agreement in circumstances where it might ultimately be held entitled to terminate it. The body corporate would therefore suffer delay if an interim order is made.
    
12. Section 279(1) of the Act says:

“The adjudicator may make an interim order if satisfied, on reasonable grounds, that an interim order is necessary because of the nature or urgency of the circumstances to which the application relates.”

13. I am satisfied that –
    • (a) the applicant has an arguable case;
    • (b) because of the nature and circumstances to which this application relates; and
    • (c) having regard to the alternate remedy that would otherwise be available to the applicant (i.e. an action for damages) and the adequacy of that remedy; and
    • (d) in balancing the rights and interests of the 2 parties,

it is appropriate for an interim order to be made.

14. I therefore propose to make an interim order to prevent the body corporate from taking any action pursuant to the 2 notices of breach it has served on the applicant pending determination of the application. Given the period for compliance with the transfer notice there appears to be no need to include that notice in the order, but I will grant leave for the matter to be brought back to me by the applicant if the need arises for consideration of further interim orders.
    

Gary Bugden OAM
Specialist Adjudicator

Office of the Commissioner for Body Corporate and Community Management SPECIALIST ADJUDICATION (Caretaking Service Contractor Dispute) Number: 0274-2007 Applicant: FIRST RESPONSE MAINTENANCE PTY LTD Respondent: BODY CORPORATE FOR HERITAGE VILLAGE ORMISTON WEST COMMUNITY TITLES SCHEME 19720 PRELIMINARY DETERMINATION 25 September 2007

Application

1. This is an application for resolution of a dispute involving a body corporate and a caretaking service contractor that must be determined by specialist adjudication in accordance with the provisions of section 265 of the Body Corporate and Community Management Act 1997 (‘Act’). That section, plus numerous other sections of the Act, was amended by the Body Corporate and Community Management and Other Legislation Amendment Act 2007 (‘Amendment Act’) which commenced on 1 July 2007.
2. Because this application was made but not disposed of before 1 July 2007, section 359 of the Act, inserted by the Amending Act, requires the application to be dealt with under the Act as if the Amending Act had not been enacted. Therefore, references in this Preliminary Determination are references to the provisions of the Act as they were in effect immediately before 1 July 2007.

The Management Agreement

3. On 17 May 1993, the Respondent body corporate (‘Body Corporate’) entered into a Management and Letting Agreement with GTP Developments Pty Ltd (‘Agreement’). The Agreement was for a term of 5 years with two options, each for 10 years. The Agreement was varied by Deed of Variation dated 2 October 1998 between the Body Corporate and Stewart Daniel McAuslan and Glenda Irene McAuslan, presumably after an assignment or assignments that substituted the McAuslans for GTP Developments Pty Ltd and also after the first 10 year option was exercised.
4. Community Title Scheme 19720 (‘Scheme’) is regulated by the Body Corporate and Community Management (Standard Module) Regulation 1997 (‘Standard Module’), under which a 25 year agreement, including options, would not be permitted. However, because the Agreement was entered into before commencement of the Act and the Standard Module, the transitional provisions in section 344 of the Act effectively preserved the then existing 25 year term of the Agreement.
5. While there is no direct evidence before me, it appears that the Agreement was further assigned and the current manager under the Agreement is the Applicant, First Response Maintenance Pty Ltd.

Extraordinary general meeting

6. On 18 September 2006 an extraordinary general meeting of the Body Corporate was held. The Body Corporate committee proposed a motion for an ‘ordinary resolution’ by secret ballot for consideration by that meeting. That motion was passed in the following terms:

‘The Body Corporate give the Caretakers a signed contravention notice as attached and that the body corporate may, without further notice, give the caretakers a transfer notice if the Caretakers:

(a) do not comply with the contravention notice; or

(b) after having been given the notice, continue to breach a provision of the code.’

7. There are 48 lots in the Scheme and, according to the Minutes of the extraordinary general meeting referred to, 39 valid votes were received in respect of the motion for ordinary resolution. Of those, 29 were in favour, 8 were against and 2 were abstentions. This will be relevant to one of the matters that I need to determine.

Code Contravention Notice

8. On or about 6 October 2006, the Body Corporate’s solicitors, Herd Law, Solicitors, served a Code Contravention Notice (‘Code Notice’) on the Applicant under section 139 of the Act. Presumably, that Code Notice was in the same terms as the notice attached to the minute of the ordinary resolution. There is nothing in the Commissioner’s file that enables me to confirm this.
9. The Code Notice alleged that the Applicants had contravened all 11 rules of the Code of Conduct for Body Corporate Managers and Caretaking Service Contractors (‘Code’), as set out in Schedule 2 of the Act. The alleged contraventions related to:

‘1. Knowledge of Act, include code.

2. Honesty, fairness and professionalism.

3. Skill, care and diligence.

4. Acting in the Body Corporate’s best interests.

5. Keeping the Body Corporate informed of developments.

6. Ensuring employees comply with Act and code.

7. Fraudulent or misleading conduct.

8. Unconscionable conduct.

9. Conflict of duty or interest.

10. Goods and services to be supplied at competitive prices.

11. Body Corporate Manager to demonstrate keeping of particular records. ‘

Transfer Notice

10. Subsequently, on or about 16 November 2006, after expiry of the time allowed in the Code Notice for remedial action, the Body Corporate’s solicitors served a Transfer Notice (‘Transfer Notice’) under section 140 of the Act and section 86C of the Standard Module. The inclusion of the reference to section 86C is confusing, because this effectively meant that the Transfer Notice sough to achieve two contradictory things; the first a transfer of the Agreement and the second, termination of the agreement. However, in the event, nothing turns upon this.
11. The Transfer Notice alleged that the remedial action had not been carried out by the Applicant, or carried out in a way to the Body Corporate’s satisfaction, and that the Applicant continued to breach provisions of the Code. The Transfer Notice particularised those continuing breaches as:

‘(a) Not exercising reasonable care, skill, and diligence in performing the person’s functions under the person’s engagement;

(b) Not acting in the Body Corporate’s best interests;

(c) Continuing to act in a confrontational and disagreeable way and not in the spirit of the engagement; and

(d) The following specific actions:

(i) Not attending to hedges evenly throughout the Scheme;

(ii) Not watering in fertiliser;

(iii) Attending to common property gardens in a haphazard way;

(iv) Not attending to overgrown shrubs that were blocking safe access out of driveways;

(v) Carelessly and recklessly poisoning plants;

(vi) Not putting out all Recycle bins, owners have to do this when one or two have been left; and

(vii) Not communicating with the Body Corporate delegate.’

12. On 28 February 2007, Mahoney Lawyers, on behalf of the Applicant, wrote to the Body Corporate’s solicitors alleging a number of things, including:
    • (a) the Code Notice did not comply with the Act;
    • (b) the Transfer Notice was not supported by a valid ‘majority resolution’ decided by secret ballot;
    • (c) the Transfer Notice introduced material not covered in the Code Notice;
    • (d) the Transfer Notice had ‘absolutely no effect whatsoever’;
    • (e) the allegations in the Code Notice concerned very minor matters, or matters clearly outside the Applicant’s duties under the Agreement (supported by a detailed response in respect of each allegation in the Code Notice).
13. This letter was followed by further exchanges of letters between the two solicitors, the details of which it is not necessary for me to go into at this stage.

Breach Notices

14. On or about 14 March 2007 the Body Corporate’s solicitors served two breach notices (‘Breach Notices’) under clause 12.3 of the Agreement. The first notice specified certain duties set out in the Second Schedule of the Agreement, relating to:
    • (a) keeping the common property in good order and repair;
    • (b) keeping order on the property; and
    • (c) performing such other acts and things as are reasonably necessary and proper in the discharge of duties under the Agreement, including any additional duties or responsibilities that may be referred by the owner to the manger.
15. The first notice required the manager to ‘comply with the requirements of the Second Schedule Manager Duties as specified in the Management Agreement within 14 days of receipt of this notice’.
16. The second notice referred to items (a) and (c) mentioned above, and in addition, the trimming of hedges on a monthly basis. The second notice again required compliance with ‘the requirements of the Second Schedule Manager’s Duties as specified in the Management Agreement within 21 days of receipt of this notice.’

Directions meeting

17. The general nature of many of the particulars given in the Code Notice suggests that the notice may have been in the nature of an ‘ambit claim’, but when given the opportunity at a directions meeting on 8 August 2007 to elect which items were to be relied upon, the Body Corporate’s solicitors indicated that the Body Corporate intended to rely upon all items.
18. At that meeting I indicated that it would be necessary for me to examine each item of alleged contravention in order to decide whether the Code Notice was well founded and whether the Applicant had remedied any of the established contraventions prior to service of the Transfer Notice. There was also discussion at that meeting about:
    • (a) whether the Transfer Notice was supported by the required ‘majority resolution’;
    • (b) whether orders in strict terms of the orders sought by the Applicant will achieve what the Applicant is seeking to achieve, namely preventing the Body Corporate from enforcing the Transfer Notice and/or Breach Notices; and
    • (c) if not, whether I can make orders other than in the strict terms sought by the Applicant.
19. I set aside two days for further meetings to investigate the contraventions alleged in the Code Notice and indicated that at the commencement of the first meeting I would consider any written submissions the parties may wish to make on the question of what orders I have power to make on the application.
20. Before those further meetings were due to be held, I received a telephone call from the Applicant’s solicitor asking whether, to save costs for both parties, it would be preferable if I determined the preliminary point on permissible orders, and possibly the question of whether the Transfer Notice is supported by the necessary ‘majority resolution’ before the parties prepare more detailed evidence and witnesses on the individual contravention allegations.
21. I indicated I would be prepared to do this if the Body Corporate’s solicitor agreed with the proposal and the Applicant’s solicitors were requested to inquire regarding that agreement. I indicated that upon receiving confirmation from the Body Corporate’s solicitors I would vacate the meeting dates.
22. As things turned out, the communications between the solicitors were not the most satisfactory and the Body Corporate’s solicitors took exception to those discussions in their absence. Progress of the matter was temporarily delayed as a result. However, the issues arising were resolved in a telephone conference involving the two solicitors and myself and it was agreed that the two preliminary legal points should first be resolved and then the meeting should be held. A timetable was agreed, and subsequently met, for the written submissions on the second preliminary legal point, namely:

‘Whether the resolution of 18 September 2006 was a majority resolution meeting the requirements of the Act (particularly if the Transfer Notice of 16 November includes material that was not in the Code Contravention Notice dated 6 October 2006).

23. The Applicant’s written submission on the second point canvassed issues apart from the second point. The Body Corporate objected to this, alleged that this additional material amount to an amendment of the Application and asked that the Application be dismissed. However, in the alternative, the Body Corporate asked for the Applicant’s submissions to be constrained to the second point.
24. It seemed sensible to me to dispose of all preliminary legal points that can reasonably be disposed of to limit the provision of evidence that might otherwise not be required. Potentially, this could save both parties from preparation for and attendance at meetings scheduled over two days. However, I was not entirely satisfied, in view of the scope of the submissions by the solicitors for the Body Corporate, that this would not take the Body Corporate’s solicitors by surprise. I therefore allowed the Body Corporate’s solicitors a further opportunity to respond to the additional issues raised by the Applicant.

Departure from the orders sought

25. I am now in a position to determine what I understand are the main preliminary issues. I will start with the question of the types of orders that can be made on the Application. In the Body Corporate’s submission, any departure from the wording of the outcomes sought in the Application, or extension of the issues to include consideration of broader questions of validity not raised in the Application, effectively amounts to an amendment of the Application, which is prohibited at this late stage by section 245 of the Act.
26. On this point let me start with section 4(h) of the Act which says one of the secondary objects of the Act is ‘to provide an efficient and effective dispute resolution process’. Section 239 provides for applications to the Commissioner for resolution of disputes. It requires, inter alia, an application to be in an approved form and to state:
    • (a) the outcomes sought by the application; and
    • (b) the grounds, in detail, on which the outcomes are sought.
27. Following receipt of the application the Commissioner seeks comments from other stakeholders in the Scheme. These comments are received by way of formal submissions which are incorporated in the Commissioner’s file in readiness for forwarding to the relevant adjudicator.
28. Section 245 of the Act provides:

‘(1) The applicant may, with the commissioner’s permission, change the application at any time before the commissioner makes an initial dispute resolution recommendation under part 5.

(2) The commissioner has discretion to give or withhold permission and, if the commissioner gives permission, the commissioner may impose conditions.’

(I have omitted the footnote and example from the section.)

29. Section 269 of the Act then provides:

‘(1) The adjudicator must investigate the application to decide whether it would be appropriate to make an order on the application.

(2) When investigating the application, the adjudicator –

(a) must observe natural justice; and

(b) must act as quickly, and with as little formality and technicality, as is consistent with a fair and proper consideration of the application; and

(c) is not bound by the rules of evidence.’

30. Section 271(1) of the Act then provides:

‘When investigating the application, the adjudicator may do all or any of the following –

(a) require a party to the application, or someone else the adjudicator thinks may be able to help resolve issues raised by the application –

(i) to obtain, and give to the adjudicator, a report or other information; or

(ii) to be present to be interviewed, after reasonable notice is given of the time and place of interview; or

(iii) to give information in the form of a statutory declaration;

(b) require a body corporate manager, service contractor or letting agent who is a party to the application, to give to the adjudicator a record held by the person and relating to a dispute about a service provided by the person;

(c) invite persons the adjudicator considers may be able to help resolve issues raised by the application to make written submissions to the adjudicator within a stated time;

(d) inspect, or enter and inspect –

(i) a body corporate asset, or record or other document of the body corporate; or

(ii) common property (including common property the subject of an exclusive use by-law); or

(iii) a lot included in the community title scheme concerned.

Example of report for sub-section (1)(a)(i) – Engineering report’

31. Sub-sections 271(3) and (4) confer certain powers of entry on an adjudicator and sub-section 271(5) confers powers for an adjudicator to compel the production of documents.
32. It is fair to say that the entire process for resolving disputes under Chapter 5 of the Act is relatively informal. It envisages that a party in dispute may act without legal representation. It even allows a party to be represented by an ‘agent’ who does not need to be a legal practitioner (refer to section 273 of the Act). It follows that the standard of applications under Chapter 5 of the Act will in most cases be relatively low when compared to more formal jurisdictions. That has certainly been my experience as a specialist adjudicator in dealing with applications under Chapter 5 over the past 5 years.
33. To impose strict constraints on the wording of applications, particularly those parts dealing with outcomes sought and grounds for those outcomes, would serve more to frustrate the dispute resolution process rather than ‘to provide an efficient and effective dispute resolution process’, to quote the words of section 4(h). Even use of the words “outcomes sought” in section 239 of the Act, as opposed to say “orders sought”, is indicative of an informal and flexible process.
34. It seems to me that the only ‘controls’ over what is intended to be a very informal process to be quickly undertaken are:
    • (a) the limitation in section 245 of the Act on ‘changes’ to the application; and
    • (b) the obligation in section 269(2)(a) of the Act for an adjudicator to ‘observe natural justice’.
35. A specialist adjudicator, when dealing with an application, has a wide discretion on the information that may be taken into account and the type of order that can be made. This discretion must be exercised in the natural justice context and in recognition of the fundamentals of the underlying dispute and relief sought.
36. In this case there is a dispute about the Body Corporate’s entitlement to enforce the Transfer Notice and Breach Notices. There may be a number of reasons why the Body Corporate cannot enforce those notices. To my mind, it would be contrary to the clear intent of the legislation if I were to restrict the Applicant to the reasons in the application where another reason sought to be relied upon is closely aligned to those reasons. In my view, the test is whether allowing such additional reasons changes the nature of the application so as to significantly lessen the effectiveness and relevance of the submission process undertaken by the Commissioner, or so as to deny natural justice to a party to the dispute.
37. The Applicant is seeking two declarations, the second being to the effect that the Body Corporate and the committee cannot enforce the Transfer Notice. The grounds in the application make reference to ‘attached copies of correspondence and other documents containing the relevant details, background and arguments’. One such document is a letter from Mahoney Lawyers to Herd Law Solicitors dated 28 February 2007 in which the Applicant refers to documents that ‘purport’ to be a code contravention notice and a transfer notice and states the view that the former notice does not comply with the requirements of the Act.
38. The Applicant’s submissions essentially address the question of whether the Code Notice complied with the Act. Those submissions are therefore in furtherance of the grounds of the Application and cannot be categorised as an attempt to amend the application. The only issue that concerned me was the departure of the Applicant’s submissions from the issue that was identified for resolution; namely the question relating to the resolution of 18 September 2006. I was concerned that, despite the fact that the Body Corporate’s solicitors attempted to address the points in its submissions in reply, they may have been prejudiced by the time constraint on delivery of their submission. That time was designed to accommodate the response to a much narrower issue. To remedy this, I allowed the Body Corporate’s solicitors more time to provide a further response on the broader submissions made by the Applicant’s solicitors.
39. I therefore propose to consider and deal with the submissions of the Applicant’s solicitors. Having regard to the reasons I have already given, I am satisfied that those submissions do not amount to an amendment of the application. I am also satisfied that if I decide to make an order on the application, I am not confined to the exact wording of the outcome sought in the Application. At the very least I can make any order that is consistent with that outcome or that is necessary as an ancillary or consequential provision.
40. However, before proceeding I will comment briefly on an objection by the Respondent’s solicitors to me considering at all the “additional” matters raised by the Applicant’s solicitors effectively on the basis that:
    • (a) the Body Corporate has been put to additional costs by these “late” submissions; and
    • (b) these additional costs will require an extraordinary general meeting to approve expenditure on legal costs beyond the committee’s limit.
41. In response I point out that the Applicant in its application has sought general outcomes to the effect that it is not in breach of “any law, or the Management and Letting Agreement” and that the Body Corporate “cannot enforce the transfer notice” and in its grounds has referred to the material attached to the application. That material canvassed a range of reasons why the outcomes sought should be successful, including the very questions that I am being asked to decide. My decision to deal with those matters now should actually save the Body Corporate costs. If I left those matters until later, then a good deal of un-necessary testing of evidence may have been the result.
42. The course taken by the Body Corporate in relation to the Agreement was bound to involve the Body Corporate in substantial costs and any expectation that a challenge to that course could be met within the committee’s expenditure limit was, in my view, naive. The attempts by the solicitors for the Body Corporate to confine the issues as far as possible are understandable, but those attempts have been frustrated by the wide scope of the outcome sought and the attachment of substantial material to the application.

The Code Notice, the Transfer Notice and the Act

43. I turn now to the merits of the Applicant’s arguments that the requirements of the Act were not met in relation to the Transfer Notice. There are three limbs to those arguments that can be summarised as follows:

(1) Defects in the Code Notice, on which the Transfer Notice was based; namely the alleged failure of the Code Notice to:

(a) provide sufficient detail to identify the alleged contraventions; and

(b) state a reasonable (or, in some cases, any) period of time within which the breaches must be remedied).

(2) Both the Code Notice and the Transfer Notice were authorised by the same resolution, whereas two separate and distinct types of resolution are required by the Act.

(3) Defects in the Transfer Notice; namely it’s reliance on a ground of default that was not previously alleged in the Code Notice.

The Code Notice

44. I have already indicated that the Code Notice gives the impression of being an ambit claim. When one examines the detail given in relation to the various alleged contraventions, it is clear that the detail refers to relatively minor points or to circumstances that do not necessarily constitute a breach of the relevant item in the Code. This raises the question whether all or any of those alleged contraventions have been set out in a way that complies with the Act.
45. Section 139(2) of the Act is relevant and provides:

“The code contravention notice must state—

(a) that the body corporate believes the person has or is contravening a provision of the code of conduct for—

(i) letting agents; or

(ii) body corporate managers and caretaking service contractors; and

(b) the provision the body corporate believes has been or is being contravened; and

(c) details sufficient to identify the contravention; and

(d) the reasonable period within which the letting agent must remedy the contravention; and

(e) that the body corporate may, without further notice, give the letting agent a transfer notice if—

(i) the letting agent does not comply with the code contravention notice; or

(ii) the body corporate reasonably believes the letting agent, after being given the notice, has contravened a provision of a code mentioned in paragraph (a).”

46. The underlying question is whether section 139 of the Act has to be strictly complied with by a Body Corporate before a code contravention notice is valid and effective. The solicitors for the Applicant submitted that the requirement for specificity (in terms of identifying the contravention) is a critically important one when considering the validity of the notice for a number of reasons. In particular:
    • (a) if a caretaker does not (or is unable to) comply with a code contravention notice, the ramifications are extremely serious and endanger the caretaker’s entire livelihood;
    • (b) vague or broad allegations of contravention are difficult, if not impossible, to comply with or remedy;
    • (c) the intention of the legislature in enacting these provisions was to provide a mechanism whereby:

(i) specific instances of breach could formally be brought to the caretaker’s attention;

(ii) the caretaker, in the full knowledge of what constituted the breach, could then take steps to remedy it; and

(iii) if, despite having been appraised of a specific and legitimate breach, the caretaker failed or refused to remedy it, the Body Corporate could compel the transfer of the management rights to another.

47. That submission appears to me to have substantial merit. Given the serious consequences of non-compliance with a code contravention notice, it is difficult to argue that the legislature did not intend that the pre-requisites for a valid notice should be strictly complied with. That being the case, it is clearly arguable that the Code Notice is not in compliance with section 139 and therefore is not valid and effective. An examination of each of the alleged contraventions, including consideration of the time delay between matters complained of and the date of service of the Code Notice and its relevance to the ability of the applicant to rectify, as well as the strong denials on the part of the Applicants, will be necessary before I can come to a final view on the validity of the Code Notice.
48. To the extent that I am able to undertake that exercise now, I will do so. In this way the issues to be dealt with as the determination of the application moves forward will be further confined. This will result in further cost savings for the parties. I now turn to the allegations in the Code Notice.
49. The first allegation is in the following terms:

1. Knowledge of Act, including code

A body corporate manager of caretaking service contractor must have a good working knowledge and understanding of this Act, including this code of conduct, relevant to the person’s functions.

The Managers, as evidence by their actions as outlined below, are not familiar with the required conduct pursuant to this code.

50. Section 139(2)(c) requiring identification of the contravention has not been complied with in relation to this allegation. There is simply insufficient detail. In addition, the Code Notice does not specify any period in which this alleged contravention must be remedied, with the result that section 139(2)(d) has also not been complied with. This allegation is therefore ineffective.
51. The second allegation is in the following terms:

2. Honesty, Fairness and Professionalism

1. The Managers have displayed an unprofessional attitude in their correspondence to the body corporate, and specifically that of 13 February 2006, and June 7 2006. In said correspondence, referring to the Chairman and body corporate delegate as Mr R. “Wimpey” instead of Mr R. Impey illustrates a clear lack of courtesy, respect and professionalism.
2. The Managers have not been honest or fair in their duty to the body corporate as evidenced by Mr Barry Neave’s non-disclosure of his alternative employment. This has, and continues to cause him to be unavailable to attend to the body corporate.

100. The Managers persistently display a non-cooperative attitude towards lot owners and are highly confrontational (Eg. 14 February 2006. 9.20am towards the owner of Lot 43; letter dated 13th February 2006, admission by managers to “blowing my stack” in a Committee meeting)

52. On this allegation I reserve my conclusion pending any further evidence the parties may wish to provide and formal submissions from the parties.
53. The third allegation is in the following terms:

3. Skill Care and Diligence

A body corporate manager or caretaking service contractor must exercise reasonable skill, care and diligence in performing the person’s functions under the person’s engagement.

The Managers persistently refuse to water the gardens, the lawns are very roughly mowed. A report of inspection of the grounds dated 5th May 2006 by the Committee is attached detailing specific evidence of the lack of skill, care and diligence in the regard,

A further letter from the managers dated 18th January 2006 states, “We are still learning about herbicides ect”. This is evident from the fact that they have used weed spray on quite windy days.

Item 6 of Minutes of 27 June 2006 refer to a Caretaker removing plants from lot owner’s garden.

54. Given that the Code Notice was issued in October 2006, these alleged contraventions are old and there is a question whether they were appropriate to be raised at the time the notice was served. There is also a question whether a clear period for remedy has been specified. On balance, I reserve my conclusion on this alleged contravention pending any further evidence the parties may wish to provide and formal submissions from the parties.
    
55. The fourth allegation is in the following terms:

4. Acting in the Body Corporate’s best interests

A body corporate manager or caretaking service contractor must act in the best interests of the body corporate unless it is unlawful to do so.

Not attending to duties as requested by the Committee delegate was listed in the minutes of 27 June 2006

Haranguing behaviour on the 14 February 2006 towards the posting of committee Meeting Minutes on the Notice Board, which is a requirement of the Act s101 and Regulations s28(4)(c).

56. The only period for remedy that could apply to this alleged contravention is the one expressed in the terms; “The Committee require the managers unacceptable behaviour as outlined above to cease forthwith.” That is probably neither adequate nor reasonable. In any event the 2 alleged contraventions do not amount to a failure to act in the Body Corporate’s best interests within the meaning of the item. This allegation is therefore ineffective.
57. The fifth allegation is in the following terms:

5. Keeping body corporate informed of developments

A body corporate manager or caretaking service contractor must keep the body corporate informed of any significant development or issue about an activity performed for the body corporate

The Managers are regularly unavailable, particularly during holiday times and specifically during the Christmas period of 2005.

58. Section 139(2)(c) has not been complied with in that the contravention has not been sufficiently identified. Again, the only period for remedy that could apply to this alleged contravention is the one expressed in the above general terms. That is probably not adequate, but in any event is unreasonable. Therefore, in addition, the Code Notice does not specify a reasonable period in which this alleged contravention must be remedied, with the result that section 139(2)(d) has also not been complied with. This allegation is therefore ineffective.
59. The sixth allegation is in the following terms:

6. Ensuring employees comply with Act and Code

A body corporate manager or caretaking service contractor must take reasonable steps to ensure an employee of the person complies with this Act, including this code, in performing the person’s functions under the person’s engagement.

What a relief caretaker has been in place during holiday periods, albeit without the prior knowledge or acceptance of the Committee, it is evident that the relied caretaker as employee of the Managers has not been aware of the required duties under the contract and under the Code

60. Section 139(2)(c) has not been complied with in that the contravention has not been sufficiently identified. Again, the only period for remedy that could apply to this alleged contravention is the one expressed in general terms. Again, that is neither adequate nor reasonable, with the result that section 139(2)(d) has also not been complied with. This allegation is therefore ineffective.
61. The seventh allegation is in the following terms:

7. Fraudulent or misleading conduct

A body corporate manager or caretaking service contractor must not engage in fraudulent or misleading conduct in performing this person’s functions under the person’s engagement

On the 23rd February 2006 the managers did send a letter addressed to property owners and residents. This letter fraudulently misrepresented the intent of the body corporate committee meeting and was misleading in content.

The letter fraudulently characterised specific services as ‘free’ and also purported to offer legal advice to property owners and residents I n defining their property boundaries.

62. I do not accept that this conduct, if it did occur, was fraudulent and to the extent it may have been misleading and not waived by the Body Corporate, I do not accept that it is misleading within the meaning of this item of the Code. There is also an issue about whether a reasonable time for remedy was allowed. This allegation is therefore ineffective.
63. The eighth allegation is in the following terms:

8. Unconscionable Conduct

A body corporate manager or caretaking service contractor must not engage in unconscionable conduct in performing the person’s functions under the person’s engagement

The managers assert that they are not responsible for certain duties or areas common property. The managers in doing so are requiring the body corporate to comply with conditions that are unlawful or not reasonably necessary.

The managers in a letter to the Secretary dated 1 August 2006, state that their only duties are in writing as laid out in the second schedule of their contract. They include a copy in writing which clearly states at 1.1.12 that,

“to perform such other acts and things as are reasonably necessary and proper in the discharge of its duties under this Agreement including any additional duties or responsibilities that may be referred to the manager by the owner.”

The managers refuse to empty green waste bins on common property and have been found trying to relocate a bin from the scheme. They state that one of the green recycling bins does not belong to the body corporate when records shows clearly to bins were purchased.

The managers state in a letter received 7 June 2006 that they have asked the committee to ‘remove lower limbs on the easement trees to provide a safe working environment for us’.

The nature of the confrontational correspondence from the Managers, and their demeanour, is indicative of exerting undue influence on, or using unfair tactics against, the body corporate or owners in the scheme many of who are elderly.

64. I do not accept that the conduct complained of, if in fact it did occur, constitutes “unconscionable conduct in performing the person’s functions under the person’s engagement” within the meaning of this particular provision of the Code. There is also an issue about whether a reasonable time was allowed for remedy. This allegation is therefore ineffective.
65. The ninth allegation is in the following terms:

9. Conflict of duty or interest

A body corporate manager or caretaking service contractor for a community titles scheme if doing so will place the person’s duty or interests for the first scheme in conflict with the person’s duty or interests for the other scheme.

The poor standard or performance is considered as partly attributable to the Managers concurrent contracts with Heritage Village Ormiston West CTS 19720 and Heritage Village Ormiston East 20152.

In addition, the Manager Mr Barry Neave has additional employment outside the scheme and is rarely seen to be working in the scheme. This leaves most of the work to be done by Brenda Neave.

66. It is clear from the Commissioner’s file that these circumstances were known to the Body Corporate when it consented to the transfer of the Agreement to the Applicant. This item of the Code speaks prospectively and not retrospectively. Therefore an existing commitment, particularly if known to a body corporate, will not constitute a breach. This allegation is therefore ineffective.
67. The tenth allegation is in the following terms:

10. Goods and services to be supplied at competitive prices

A body corporate manager or caretaking service contractor must take reasonable steps to ensure goods and services the person obtains for or supplies to the body corporate are obtained or supplied at competitive prices

It is noted that consultation with the committee on the purchase price of goods and supplies minimal.

68. This alleged contravention has not been particularised. The mere fact that there has been no consultation does not lead to the conclusion that goods or services acquired were not acquired at competitive prices. In addition, the Code Notice does not clearly specify a reasonable period in which this alleged contravention must be remedied, with the result that section 139(2) (d) has also not been complied with. This allegation is therefore ineffective
69. The eleventh and final allegation is in the following terms:

11. Body Corporate Manager to demonstrate keeping of particular records

If a body corporate or its committee requests in writing, the body corporate manager to show that the manager has kept the body corporate records as required under this Act, the manager must comply with the request within the reasonable period stated in the request.

70. This allegation is puzzling to say the least. First, the Applicant is not a body corporate manager within the meaning of the Act, so the item does not apply to it. Second, no particulars of the alleged breach are given. Third, no clear time for remedy is specified. Therefore, on every account this alleged breach fails to meet the requirements of the Act and is therefore ineffective.
71. The net effect of the examination just undertaken is to eliminate 9 of the 11 allegations in the Code Notice. Only the allegations in relation to items 2 and 3 potentially have merit and these must now be addressed by the parties as the determination of the application continues.

The Transfer Notice

72. Because the Code Notice has not totally failed, I cannot at this stage rule out the Transfer Notice on the basis that it relies upon a totally ineffective Code Notice. It is therefore necessary to proceed to examine the Applicants solicitor’s argument that both the Code Notice and Transfer Notice were authorised by the same resolution, whereas two separate and distinct types of resolutions are required by the Act.
73. On this point, section 139 requires a code contravention notice to be authorised by an ordinary resolution decided by secret ballot. An ordinary resolution is effectively a simple majority resolution of those voting on the motion. Section 140 of the Act requires a transfer notice to be approved by a majority resolution decided by secret ballot. A majority resolution is one where the votes counted in favour of the motion are more than 50% of the lots for which persons are entitled to vote on the motion (vide section 107 of the Act). A majority resolution is clearly more difficult to get than an ordinary resolution. However, if one applies the formula for a majority resolution, then, in the absence of other formalities, the requisite 50% majority was achieved at the extraordinary general meeting of 18 September 2006. The question is whether this allows one to consider the resolution to be a majority resolution or whether a separate resolution is necessary for the purposes of section 140 of the Act.
74. Section 42A(4)(b) of the Standard Module requires a voting paper (being a paper that must accompany the notice of a general meeting) to state for each motion whether a resolution without dissent, special resolution, majority resolution or ordinary resolution is required. The minutes of the resolution of 18 September 2006 clearly shows that the motion for the resolution was submitted by the Committee and that the resolution required was an ordinary resolution. Presumably, the notice of meeting and the voting paper also indicated to that effect.
75. That being the case, it would not be possible for the resolution once passed to qualify as both an ordinary resolution and a majority resolution. This is an important conclusion because the repeal of a particular type of resolution requires a resolution of the same type (see section 58 of the Standard Module). Therefore, it seems inconceivable if a motion is designated on a voting paper as being a motion for an ordinary resolution, yet it is passed by the meeting without any dissent, that the motion can then qualify as a resolution without dissent with the consequence that it can only be amended or revoked by a resolution without dissent.
76. It follows, in my view that the resolution passed on 18 September 2006, while adequate to authorise service of the Code Notice, was not effective to authorise service of the Transfer Notice. This means that the Transfer Notice is not valid and effective.
77. This conclusion is supported by the provisions of section 138 of the Act which sets out two pre-requisites, one of which must be satisfied before a body corporate can require the transfer of the letting agent’s management rights. Those pre-requisites are:

‘(a) the letting agent failed to comply with the code contravention notice;

(b) the body corporate reasonably believes the letting agent, after being given the notice, contravened a provision of the Code of Conduct for –

(i) letting agents; or

(ii) body corporate managers and caretaking service contractors.’

78. As mentioned, those two circumstances are in the alternative. However, each of them clearly arises after service of the Code Notice. They also arise after the passing of the necessary resolution to authorise service of the Code Notice. Therefore, in my view it cannot be successfully argued that the one resolution can support service of both notices. The sequence required is clear:

(1) There must be a resolution authorising service of the Code Notice.

(2) There must then be a failure to comply with the Code Notice, or the Body Corporate must have the necessary belief required by section 138(b).

(3) There must be a majority resolution authorising service of the Transfer Notice.

79. That sequence was not satisfied in the case of the Respondent and this is further support for the proposition that the Transfer Notice is not valid and effective. Having reached those conclusions, I am now in a position to make an order along the lines of the second outcome sought by the Applicant. The order I propose to make in due course will not be in exactly the same terms as the outcome sought, but will achieve the same result.

Default Notices

80. As I have already indicated, it remains to be seen whether the Default Notices are effective and, if so, whether they were complied with by the Applicant. They are relevant to the outcome sought in that the first outcome sought in the application effectively requires a declaration that the Applicant is not in breach of the Agreement such that the Body Corporate or the committee can terminate that agreement. It follows that this is also a matter that still needs to be determined in relation to the application.
81. It is not necessary for me to determine the third limb of the Applicant’s solicitors’ arguments given the conclusions that I have already reached in relation to the Transfer Notice.

Costs

82. The question of costs is reserved until the remaining aspects of the application are dealt with.

To summarise The following matters still need to be addressed before the application can be finally determined: (a) whether items 2 and 3 in the Code Notice are valid and effective and, if so, whether they were complied with by the Applicant; and (b) whether the Breach Notices are valid and effective and, if so, whether they were complied with by the Applicant. It is a matter for the parties whether they require a further meeting to provide verbal or other evidence, plus submissions, in relation to those outstanding matters, or whether they are prepared to have the issues determined on the papers, with or without written submissions.

G F Bugden OAM
Specialist Adjudicator