7 Oaks North [2007] QBCCMCmr 8 (5 January 2007)

Last Updated: 9 February 2007

REFERENCE: 0726-2006

ORDER OF AN ADJUDICATOR

MADE UNDER PART 9 OF CHAPTER 6

BODY CORPORATE AND COMMUNITY MANAGEMENT ACT 1997

Number of Scheme:	10907
Name of Scheme:	7 Oaks North
Address of Scheme:	7 Freyburg Street SORRENTO QLD 4217

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

Mr Richard Reynolds, the Owner(s) of lot 18

I hereby order that the application for orders: 1. That the Body Corporate refund to the Caretaker the transfer fee of $4,807.29 (incl. GST); 2. In the alternative, that the Body Corporate refund to the Caretaker $437.02, representing the difference between the 3% cap on a transfer fee (3% of $145,675.53 = $4,370.27) and the 3% plus GST demanded by the Body Corporate ($4,807.29). is dismissed.

STATEMENT OF ADJUDICATOR’S REASONS FOR DECISION - REF 0726-2006

"7 Oaks North" CTS 10907

Application

Mr Richard Reynolds, the owner of lot 18 (the Applicant) has made a dispute resolution application to the Commissioner for Body Corporate and Community Management under the Body Corporate and Community Management Act 1997 (the Act). The Applicant states that he is seeking the following final outcomes, quote:

1.	That the Body Corporate refund to the Caretaker the transfer fee of $4,807.29 (incl. GST);
2.	In the alternative, that the Body Corporate refund to the Caretaker $437.02, representing the difference between the 3% cap on a transfer fee (3% of $145,675.53 = $4,370.27) and the 3% plus GST demanded by the Body Corporate ($4,807.29).

Jurisdiction

Department of Natural Resources and Mines records show that the "7 Oaks North" community titles scheme was originally created under a building units plan of subdivision (now known as a building format plan) registered on 11 August 1981. The scheme land consists of 30 lots and common property and is primarily used for residential purposes.

A new community management statement was recorded for "7 Oaks North" on 3 June 2003. The community management statement shows that the Act’s Body Corporate and Community Management (Standard Module) Regulation 1997 (the Standard Module) applies to the scheme.

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)).

Background

The background relevant to my jurisdiction in this matter is as follows.

The former caretaker was engaged by the Body Corporate for a period due to expire on 28 February 2006. The caretaker had listed the management rights for sale in at least September 2005. There has been a history of conflict between the former caretaker and the Body Corporate.

The former caretaker approached the committee for an extension in early 2006. On 16 March 2006, the former caretaker tabled a document from Resort Brokers to the committee which observed that sale would be difficult without an extended term.

The committee presented a motion for the annual general meeting that if the former caretaker secured a sale of the management rights by 31 October 2006, the Body Corporate would grant an extension of the agreement to make it more saleable. The former caretakers have provided affidavits that the applicant advised them he thought he should be able to get any transfer fee waived by the committee.

At the annual general meeting on 28 April 2006, the Body Corporate agreed to execute a deed clarifying the caretakers’ duties and giving approval to a 4 year extension of the contract, conditional on sale settlement by 31 October 2006.

A contract of sale for the management rights was secured on 10 May 2006. On 28 June 2006 the committee consented to the transfer to the new owners. Included in the minutes is a condition that the transfer penalty be paid by the seller. The approval and conditions were advised to the former caretaker’s solicitor by email on 29 June 2006. The former caretaker’s solicitor raised a protest over the transfer fee but indicated the sellers would seek an order from this office.

Settlement continued to be negotiated regardless, including a debate about GST being raised. Correspondence includes assertions by the solicitor for the former caretaker that they have not received any benefit for the extension (only the purchaser did) and therefore they should not have to pay the transfer fee.

The document extending the term of the caretaking agreement was executed on 30 June 2006. The deed of assignment to the new buyer was executed on 1 July 2006.


Grounds

The submissions and grounds in this matter are quite extensive. The applicant has made some amendments to their grounds, after receipt of submissions. Those aspects that have amended have been excluded from the following summary of grounds, submissions and response to submissions. The applicant’s grounds therefore are:

1. The transfer fee was only paid under protest to enable the caretaker to sell its business without delay, as requested by the Body Corporate.

2. As the conditional extension only became unconditional upon the transfer of the caretaking agreement, there was no basis for it to be imposed. They refer to Section 85(3) of the Module which says:

The Body Corporate may require the payment of the relevant amount of if the date (the approval date) on which the Body Corporate approves the transfer is not more than 3 years after the date (the contract date) on which the engagement or authorisation was entered into, or on which the term of the engagement or authorisation was extended.

Therefore they argue, Section 85(3) does not provide for the imposition of a transfer fee based upon an extension which is only operative upon the satisfaction of certain conditions, and which may or may not come into existence.

They say that based on the decision in Rainbow Bay Resort [2004] QBCCMCmr 82 (12 February 2004), that a transfer fee is not meant to provide a windfall for a Body Corporate in circumstances where it has encouraged the exit of the caretaker.

3. If any transfer fee could be legitimately imposed, then the applicant says that GST could not be charged in addition to the transfer fee specified in the module. They state that the transfer fee is capped without reference to GST.

Submissions

Submissions were received from the owners of a total of 6 lots (one a committee member), plus one from the solicitors for the Body Corporate. The submissions made by the committee member were received after the closing date for submissions. The owners of 5 lots support the application to refund the transfer fee to the former caretaker.

The committee member’s submissions are quite detailed and include legal argument and concerns relating to the impartiality and standing of the applicant (making application for the benefit of the former caretaker and to the detriment of the Body Corporate). I will note restate the legal arguments here, as I find those raised by the Body Corporate to be the most pertinent.

The Body Corporate’s submission has been prepared by a their solicitor. In the first instance, they dispute the applicant’s standing to make the application and cite the decision of Logandale Lakes [2002] QBCCMCmr 687 (25 November 2002) which also involved an owner seeking a refund to a former caretaker. In that matter, the application was dismissed for lack of jurisdiction.

They also address the applicant’s assertion that the fee cannot be charged as the extended term was granted on the condition of sale. In contesting the applicant’s assertion that only the purchaser benefited from the extended term, the Body Corporate also refers to Rainbow Bay Resort highlighting the Adjudicator’s statement that the payment of a transfer fee "also recognise that bodies corporate contribute to the value of the rights that the service contractor is transferring, and in many instances, profiting from".

They make reference to the matter of Hibiscus [2004] QBCCMCmr 474 (7 October 2004) where the Adjudicator suggests the transfer fee may have been inserted into the legislation to allow the Body Corporate to obtain a benefit for a renewal or extension. They also make reference to Queensland Hansard upon introduction of the legislation.

They observe that in their opinion the legislation does not require the proposed transfer to be unknown to the Body Corporate for the fee to apply and that Section 85 only requires only that a timeframe apply.

In relation to GST, while the solicitor suggests it is beyond the jurisdiction of an adjudicator, they also refer to the matter of Admiralty Keys [2005] QBCCMCmr 102 (22 February 2005) where the application of GST is suggested to be a standard industry practice. However they also note that within that decision, the Adjudicator regards the matter as one that should be referred to the Australian Taxation Office.

They also request costs against the applicant on the grounds that the application is "frivolous and misconceived" in terms of the application of Section 270(1)(c) of the Act.

Response to Submissions

The applicant again asserts that the only beneficiary of the extension was the purchaser. He states that he has no co-operative business relationship with the former caretaker at all. He says that the application is meritorious and even if dismissed, would not warrant the awarding of costs.

They allege that unlike the matter of Logandale Lakes, the applicant here as the former chairperson, was intimately involved in discussions with the caretaker and therefore his personal integrity is at stake. They say that because the committee was keen to see the former caretaker sell, they never discussed the issue of a transfer fee, particularly as the benefit only went to the purchaser.

They say that, presuming the imposition of the transfer was invalid (due to the condition attached to the extension), then an owner should have standing to enforce the Act.

They say that the Deed of Variation extending the term of the agreement benefited the Body Corporate by facilitating the exit of the former caretaker and also clarifying the duties required of any caretaker to the scheme (thereby reducing disputes).

Determination

I consider three of the issues raised to be within my jurisdiction:

1. whether a transfer fee can be imposed on a conditional extension;
2. if a transfer fee could be imposed, was it reasonable for the committee to do so; and
3. standing of the applicant to bring the application.

Fee on Conditional Extension

I am not persuaded by the argument that a fee cannot be imposed where the extension is given subject to certain conditions. It should be noted that the transfer fee is imposed on the transfer, not the extension. I have not received any argument that persuades me that the existence of a condition on the extension somehow taints the imposition of a transfer fee, where the extension is later perfected.

Further, the date on which the Body Corporate granted the conditional extension was 28 April 2006. Based on the wording of the new clause 3.6(b) there is no requirement that the contract entered into was unconditional or to be subject (only to) committee approval of the transfer and extension of the term. It is therefore arguable that the conditional extension became unconditional on 10 May 2006, when the former caretaker secured a contract of sale.

In any event, the date that the Committee approved the transfer was 28 June 2006. Therefore at the very latest, the approval of the extension could have been regarded as becoming unconditional upon approval of the transfer by the committee on 28 June 2006. The two events were, necessarily, simultaneous.

While no-one has specifically noted the date on which the former caretaker exercised their option to extend the appointment, as a technical point, the variation agreement was not executed until 30 June 2006. On that basis then, the approval of the transfer (with no conditions remaining to be satisfied) was 2 days before the term of the engagement was extended.

I do not regard the fact that the documented extension took place after approval of the transfer as fatal, as the sale of the management rights occurred all the same. Therefore given that this sequence was immaterial to the parties and is not more than 3 years after the date the committee approved the transfer, I cannot see any reason why the existence of a subsequently satisfied condition is relevant to the imposition of the transfer fee.

Decision of Committee to Impose Fee

Section 85 of the Standard Module states that, the Body Corporate may require the seller to pay the Body Corporate, a transfer fee. Section 85(6) gives specific examples of where the Body Corporate may choose not to impose the fee.

The applicant argues that it was unreasonable for the committee to impose the fee because:

•	the former caretaker did not receive any benefit from the extension;
•	the committee encouraged the former caretaker to sell;
•	the Body Corporate received the benefit of a more specific list of caretaker duties;
•	there is no evidence that the former caretaker’s solicitor had advised his client that a transfer fee was to be imposed;
•	evidence tendered that the issue of a transfer fee had not been discussed by the committee at the time the Deed of Variation to the Caretaking Agreement was being prepared.

One point that I cannot ignore in this matter, is that on 28 February 2006 the caretaking agreement expired. I note that, as the former caretaker did not live in the "North" complex, the Body Corporate could simply have ceased using the former caretaker and engaged someone else to undertake the caretaking duties. A fresh contract could have been negotiated with the new caretaker, incorporating the detailed list of duties.

The former caretaker had nothing to sell in relation to "North". So in my mind, providing the former caretaker with something to sell was quite an ungrudging gesture which has benefited the former caretaker in excess of $130,000.

I do not accept that the former caretaker was not aware of the possibility of a fee being imposed. The affidavits of the former caretakers make it clear they knew that a fee was possible. Further, one would certainly expect that their legal representative would keep them informed of such a development.

A submission by a former committee member indicates that at the early stages of negotiations, the imposition of a transfer fee may not have been discussed by the former committee. There is some contention that there is a tradition of not imposing a fee at the scheme. There is some contention that the new committee members were told that it was compulsory to pay the fee (however the person making this allegation was not present for the vote in relation to the transfer and imposition of a fee). No other committee member has made a similar allegation. There is also a contention that after settlement went through, committee members were told that any refund to owners would need to be made by a special levy.

It is documented that by the time the newly composed committee considered the issue on 28 June 2006, the issue of a fee was included in the motion. The contentions raised, lack either time relevance or corroboration. In the circumstances I feel compelled to rely upon the competence and awareness of the committee in imposing the fee.

In my view, the Body Corporate has taken steps it need not have taken, to benefit the former caretaker. The decision was made by the committee on an active basis. That decision was reasonable, given the benefit received by the former caretaker in the form of payment for an asset that had otherwise lapsed. The former caretaker proceeded to settlement, with their solicitor (at least) knowing the fee was to be imposed. I see no reason why the fee should not be imposed.

Standing of the Applicant to bring Application

The Adjudicator in Logandale Lakes made the following statement:

"Certainly he is an owner and, with the respondent being the body corporate, the parties are one of the combinations of parties to a dispute recognised under section 182 of the Act, namely section 182(b). However, merely meeting the dispute requirements of this provision is not sufficient; the parties must also establish that they have a sufficient interest in the dispute matter. For example, section 182(b) allows a tenant (occupier) to bring an application against the body corporate, but whereas, for example, a matter concerning their keeping an animal subject to the by-laws would provide standing, a tenant could not bring an application against the body corporate concerning who it chose to employ as a Body Corporate Manager, or an expenditure item in the body corporate budget. These are not matters a tenant has a proper interest in, and therefore no standing. For the same reason, I do not consider that an owner may bring an application for the benefit of another (past) owner and resident manager."

However, the final determination in that matter was based on the fact that the applicant had since sold his lot.

My decision will also be based on issues rather than jurisdiction of a current owner however I will observe that I do not regard the defence of one’s integrity as attracting jurisdiction. This is particularly so, when the former caretaker’s affidavits make it clear that the applicant did not "think" a fee would be imposed. He did not give any undertaking and therefore his integrity cannot be under attack.

Goods and Services Tax

I do not consider I have jurisdiction and will dismiss the order sought in that regard.

Costs

While I suspect the applicant’s solicitors have always considered this application to be marginal, given the extent of discussion I have entered into in relation to the issues raised by the applicant, I cannot quite classify the application as "frivolous and misconceived". I decline to dismiss the application as frivolous and misconceived or award costs.