Cleveland Terrace [2008] QBCCMCmr 4 (11 January 2008)

Last Updated: 22 February 2008

REFERENCE: 0588-2007

ORDER OF AN ADJUDICATOR

MADE UNDER PART 9 OF CHAPTER 6

BODY CORPORATE AND COMMUNITY MANAGEMENT ACT 1997

Number of Scheme:	20765
Name of Scheme:	Cleveland Terrace
Address of Scheme:	52-56 Island Street CLEVELAND QLD 4163

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

Madeleine Mionnet, the Owner(s) of lot 39

I herby order that, at the next general meeting at which it is practicable, the body corporate for Cleveland Terrace must hold a secret ballot to vote by ordinary resolution on whether "the body corporate should require payment of the transfer fee (in accordance with section 83 of the Accommodation Module) that can be required to be paid by Philmax (Qld) Pty Ltd (Philmax) to the body corporate due to its sale of the management rights to Geoffrey John Brown as trustee for the G & L Family Trust (Brown)". I further order that if the above motion is passed then the body corporate is deemed to have required payment of the transfer fee as a condition of approving the transfer and the body corporate must seek the relevant amount from funds held in trust by Philmax's lawyers. Alternatively, if the above motion is lost then the body corporate is deemed to have not required payment of the transfer fee and is to inform Philmax's lawyers that it consents to the release of the relevant amount to Philmax. I further order that the body corporate must distribute a copy of this order and reasons for decision to all owners.

STATEMENT OF ADJUDICATOR’S REASONS FOR DECISION - REF 0588-2007

"Cleveland Terrace" CTS 20765

Application

Cleveland Terrace Community Titles Scheme (Cleveland Terrace) is a 35 lot scheme under the Body Corporate and Community Management Act (Act) and the Act’s Accommodation Module Regulation (Accommodation Module).

This is an application by Madeleine Mionnet, owner of lot 39 (applicant) against the body corporate for Cleveland Terrace (respondent).

The background to the dispute is a transfer of management rights from Philmax (Qld) Pty Ltd (Philmax) to Geoffrey John Brown as trustee for the G & L Brown Family Trust (Brown). The applicant challenges an alleged decision of the committee to waive the payment of a transfer fee by Philmax.

Decision

Investigation and Submissions

Background

Minutes of a committee vote taken outside of a committee meeting indicate that, in July 2007, the committee voted to consent to the assignment of the caretaking and letting agreements from Philmax to Brown. These minutes also show that the committee resolved to waive the transfer fee that may be imposed in accordance with regulation 83 of the Accommodation Module.

The applicant lodged an interim order application challenging the decision to waive the transfer fee and seeking to have the amount held in trust pending a final determination. The applicant also sought to have herself appointed as secretary pending new elections.

No interim orders were necessary as Philmax's lawyers undertook to hold the applicable transfer fee amount in trust pending a final determination and the applicant was unable to establish grounds justifying her appointment as interim secretary.^[1]

The final orders sought were to invalidate the committee vote taken outside of a committee meeting, require the secretary to call a general meeting to allow owners to consider the transfer and imposition or waiver of fees, and to stop any future use by the committee of the procedures allowing a committee vote outside of a committee meeting except in an emergency. All owners have now been given the opportunity to make written submissions on the final orders sought.

Submissions

The grounds in support of the application, provided on behalf of the applicant, were to the effect that:

• The committee vote taken outside of a committee meeting did not comply with procedures;

• A committee meeting had already been scheduled so there was no need for a vote to be taken outside of the committee meeting;

• By voting without a committee meeting owners were deprived on an opportunity to comment on the motions and owners were not provided with full and accurate minutes of the meeting; and

• The committee did not act in the best interests of all owners when voting on the motions.

Submissions from the secretary were to the effect that:

• The committee made a decision to waive the 3% transfer fee. The fee would be a taxable amount and the committee believed the fee was an optional charge that may be applied;

• Extensive general discussion was undertaken by committee members and neither Philmax or Brown were present;

• As current secretary she was available and in regular contact with the committee members despite residing one hour away.

Submissions from the body corporate manager were to the effect that:

• There was no evidence of hardship from the outgoing caretakers;

• The timing of the committee meeting and the Notice of Voting Outside of a Committee Meeting was coincidence. The proposed purchasers were present for interview at the committee meeting on 5 July 2007 but a minimum seven day notice period was required for the Notice of Voting Outside of Committee Meeting so the period to 13 July 2007 was allowed.

Submissions from Philmax's lawyers were to the effect that they had the view that the committee had validly consented to the assignment without imposing a transfer fee and the application has no merit.

All owners were given an opportunity to provide written submissions. These submissions were to the effect that:

• There was discussion at the committee meeting on 5 July 2007 on waiver of the transfer fee for compassionate reasons but no discussion of the dollar amount involved. It is submitted that the committee members held a verbal vote at the time to waive the transfer fee but this was not recorded in the minutes;

• Owners should be told the amount of the fee and given an opportunity to vote on whether to waive the fee or require payment of the fee;

• When considering a transfer the body corporate should engage solicitors to advise the body corporate and act on its behalf and the costs of these solicitors are met by the outgoing manger. The body corporate should also request a federal police check of the persons that will be performing the letting agent duties and request sufficient information to ascertain the financial standing of the proposed assignees. A decision not to impose the transfer fee should only be made in a general meeting; and

• In the interests of owners, the decision to waive the fee should be reversed.

Further enquires

In investigating the dispute, I requested the committee members give details of their reasons for not imposing the transfer fee and for voting to waive any such fee.

Carl Reynolds informed this office that he voted to waive the transfer fee was that due to family reasons Phil and Maxine selling and due to the excellent job they did managing the complex. Terence Sheppard informed this office that he voted to waive the fee because Philmax had diligently performed their contractual duties, had cooperated with the committee to reduce costs and had maintained the complex in first class condition. He states that he therefore viewed favourably and accepted his claim of family medical reasons for selling the management rights. He says that he was not shown the actual claim but was informed of the contents. The third person voting, Lisa Williams, did not respond specifically to this query but had already made a submission indicating that the committee believed the transfer fee was an optional charge and would be taxed.

Issues for determination

Applicable law

The legislation includes provisions to the effect that:

• Management rights can be transferred only if the body corporate approves the transfer. This approval may be by committee resolution or by ordinary resolution (Accommodation Module 82(1), 82(2));

• The body corporate must act reasonably in carrying out its functions, including in making or not making a decision (Act, 94);

• The body corporate must not unreasonably withhold approval to a transfer of management rights and must not require or receive a fee for approving the transfer (other than reimbursement for reasonable expenses or a payment under section 83) (Accommodation Module 82(6), 82(7));

• If a transfer of management rights is requested within three years of the date the engagement was entered into then the body corporate may require a transfer fee of the relevant amount (Accommodation Module, 83); and

• The body corporate may not require the payment of a transfer fee if the transferor is seeking approval to the transfer on the basis of genuine hardship not reasonably foreseeable by the transferor at the date the engagement was entered into (Accommodation Module, 83(6)).

Findings

All submissions agreed in substance on the main issues outlined above. The main issues of contention related to the reasons for the committee voting not to impose a transfer fee and the circumstances of issuing a Notice of Voting Outside Committee Meeting when a committee meeting was held almost contemporaneously.

Regarding the reasons for voting, I accept that committee members variously took into account a view that the transfer fee was an optional charge, a high standard of performance by Philmax, and a claim of family medical reasons. These are the reasons provided by the committee members in question and I have no reason to doubt that those committee members acted honestly and for the reasons stated.

Regarding the circumstances of issuing the Notice of Voting Outside Committee Meeting I accept submissions from the body corporate manager to the effect that the close timing of the committee meeting and the issuing of the Notice of Voting Outside Committee Meeting was a coincidence. The body corporate manager appears to have had direct knowledge of the circumstances, provided a reasonably detailed description of the circumstances, and did not seem to have any direct financial interest in the outcome. I accept this evidence in preference to statements by the applicant that are more of the nature of conjecture or supposition. It seems to me to be entirely plausible that a committee meeting had been previously arranged and the holders of the management rights coincidently submitted the formal motions requesting consent to the assignment of the management rights at around about the same time as that meeting was being held.

Procedural issues

It may be preferable that significant committee decisions are made at committee meetings after notice to owners and full discussion of the issues involved. However, the legislation provides for committees to make decisions by a process involving a Notice of Voting Outside of a Committee Meeting (Accommodation Module, 33).

In this instance, it appears that committee members informally discussed the motions proposing the transfer of management rights at their committee meeting but then formally voted on the motions pursuant to the procedures for Voting Outside of a Committee Meeting. The applicant has failed to satisfy me that there has been any contravention of the legislation that would render it just and equitable to invalidate the results of the voting on a procedural basis. Similarly, the applicant has failed to satisfy me of any matters that would justify the removal of the secretary or a prohibition on using the procedures for Voting Outside of a Committee Meeting in the future.

Requirement to act reasonably

In terms of the decision itself, the question for me to determine is whether the committee failed to act reasonably when it consented to the transfer without imposing a transfer fee and, in fact, voted to waive the transfer fee (Act, 94).

A statutory requirement to act reasonably is satisfied if the decision is objectively reasonable.^[2] The test is an objective one that requires a balancing of factors in all the circumstances according to the ordinary meaning of the term ‘reasonable’.^[3] Some guidance can be taken from legal authorities that articulate principles including that:

• The expression 'reasonable' should be given a broad, commonsense meaning;^[4]

• The essence of a reasonable decision is that there are reasons for it that can be justified as being genuine and not wholly fanciful rather than justified by reference to some objective standard of correctness;^[5]

• The question is not whether the decision was the "correct" one but whether it is objectively reasonable. A "logical and understandable basis for the decision" is a factor in determining the reasonableness or otherwise of a decision but does not necessarily mean the decision is reasonable as important matters may have been overlooked or discounted;^[6]

• It is necessary to work out the real and true reason for the decision;^[7] and

• Normally, the decision maker is entitled to be guided by reference to the decision maker's own interests alone. However, there may be cases where there is such disproportion between the benefit to the decision maker and the detriment to other persons that a decision in the decision makers own benefit is unreasonable.^[8]

Having said this, there is no particular formula or test for reasonableness and the High Court has supported a view that a paraphrase can place an unwarranted gloss on relatively plain words applying a test of reasonableness.^[9]

Reasons put forward by committee members

At first glance, the reasons put forward by the committee members appear to be genuine and I do not wish to be critical of committee members who have volunteered their time to assist in the administration of the body corporate. In particular, I note that these persons appear to have been acting honestly and their decision making should not be judged by the same standard as a professional administrator. However, the decision to waive the transfer fee does appear to have been made very informally without a proper evaluation of the reasons for or against such a decision.

Specifically, one of the committee members has referred to waiver for family medical reasons while stating that he was not shown the actual claim but only informed of the contents. This being in circumstances where other committee members did not refer to medical reasons, the body corporate manager submitted there was no evidence of hardship, and no formal claim was made by Philmax that the transfer was due to genuine hardship. Reasons given by another committee member were simply that the fee was an optional charge and would have been a taxable amount. A liability for the body corporate to pay tax on a transfer fee is not a good reason for the body corporate not to request a transfer fee in the same way that a liability for the body corporate to pay tax on interest accrued is not a good reason for the body corporate to refrain from earning interest on its sinking fund account. If the explanation showed that the committee members had considered the interests of the body corporate and decided that the amount of the transfer fee would be negligible in terms of the body corporate's annual budget then that may be good reason for waiving the fee. However, having regard to the submissions from owners providing details of informal discussions by the committee members about the waiver of the fee and the reasons for the subsequent formal vote that these committee members have provided, I have been led to a conclusion that the committee members failed to adequately weigh up the interests of the body corporate in deciding to waive the fee. Rather, the committee members seem to have been unduly influenced by considerations of the high quality of the job the caretakers had done and family reasons that fall short of a claim of genuine hardship.

A committee member is in a position of responsibility and must vote in the interests of owners generally rather than just in their own interests. Specifically, a committee voting member must act in the best interests of the body corporate in performing the member's duties as a committee voting member (Act 101B, Schedule 1A – Item 3). If owners considering only their own individual circumstances decided that the benefit of a transfer fee was so minor that they would not impose it then I would not interfere with that decision. However, I have reached a conclusion that committee members failed to properly consider the interests of the body corporate when exercising their vote at the committee level and that this amounted to a failure of the committee to comply with the statutory requirement to act reasonably (Act, 94(2)).

Additionally, or alternatively, I have reached the conclusion that this failure by committee members to properly consider the financial interests of the body corporate in receiving the transfer fee is a circumstance that renders it just and equitable to require the body corporate to revisit the question (Act, 276(1)). This is particularly in the circumstances of the decision affecting all owners in terms of affecting the income of the body corporate and the evidence that some owners indicated at the time that they wanted to vote on the issue.

Just and equitable order

I am satisfied that it is just and equitable in all the circumstances to require the body corporate to revisit the question of whether to impose a transfer fee by way of a resolution of owners in general meeting rather than another committee meeting. This will give owners the opportunity to seek information about the amount of the fee and any special circumstances Philmax wishes to put forward to seek waiver of the fee. Owners can then make up their minds on the issue and are less restricted in exercising their vote than committee members who may feel constrained to impose a fee simply because that would be in the best financial interests of the body corporate.

In the circumstances, I will require owners to consider the question at the next general meeting at which it is practicable. As the matter is controversial I consider it preferable that the question be decided by secret ballot. Also, a copy of this order and reasons for decision should be provided to owners for their information.

Order

I note that the lawyers for Philmax have submitted that an order to the above effect is inappropriate as the assignment of management rights has already taken place and the committee had validly consented to the assignment without imposing a transfer fee. However, I do not agree with this submission. It is implicit within the decision to waive the transfer fee that a transfer fee not be imposed. It was this decision that was challenged by the present application prior to the transfer taking place. The transfer fee amount has been held in trust pending a final determination. It is appropriate to make an order at this stage to facilitate a decision on payment of the transfer fee even though the transfer has already taken place.

I therefore make the orders above.

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^[1] Cleveland Terrace, Order 0588-2007, D Toohey, 13 July 2007.
^[2] Greiner v Independent Commission Against Corruption (1992) 28 NSWLR 125.
^[3] Secretary, Department of Foreign Affairs and Trade v Styles [1989] FCA 342; (1989) 88 ALR 621.
^[4] Ashworth Frazer Limited v Gloucester City Council [2001] UKHL 59; [2001] 1 WLR 2180 at paragraph 5.
^[5] NCR Ltd v Riverland Portfolio No. 1 Ltd [2005] EWCA Civ 312 at paragraph 31; Ashworth Frazer Limited v Gloucester City Council [2001] UKHL 59; [2001] 1 WLR 2180 at paragraph 5.
^[6] Commonwealth Bank of Australia v Human Rights and Equal Opportunity Commission (1997) 150 ALR 1 at pages 34, 38.
^[7] Tamsco Ltd v Franklins Ltd [2001] NSWSC 205 at paragraphs 49, 54.
^[8] International Drilling Fluids Ltd v Louisville Investments (Uxbridge) Ltd [1986] Ch 513; NCR Ltd v Riverland Portfolio No. 1 Ltd [2005] EWCA Civ 312 at paragraphs 34 to 35.
^[9] McKinnon v Treasury [2006] HCA 45 per Hayne J at paragraph 61. Waters v Public Transport Corporation [1991] HCA 49; (1991) 173 CLR 349.