Admiralty Towers II [2008] QBCCMCmr 434 (21 November 2008)

Last Updated: 10 December 2008

REFERENCE: 0544-2008

ORDER OF AN ADJUDICATOR

MADE UNDER PART 9 OF CHAPTER 6

BODY CORPORATE AND COMMUNITY MANAGEMENT ACT 1997

Number of Scheme:	15344
Name of Scheme:	Admiralty Towers II
Address of Scheme:	501 Queen Street, Brisbane QLD 4000

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

Andrew Mason, the co-owner of Lot 11

I hereby order that the application for a final order – “1. that the motion of the EGM be declared invalid on the basis that it is contrary and unreasonable to all owners and not in their best interests pursuant to section 94 of the Body Corporate and Community Management Act 1997; and/or 2. that the motion of the EGM be declared invalid on the basis that it is contrary to section 104 of the Standard Module Regulations in relation to quotes for major spending.” is dismissed.

STATEMENT OF ADJUDICATOR’S REASONS FOR DECISION - REF 0544-2008

“Admiralty Towers II” CTS 15344

APPLICATION

This is an application dated 30th June 2008 and amended on 1st July 2008 by Andrew Mason, (the Applicant) co-owner of Lot 11, against the body corporate for Admiralty Towers ll (the body corporate) for an order that a motion put to an extraordinary general meeting on 2nd July 2008 is declared invalid on the basis that it is contrary and unreasonable to all owners and not in their best interests pursuant to section 94 of the Body Corporate and Community Management Act 1997; and/or that the motion of the extraordinary general meeting be declared invalid on the basis that it is contrary to section 104 of the Standard Module Regulations (sic) in relation to quotes for major spending.

The Applicant also sought an interim order as follows –

1. that the said extraordinary general meeting is postponed for two months; or in the alternative
2. that any resolutions made at the extraordinary general meeting are not to be acted upon until determination of this dispute.
   

On 2nd July 2008 I made an interim order in this matter in the alternative, dismissing the outcome sought at (a) above, that if either of the two alternative motions of Motion 1 were carried at the extraordinary general meeting, that the body corporate did not carry out or act upon the resolution, until the determination of this dispute; and that if an amendment was made to Motion 1 at the extraordinary general meeting and the amendment was carried, that the body corporate shall not act on any resolution relating to or affecting the engagement of Roma Properties Pty Ltd (Roma) until the determination of this dispute.

The Applicant has, since the interim order, withdrawn the second ground concerning the obtaining of quotations for “major spending.”

JURISDICTION

“Admiralty Towers II” Community Title Scheme 15344 is a community title scheme governed by the Body Corporate and Community Management Act 1997 (the Act) and the Body Corporate and Community Management (Standard Module) Regulation 2008 (Standard Module). There are 193 lots in the scheme created under a Building Unit Plan of subdivision.

The current Standard Module commenced on 30th August 2008, replacing the previous Standard Module that operated from July 1997 (Previous Module). A number of provisions of the Standard Module are the same, or substantially the same as provisions in the Previous Module despite the provisions having different section numbers. These provisions are generally to be dealt with as replacements of the similar provisions of the repealed legislation and anything done under the Previous Module will not generally be affected by the commencement of the present Standard Module (sections 209 -216, section 20 Acts Interpretation Act.). Where relevant, references will be made to the Previous Module in parentheses.

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 authorization 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)).

SUBMISSIONS

The Applicant, through his lawyers Herdlaw, explains that the body corporate was party to a caretaking agreement and letting authority for a term of three years commencing on 26th March 2005. The benefit of the contracts was assigned to Roma. The contracts contained provision for an option in favour of Roma to extend the agreements for two further periods each of three years. Roma failed to exercise the first option to commence on 26th March 2008 “and accordingly the agreement has now expired by effluxion of time.” Roma has continued as de facto manager on a month to month basis, although there is no resolution of the committee minuted which appears to have authorised this process, nor has the on-going expenditure been authorised.

At a meeting of the committee held on 12th May 2008, the committee decided to put a motion to a general meeting “to formalise the re-commencement of the option term contained in the caretaking agreement and letting authority from 26th March 2008, as the exercise of the option commencing on 26th March 2008 was not properly exercised.” A general meeting was convened for 23rd June 2008 and the motion proposed was for “a term of 3 years commencing on 26th March 2008 together with two options of three years each with the remuneration for the first year being $205,823.76 plus GST. The Deed of Engagement and Authorisation is on the same terms as the original caretaking agreement and letting authority (as varied by the deed of variation dated 4 July 2007.)”

The minutes of that committee meeting state that the motion and explanatory notes, as well as the proposed new draft contracts had been settled by the body corporate’s solicitor Teys Legal. The committee also voted to send with the notice of the general meeting “legal advice received from Ros Janes and general advice from Herd Law (sic) attached to the agenda.”

On 23rd May 2008, the Applicant submitted his own motion, to be considered as a motion in the alternative, that the body corporate enter into new caretaking and letting contracts with Roma but for a term to expire on 25th March 2009, with no options to renew, but otherwise on the same terms and conditions as the previous agreements; and that the body corporate should call for expressions of interest and proposals for caretaking and letting services from tenderers to be determined at a general meeting held by end February 2009.

The Applicant attached an explanatory note to his motion saying that owners should not be bound to Roma until 2017 without proper investigation of the alternatives. He also pointed out that the Teys Legal advice received by the committee came from lawyers with interests in strata title management; that the caretaking budget is one-third of the administration budget; and that a long-term commitment in uncertain financial times is inflexible and not in the best interests of lot owners.
He asked owners to consider alternatives in their own best interests. His explanatory note ended: “Vote to extend only to March 2009.”

On 2nd June 2008, the committee decided by voting outside a committee meeting to include the Applicant’s motion on the agenda, but also to overturn its previous motion of 12th May 2008. It resolved instead to call the extraordinary general meeting on 2nd July 2008 and at the same time, the committee decided that “the explanatory notes proposed by the proposers of the alternative motions and the committee’s explanatory schedule, and further the specific legal advice provided to lot owners by Ros Janes of Teys Legal is to be included with the meeting material.” The “general advice” from Herdlaw, referred to at the committee meeting on 12th May 2008 was not mentioned, and when the notice of the general meeting was sent to lot owners, was not included.

The agenda, when it was received, contained one motion headed “Engagement of service contractor/Letting agent” and submitted by the committee. The motion was that the body corporate enter into a deed of engagement and authorisation with Roma “as circulated with this motion.” The alternatives (a) and (b) were shown as submitted respectively by Roma as the owner of Lot 3, and by the Applicant, as owner of Lot 11. Roma’s alternative (a) was framed thus:

“Alternative Motion (a)

For a term of 3 years commencing on 26th March 2008 together with two options of three years each with the remuneration for the first year being $205,823.76 plus GST. The Deed of Engagement and Authorisation is on the same terms as the original caretaking agreement and letting authority (as varied by the deed of variation dated 4 July 2007).”

The Applicant’s alternative (b) was as follows -

“Alternative motion (b)

For a term to expire on 25 March 2009, with no options to renew, but otherwise on the same terms and conditions as the previous Agreement, which expired on 25 March 2008 and immediately call for expressions of interest and proposals for the provision of caretaking for the building and or (sic) letting services for unit owners, for the period beyond 26 March 2009, to be submitted to the Body Corporate by 30 September 2008, and thereafter circulated to unit owners by 15 October 2008 for their consideration and determination at a general meeting to be convened on or before 28 February 2009”

On 25th June 2008, the Applicant wrote to the secretary and the body corporate manager asking about the omission of the legal advice from Herdlaw. He also noted that the advice from Teys Legal was “less than satisfactory” and contained “inaccurate information” and offered “a limited perspective.” He said that the advice was not adequate to enable owners to form a balanced opinion of the options available. He asked the committee to postpone the EGM until such time as the “owners receive an alternative legal opinion, not just on general terms, but addressing the options available fairly and in sufficient depth to facilitate a vote based on full information.” He did not receive a reply to this letter until 30th June 2008 by which time he had lodged this application. The reply from the committee explained that on 2nd June 2008 the committee had resolved to overturn the previous motion to send out the Herdlaw advice, since it was not specific to the scheme and owners could not compare “apples with apples.”

Owner Michael Pinnock also wrote to the chairman on 12th June 2008 when he received the notice of the EGM. He said:

“It is insulting that you have used our money to pay for a legal opinion to beat down an alternative motion from another owner, written by a firm which supports Roma Properties.”
He also sought a postponement and a truly independent legal opinion. He found Teys Legal to be an inappropriate choice “given their ties to a group which sells management rights.”

The Applicant says that most owners would assume that Teys Legal is an independent firm, when that is open to doubt. Non-resident owners would be unable to discuss this issue and will be voting by post. The large majority will not have any legal qualifications and will rely on the accuracy of the advice from the “independent solicitor.” The Teys Legal letter “outlines a number of arguments, all of which seem to favour the Roma... motion” and concludes this is the recommended option. The “main issue” is that owners would be misled if they rely solely on the Teys Legal advice.

The Applicant says that the Teys Legal advice refers to a threat to security if the Applicant’s “alternative (b)” is chosen. He says that the argument appears to be that because closed circuit security monitors are located in the manager’s office, the body corporate would lose the ability to monitor its security. That seems far-fetched, and Teys Legal does not explain in detail how that would be the result of voting for alternative (b). It implies that Roma could somehow bar entry to the Manager’s office, but this would clearly be contrary to by-law 35 of the scheme which allows the body corporate to revoke the exclusive use of the manager’s office, which is common property. The security system is also the property of the body corporate, (as set out in By-law 30). It would be “commercial suicide” for Roma to attempt such “brazenly outrageous conduct,” and Roma could be restrained by an injunction if it tried this, which seems most unlikely. Teys Legal arguments “are put in shadowy and deceptive form” and are “little short of fanciful.”

Further, the exclusive use areas granted to the caretaker for storage and offices “subsist only whilst the manager and letting agreement referred to in by-law 35 remains in force.” He says arguably, the right to use those areas has already come to an end. The contract has come to an end or Roma would not be seeking a new contract.

Teys Legal also suggests that there is no financial advantage to alternative (b). This involves a misconstruction of the effect of section 113 Act. Teys Legal says that if the body corporate attains an advantageous tender for caretaking services, lower than “the market value for such a service”, the lower tenderer could, after entering into the agreement, sue the body corporate for the difference. Again, this is a far-fetched argument. The body corporate may go back into the market once an agreement expires to enable it to find a competitive rate. Teys Legal’s interpretation of section 113 would defeat the purpose of limitations upon the duration of the term of such contracts. Furthermore, section 114 Act expressly allows the body corporate to be paid an amount representing the fair market value of an entitlement conferred by the body corporate in favour of the service provider eg. rent of common property for an office.

At the same time, Teys Legal says that the amount paid to Roma is fair and possibly even low. The Applicant says that the true position is “likely to be the contrary”, since a tenderer can cast a significantly lower tender if they are not having to pay the developer for management rights. Comparing rates of other buildings does not provide a proper guide to market rate without consideration of assets, for example, the use of common property without paying a rent. Teys Legal points out that the contracts were re-negotiated three years ago, but they were not exposed to the market for competitive tenders. Such arguments seem calculated to induce owners “to act on an entirely false concern.”

The Applicant is also concerned that the Teys Legal advice has gaps in it. Alterative (a) “seeks to confirm exclusion of the body corporate’s right to refuse exercise of the option for the second renewal if the body corporate is unsatisfied with” Roma’s performance, and Teys Legal does not remark on this. Teys Legal also says that the agreement and the remuneration is “very reasonable” but provides no evidence to support that opinion.

It would be difficult to make comparisons because there have been no tenders for management rights for a building of this scale “uninfluenced by the payment of a substantial capital premium for the grant of such rights from the Developer.” He finds Teys Legal view that voting for alternative (b) could cause “considerable turmoil” to be a “spectre of disruption” without grounds.

Finally, the Applicant says that Teys Legal has a conflict of interest in providing the legal advice, even though “it is ...unnecessary for the purposes of this dispute application to arrive at a finally concluded view about such matters.....”

On 30th May 2008, Teys Legal advised the committee not to include the Herdlaw advice in the EGM papers. This gave no balance to the Teys Legal advice which was “likely to be very influential with owners.....” who are non resident. The Applicant says:-

“Voting decisions..... will be tainted by the Teys legal letter of advice”; and

“I think that owners may have a justifiable apprehension that..... a majority of lot owners are likely to act in accordance with the Teys advice.....”

Explanatory notes as submitted by Roma and the Applicant were sent to all lot owners with the notice of the meeting. In its explanatory notes, Roma says that one year contracts are unworkable and provide no stability for the body corporate, and that since the tenderer must live on site, tendering for management rights “does not work.”

At the EGM, the vote was 119 in favour of the substantive motion with alternative (a) receiving 83 votes and alternative (b) receiving 36 votes. The vote was by secret ballot and a returning officer was engaged.

In accordance with section 243(2)(b) Act, submissions were invited from all a lot owners. Submissions were numerous and voluminous. There were 35 submissions supporting the body corporate, and nine submissions in support of the Applicant. One submission was simply in favour of postponing the EGM. In brief, the arguments advanced were as follows-

Those submitters who support the body corporate say generally, that -

• the Applicant has done no costings in the event of the alternative motion being successful;
• the vast majority of people are happy with Roma’s services;
• the vote was clearly in favour of keeping the contracts as if Roma had exercised the option;
• it was a vote for common sense and everyone understood what they were voting for;
• the agreement was comprehensively revised in 2005, and explanatory notes put to an extraordinary general meeting on 22nd March 2005. In June 2007 the then managers wanted to sell their management rights and asked for the stringent clause about exercising the second option to be varied to attract buyers. A new committee agreed to the variation, and it was overwhelmingly approved by owners at a general meeting on 28th June 2007;
• management rights for the building cost about $3 million, and banks will not approve finance unless there is a 9-year term, the maximum permitted under the Standard Module;
• the suggestion that managers are able to obtain financing on a 12-month basis is commercially unrealistic;
• the body corporate committee has acted responsibly and ethically in upholding the existing contracts;
• to discard the vote at the EGM is a breach of natural justice;
• the information received from Teys Legal was not factually incorrect;
• this is the second time in 12 months that there has been an extraordinary general meeting about management. On both occasions owners fully supported motions endorsing Roma;
• the explanatory material could be easily read and evaluated on its merits, and owners could also have obtained their own legal opinions if they were concerned or suspicious of the Teys’ advice;
• much of the application is supposition and innuendo.
  

Submitters who support the application say generally, that:

• Roma is in breach of its contract, and therefore unable to seek an “equitable remedy.” The breach is a change to the configuration of the board by the appointment of three new directors as of 17th March 2008, without obtaining the consent of the body corporate;
• Teys Legal advice did not explore the benefits to owners in keeping Roma’s contract on foot;
• if all the facts were presented to owners, the vote may have gone in favour of exploring all the options available and Roma could also have tendered;
• the committee is not making effective decisions; has branded those who do not agree with them as troublemakers; and should not have allowed the variation to the contract in 2007. The committee acts secretively. The committee acts highhandedly;
• it was a golden opportunity to re-negotiate the contract;
• the committee should have tested the remuneration level of the old contract by putting the contract out to tender which would have been in the best interests of the owners;
• Teys have commercial interests in strata property management. Teys might be interested in acquiring the management rights at an inflated remuneration, and therefore would advise not to put the contract out to tender, if such exposure allowed the rate to drop;
• many owners would have voted for Roma because they would have more to gain personally, rather than supporting the “collective” interests of all owners in reducing the caretaking fees;
• owners have not been given sufficient time or accurate information on which to base the important decision re. the award of a 9 year contract with no option to cancel it if the performance of the caretaker proves unsatisfactory;
• the committee did not tell owners about the failure to exercise the option and what the Committee proposed to do about it. Owners were kept in the dark until they received the minutes of the committee meeting of 12th May 2008;
• there are no minutes showing that a month to month agreement was resolved by the committee;
• there is no committee minute that the committee was to seek a legal opinion from Teys Legal or any other solicitor.
• Teys Legal advice to the committee on 12th May says that the committee is under no obligation to offer a new contract to Roma, yet this information was not in the letter of 30th May to lot owners;
• the act allows for a month by month hold-over for up to 12 months. There was therefore no hurry to hold an EGM, and there could have been more discussion;
• it would have been prudent to get two quotes even though not required by law;
• Roma was able to put in explanatory notes to “oppose and raise doubts about Alternative b)” after the Applicant had submitted his motion. This process is unorthodox, unfair and prejudicial;
• It is not certain that proxies were not counted. The minutes for the EGM state: “Chairman declared that the valid proxies and voting papers be accepted.”
• the information distributed by the body corporate was extremely biased and contained inaccurate information such as to render the result of the vote “ unrepresentative of the true requirements of the owners.” Teys Legal tried to frighten the owners by stating that if the management rights contract was not renewed [with Roma] the owners would not be able to reclaim vacant possession of the manager’s office;
• it was minuted at a committee meeting of 12th May 2008 that the advice from Herdlaw would be distributed with the notice for the EGM and it was not. The Herdlaw advice was general in nature and informative, and did not favour one outcome against the other;
• to reinstate Roma on the basis of the expired contract makes no commercial sense, and the body corporate should have the benefit of renegotiating the contract;
• the EGM was called without lot owners having independent advice and was not fair or transparent;
• there was a large sympathy vote for Roma at the meeting;
• the EGM was not alerted to the interim order;
• Teys Legal obtained Roma’s approval for the final draft, so it is not impartial;
  

Roma Properties, (described by its solicitor Hynes, as the Respondent which is not the case), says that the application is frivolous and vexatious. It says that there is no detriment to lot owners since alternative (a) only seeks to put Roma in the position it would have been in if it had exercised the option. It explains that the body corporate had no discretion not to allow the option under the existing contract.

Roma is concerned that it risks losing a very valuable asset by its neglect to exercise its option. When it failed to exercise the option to renew, it wrote to the body corporate on 7th April 2008 and asked it to consider a new agreement on identical terms, and that meanwhile, Roma should continue on a month to month basis. Roma offered to pay for the general meeting at which the new contract would be proposed. Roma says that the body corporate was right to seek legal advice about such a proposal; that Teys Legal is an experienced and creditable law firm; and that there is no basis to the claim of a conflict of interest.

With respect to Teys Legal advice being circulated as ‘explanatory material’, Roma submits that (former) section 42C Standard Module should be read in conjunction with the (former) section 87 Standard Module where it is a requirement on the engagement of the caretaker that “material forwarded to members of the body corporate for the general meeting...includes” the terms of the engagement or authorisation including when the term begins and ends and the terms of any right or option of extension or renewal, (former section 87(2)(c).) The “inclusive” provision envisages that there might be other material also forwarded to lot owners. Furthermore, the committee acted reasonably in obtaining the advice so the circulation of that seems to be “the very type of explanatory material contemplated by sections 87(2)(c) and 42C(7).” Moreover, if the committee did not strictly comply then that would not necessarily “invalidate the vote.”

In respect of the allegation that the Teys Legal advice influenced the vote, Roma says that the Applicant and others “had ample opportunity” to circulate their own material between 6th June 2008 and the date of the EGM, and that anonymous material was also circulated. It provides copies of this material. Roma was able to send answers to much of this anonymous material, and it has annexed to its submission copies of Roma’s response. Therefore, there was extensive material available before the EGM. Relevantly, it says that there are no submissions from owners who say that they were misled, or felt misled. Roma seeks costs of $2,000, towards it legal fees of $5,000, since the application is without any substance.

Roma provided a copy of the ‘Herdlaw advice’ as “Attachment “F” to its interim submission. It says that the Herdlaw advice is not specific to the scheme and is generic in nature. Roma says that “if the circulation of the Herdlaw material was of such utmost importance... the Applicant could have simply circulated this document himself.”

The body corporate committee through its lawyer Teys Legal, says that the purpose of the EGM on 2nd July 2008 was either to re-appoint Roma as if they had exercised the option; or re-appoint Roma for one year giving the committee a mandate to seek other arrangements. As a motion with alternatives, explanatory notes were included. The committee also included a separate explanatory schedule, and the proposed new contracts were circulated. The new contracts carried details identical to the amended contract and the updated remuneration in accordance with the current contract.

The body corporate says that the Applicant does not understand that the terms of the contract were already amended at a prior extraordinary general meeting on 28th June 2007, and that there was no change to the terms of the new draft contracts other than that the previous changes were incorporated. Clauses 12.2 and 12.3 of the original contract had already been deleted, removing the body corporate’s absolute discretion as to whether to exercise the option or not.

That provision was removed from the contract by deed of variation on 4th July 2007. In Teys Legal’s advice, this is not mentioned since it is not applicable. In addition, the remuneration was negotiated in 2005, so the Applicant’s background information is wrong. The remuneration is not the original remuneration paid to the developer but remuneration remains the same as if the option had been exercised.

The body corporate denies that Teys Legal is not independent, saying that the “pros” and “cons” of the two alternatives were set out in the advice. Whilst a recommendation was made, it says that “there was no specific instruction to vote in favour of a particular alternative.” Further, “[T]he legal advice .... did not in any way suggest that the only alternative was alternative motion (a). ...Lot owners were entitled to make up their own mind...(sic).”

Further, the Applicant has provided no proof that owners were misled, and says only that there was ‘a likelihood’ that they might be so. Since owners had explanatory notes from the proposers of both motions, they are intelligent enough to make up their own minds.

With regard to the point about security, the body corporate denies saying that it would be powerless to have security of the building if it did not continue to engage Roma. Teys Legal advice pointed out only that if Roma terminated “immediately”, the building’s security could be compromised in the short term. It says that it is “patently obvious” that if an on-site manager is terminated “abruptly” there is going to be “considerable turmoil in the short term and in all likelihood expensive litigation in the long term” which is not a situation which any owner would want.

With regard to the exclusive use of the office area, and the Applicant’s suggestion that the agreement has already expired, the body corporate says that “the interim order confirms Roma as the de facto caretaker”, and that Roma has continued its duties since March 2008 without a contract. The advice raised the issue of ownership of Lot 3 and its exclusive uses. It is not a simple matter to “hand it back over” as the Applicant suggests. The by-laws must be read in conjunction with section 178 Act (review of exclusive use by-laws), section 180 Act (limitation of by-laws); section 318 Act (prevention of contracting out.) It says- “All these matters need to be considered and weighed up and considered (sic) by lot owners.”

With regard to the Applicant’s view about the rate of remuneration, it argues that section 113 Act might prohibit engaging someone below the market rate. The committee required this to be mentioned because there was “feedback” that the caretaking services could be obtained for $100,000. Teys Legal consulted ARAMA, the resident managers’ association, and found current remuneration to be in the region of $270,000 to $310,000 plus GST for such a scheme, plus more for extensive office hours. Admiralty Towers ll is therefore paying “ at the lower end” of the scale.

The body corporate denies that the Teys Legal advice was biased, misleading or inaccurate, and says it would be “highly unusual” to include two legal opinions in material for a general meeting.

With regard to the legal advice being circulated as explanatory material, the body corporate argues that the material sent complied with (former) sections 42, 42A, 42B, 42C, 79, and 87 Standard Module. The committee may provide explanatory material in a separate schedule if is general information that does not relate to a particular motion “or information relating to a motion.” (former section 42C(7)). It says the explanatory material was in compliance with (former) section 42C(7).

Finally, the body corporate says that it has acted reasonably under section 94(1) Act. There is no change to Roma’s existing rights, and Roma requested the EGM at its expense.

The Applicant exercised his right of reply. It says the issue is as follows: Was the Teys Legal letter properly included with the notice for the EGM? And was the content unbalanced, inaccurate and misleading?

The Applicant says that the inclusion of the Teys Legal advice was a breach of the committee’s obligation to act fairly. The opinion should not have been sent because it was “inappropriate” to send such extensive material relating as it did to a particular motion and favouring one alternative strongly over another. In addition it was unbalanced and misleading.

It says that the advice was not “appropriate background information,” as the body corporate says it is, since it is “plainly biased in favour of Alternative Motion A.” In order to act reasonably, the committee should have ensured that the material was balanced, accurate and fair, which the advice was not.

Alternative A was the committee’s own motion in substance, the wording of which it had resolved at the committee meeting on 12th May 2008. The committee was not a neutral party and its motion was put in the name of Roma. Further, Teys Legal had accepted a retainer from the committee, so it was not independent. Teys Legal was aware that the committee had already formed an intention to proceed along the lines of Alternative A. Teys Legal was therefore in a position of conflict between a duty to the committee and a duty to lot owners.

The committee’s substantive motion had an unfair advantage by the committee being able to give an explanatory note in the guise of the legal opinion, in very much more than the 300 words to which Roma and the Applicant were restricted by (former) section 42C(4)(b) Standard Module. Since Roma’s alternative was the same as the committee’s substantive motion, Roma and the committee had the advantage. The advice was not incorporated as part of the committee’s
“explanatory schedule” but as a ‘stand alone’ document.

The Applicant says that whilst section 42C(7) (now section 73(7)) Standard Module is not very clear, it appears that explanatory material from the committee can only be the following:

– an explanatory note for a motion it submits to the meeting;
– general explanatory material if it does not relate to a particular motion;
– information of which it is aware and voters should have available to them such as background information which is not explanatory material.

The background information and the explanatory material are to be treated separately. He says-

“One may infer that the material was collated in a way that was designed to create the impression that the Teys Legal letter 30 May 08 was given independently of the position of the committee in that documents were separated and the advice was addressed to the owners, rather than the Committee, whereas the true position was that Teys Legal had, from the outset, been engaged to advise the Committee to further the Committee’s objective of achieving the result consistent with Alternative Motion A.”

If it can only be justified as part of the committee’s explanatory schedule, then that was not the case here as it was separate.

The Applicant notes that Roma made the same points. Roma calls to aid (former) section 87(2)(c) Standard Module, because that section states that other documents may be included. The Applicant says this is an erroneous argument and that it is not necessary that the word “includes” has an ‘expansive effect.’ Section 87(2)(c) is not a definitive provision. It just refers to other material that might in the legislation also have to be sent where there is a change of caretaker and Section 42C is quite separate.

In respect of the alleged conflict of interest, the Applicant says –

“...it seems tolerably clear that Teys Legal as the wholly owned subsidiary of Teys Limited was tainted by the business model and propositions fundamental to the success of it as detailed in the Teys Prospectus. Alternative Motion B advanced by the Applicant ... directly challenged the fundamental assumptions which the Teys Prospectus urged upon the stock market, the acceptance of which was vital to the commercial interests of both Teys Legal Pty Ltd and Teys Ltd as its 100% owner.”

Teys Legal also had a duty to its client, the committee, “which would be in conflict with its obligation to provide objective advice.” The committee had a “determined and partial approach” to the decision upon which advice was to be given. Owners were entitled to impartial advice which they did not get.

The Applicant says that no satisfactory answers were given in the submissions about the Applicant’s complaints about the unbalanced advice. Teys Legal denies the allegations of lack of independence but without support, and does not address the Applicant’s particular complaints.

Teys Legal advice also says that the “pros and cons” were set out, but this heading was “ entirely misleading “ because “A” was all positive, and “B”, all negative. The advice failed to explain to lot owners that voting for alternative A would “ lock owners into a contractual arrangement under which owners would have no opportunity to renegotiate either the terms or costs of such arrangements until 2017.” He says: “An alternative approach might lead to a transaction on more attractive and less expensive terms.”

Further, the advice did more that make a recommendation. The advice was strongly in favour of alternative (a). The secret ballot makes it “impractical” to produce evidence as to cause and effect. He says –

“Where a material misrepresentation is made the law will infer that a party to whom the representation was made is likely to have relied upon it.”

It is “unrealistic” to say that the outcome of the vote was not influenced by this document, and the Applicant’s explanatory notes being only less than half a page could not balance this, as suggested.

Teys Legal advice was “scaremongering” and the body corporate makes only a faint attempt to justify this. It refers in its submission to “an immediate termination of Roma” but the advice did not refer to “immediate termination,” but said “ there should be no compromise to the security of the building...” Neither of the motions sought “an immediate termination of Roma” so it is “ detached from reality.”

The body corporate’s argument that sections 178, 180 and 318 Act could have some bearing on the problem is without merit because it overlooks (former) section 91(5)(e)(ii) Standard Module which explicitly provides that an occupation authority conferred on a service contractor terminates immediately. There is no need to consider section 178 Act anyway since section 178 Act has “no reverse operation.”

Teys Legal advice did not consider the opportunity to charge rent for common property areas in the “pros”, and this is a “ potentially significant aspect.” The advice also did not mention section 114(3) Act in advice, which is an important qualifier to section 113 Act. It therefore did not fairly present considerations which should have been drawn to lot owners’ attention.

In respect of the ‘spectre’ of section 113 Act, if Roma’s remuneration is already most competitive, then the body corporate is not likely to find anyone cheaper, and Roma would suffer no disadvantage in tendering for the position. The Applicant says that it is “likely” that Roma’s rates are “substantially above” the rate that would be established by open market tender.
The explanation of comparisons of remuneration also show an inexpert and flawed process. There is no data on which to support the figures given and the analysis is unsound. He contends that the current remuneration includes an element for the cost of the management rights to the developer.

In respect of the Herdlaw advice not being sent out, he says that the committee was left with two opinions and made no attempt to reconcile them. The ‘distinct impression’ is that it sent out the one it favoured which was an unbalanced and partisan approach. The committee might also have been led into error by the advice.

Roma says that Teys Legal is independent of Teys Ltd which even Teys Legal does not try to say. Teys Legal’s prospectus shows that it is a wholly owned subsidiary of Teys Limited. Teys Legal is therefore not independent in the true sense of the word even if “in the barest way only” it is a separate legal entity. The prospectus refers to promoting caretaking and letting management. Roma says that it would mean that Teys Legal has a conflict on every strata matter on which it advises. The Applicant says that Teys Legal had a conflict in this case because the promotion and success of the Teys Ltd stock exchange float was explicitly based upon the argument that unit owners could be categorised, for business purposes as “captive clients.” The Applicant says that Alternative Motion B presented a potential challenge” to the concept that the Teys model was “based on stable and reliable as opposed to volatile income.”

Roma submitted that the Applicant could have circulated material. The Applicant says that it is not fair for him to have to counteract biased and unbalanced advice with his own legal advice separately obtained at his own trouble and expense. In addition, lot owners might already have voted by the time he could have circulated it. The Applicant says that the anonymous material was not provided to non- resident owners, whereas Roma’s material probably went to “ all investors” as they are mentioned in it, and Roma has the addresses of the investor owners.

In conclusion, the Applicant says that the best interests of owners are not served by saying they are no worse off if they are put back in the original position, as if the option had been exercised. He says that if Roma had tried to exercise option “ real questions would have arisen as to the entitlement of Roma to exercise the option” although he admits that this is speculative.

The Applicant’s complaint is that the outcome is tainted. The Applicant cannot prove that the advice swayed the vote, but that was the committee’s purpose. He refers to equitable remedies for “unconscientious (sic) conduct”, and provides legal authorities on equitable relief for material representation on an inducement to enter a contract. Teys Legal advice contained “significant matters of non-disclosure and misrepresentation” as well as failure to acknowledge conflicts. Roma was also “guilty of unconscionable conduct in seeking to retain at the expense of lot owners the benefit of the breach of duty owed to lot owners by Teys Legal and the committee.”

The committee failed to exercise care when it supported Roma, and fell victim to its desire to encourage a vote for Roma. It instructed Teys Legal to give a partisan opinion instead of leaving it between Roma and the Applicant, and the committee withheld the more balanced advice written by Herdlaw. The process of convening the meeting miscarried because of this. It would now be impractical to reconvene the meeting and the Applicant asks that I allow the alternative motion to proceed with the engagement of Roma instead ending on 30th June 2009.

DETERMINATION

This application seeks the invalidity of the motion put to the EGM on 2nd July 2008 on the basis that it is, of itself, contrary and unreasonable to all owners and not in their best interests pursuant to section 94 of the Body Corporate and Community Management Act 1997.

The Applicant in fact advances grounds that the notice of motion was accompanied by a legal opinion commissioned by the committee, which purported to be ‘explanatory material’, but was drafted in such a way so as to prejudice the vote on the motion.
In his Reply, the Applicant says that the issue in dispute is this: Was the Teys legal letter dated 30th May 08 properly included with the notice for the EGM? And was the content unbalanced, inaccurate and misleading?”

This argument extends the Applicant’s basic premise that the motion put to the EGM was “contrary”, “unreasonable” and not in the best interests of lot owners pursuant to section 94 Act.

Section 94 Act states -

94 Body corporate’s general functions

(1) The body corporate for a community titles scheme must—

(a) administer the common property and body corporate assets for the benefit of the owners of the lots included in the scheme; and

(b) enforce the community management statement (including any by-laws for the scheme); and

(c) carry out the other functions given to the body corporate under this Act and the community management statement.

(2) The body corporate must act reasonably in anything it does under subsection (1) including making, or not making, a decision for the subsection.

This is not a matter about whether or not Roma are good caretakers; or whether the committee of 2005, or 2007, should have done things differently. Many submitters referred simply to their preference for Roma, or recited general grievances against the committee or former committees for the scheme. This application was made before the result of the vote at the EGM was taken and counted, so it is not the outcome of the motion that the Applicant seeks to invalidate, but the motion itself.

As I see it, it is my task to decide if the motion was contrary to section 94 Act; and if the material sent with the notice of motion was an action of the body corporate which was not ‘reasonable’. If either of those matters is decided in the affirmative, I must then look what effect a motion which is of itself contrary to section 94 Act has; or what effect an action of the committee, or body corporate, which is not a ‘reasonable action’, has.

The wording of the committee’s substantive motion put to the EGM was that the body corporate resolves to enter into a deed of engagement and authorisation (with annexed caretaking agreement and letting authority) “as circulated with this motion” with Roma, and that the committee could execute the agreements. Alternative (a) submitted by Roma commenced “for a term of three years commencing on 26 March 2008...” and included two options each of three years, and stated that the deed “ is on the same terms as the original caretaking agreement and letting authority “ as varied by the deed of variation dated 4 July 2007.” Remuneration of $205,823.76 Plus GST for the first year was stated. Alternative (b) submitted by the Applicant commenced “for a term to expire on 25 March 2009, with no options to renew, but otherwise on the same terms and conditions as the previous agreement.” It also provided for the calling of expressions of interest for the period after 26 March 2009.

I see nothing intrinsically wrong with the wording of the motion and the two alternatives. The result desired by each alternative is clear. There is only one contender for the engagement of service contractor/letting agent, and that is Roma.

When the body corporate considers a motion for the engagement of a caretaking service contractor, which must be at a general meeting, section 114(2)(c) (formerly section 87(2)(c)) Standard Module requires that the terms of the engagement at least as to the term of commencement and end is circulated, as well as the term of any right or option of extension or renewal. This was done, and a copy of the draft contracts also circulated, as is common practice.

A motion with alternatives also requires that “an explanatory schedule” is sent out with the notice of meeting. (Section 73(1)(c) Standard Module.) This is no more than an explanation by the committee of how to vote for a motion with alternatives. (Section 73(4) Standard Module.)
This was also provided by the body corporate. If the submitter of the motion has given the body corporate an explanatory note about his or her alternative, then that must also be given in the “explanatory schedule” provided it is no longer than 300 words. The “explanatory schedule” must contain only explanatory notes written by the submitter of the motion and as required by the remainder of section 73. (Section 73(6) Standard Module). Again, this was done.

There is therefore nothing wrong with the wording and explanatory notes on the explanatory schedule, and the explanation of how to vote at a secret ballot for a motion with alternatives. The committee also enclosed an explanatory schedule entitled “Committee’s explanatory schedule” wherein it explained that the substantive motion was one that would “formalise the re-commencement of the option term contained in the caretaking agreement and letting authority from 26 March 2008, as the exercise of the option commencing on 26 March was not properly exercised.” It also generally explained the result of alternative (a) and alternative (b).

Whilst I find this explanation slightly coy, it is clear what the result of voting for the motion and either of the alternatives would be from the “explanatory schedule” and the “committee’s explanatory schedule.” The committee also referred in the ‘committee’s explanatory schedule’, to ‘independent legal advice’ obtained by the body corporate, and circulated “in the meeting material” and said that the cost of the EGM “together with the independent legal advice obtained by the body corporate... will be met by Roma.”

There is objection by the Applicant to the circulation of that legal advice. Without the legal advice which I will consider below, there is nothing objectionable about the wording of the motion or the explanatory schedules, that is, there is nothing “contrary and unreasonable to all owners” in the proposals themselves. Lot owners were free to vote for either alternative, the result of each being clearly put. I am of the view that the committee acted reasonably in convening the meeting at the request of Roma, when Roma pointed out its grave mistake to the body corporate by it lawyer’s letter dated 7th April 2008. There is some criticism of the committee for not mentioning this matter before its meeting on 12th May 2008, but I find this criticism unfounded. The committee dealt with an important matter in the proper way at its next meeting within about a month, which is quite speedy for a committee of a large body corporate. It is not known when the legal opinion was commissioned, or by what means, but that does not render the motion itself invalid.

Section 94 Act does not require that the body corporate acts “in the best interests of lot owners” as has been said in various submissions, and in the outcome sought in this matter. Section 94 requires that the body corporate administers the common property and assets “for the benefit of owners” and acts reasonably in anything it does. The committee must put forward any motion it receives[1] and cannot only put forward motions which are in the “best interests” of lot owners, or indeed, “all” lot owners. The Code of Conduct for committee voting members (Clause 3) (Schedule 1A Act) requires that a voting member of the committee performs his or her duties “in the best interests of the body corporate.” What is in the “best interests” of the body corporate may always be open to debate, especially in a scheme of 193 owners. However, I find it a stretched argument to say that a committee member might not act in the best interests of the body corporate if he or she agrees to the wording of a motion to be put to a general meeting. Whilst circumstances might come about where this could be an issue, I do not find that any one committee member can be found to have breached the code of conduct in his or her vote on 12th May 2008 or in the subsequent vote on a motion outside a committee meeting on 2nd June 2008, to put forward the motion. The decision was to be made by the lot owners who are entitled to make their choice of the two alternatives proposed.

The opinion from Teys Legal
Section 73(8) (formerly section 42C(8)) Standard Module states that “explanatory material” may accompany a voting paper or a notice of a proposed general meeting only if “required or permitted” under the Standard Module.

The Applicant says that the legal opinion was material which should not have been sent out with the notice of meeting, since it is not “required or permitted” under the Act.

Section 73(6) (formerly section 42C(6)) provides –

“To remove any doubt, it is declared that an explanatory schedule for a motion must not contain explanatory material, other than an explanatory note mentioned in subsections (3) to (5)[2] or required under another provision of this regulation, written by a person other than the submitter of the motion.” (my underlining)

However, the committee may accompany the notice of meeting with other explanatory material given by the committee, if the material is contained in a schedule of the committee’s explanatory material that is separate from the “explanatory schedule.” (Section 73(7) ( formerly section 42C(7)). The example of this is that the committee might want to give some “general explanatory material that does not relate to a particular motion stated in the voting paper, or information relating to a motion.”

It is argued by the body corporate and Roma, that the legal advice was explanatory material “required”, because of section 114(2)(c) (formerly 87(2(c)) Standard Module and that section 114(2)(c) should be read in conjunction with the former section 42C(7) (now section 73(7)). Roma says that the “inclusive” provision envisages that there might be ‘other material’ also forwarded to lot owners with the terms of the new contracts, and that a legal opinion would be the “the very type of explanatory material contemplated by sections 87(2)(c) and 42C(7).”

I do not find that the legal opinion was “required under another provision of this regulation” in reliance on section 73(6) Standard Module, because the information ‘required’ by section 114 was satisfied by the wording of the motions and the copies of the draft contracts.

Was the legal advice the type of explanatory material envisaged by section 73(7) (formerly section 42C(7) Standard Module) if sent separately from the explanatory schedule in order to provide “information relating to a motion”?

The body corporate says that such explanatory material can be of “broad scope.”[3]

The parliamentary explanatory notes to (the former) Section 42C Standard Module, state as follows –

“Section 42C provides for a new schedule to accompany a voting paper for a general meeting which will contain explanatory material for the voters for the meeting......

Some practices have been that the committee has, after receiving a motion from an owner, included in the meeting notice its own argument regarding the motion in a way that did not allow voters to distinguish between the material provided by the person moving the motion and the material provided by the committee. In some instances the committee has altered the explanatory material provided by the owner. This places the committee in an unfair position of being able to manipulate the meeting material to seek to influence the manner in which persons vote. For this reason, the schedule must include the explanatory note in the form given by the motion’s submitter. The committee can include an explanatory note for a motion it submits to the meeting, and the committee can also include general explanatory material if it does not relate to a particular motion.

However, in its role as the elected representatives of the body corporate the committee is often aware of particular information in relation to a matter that it considers the voters should know when deciding how to vote on a motion. The committee will be likely to present this information at the general meeting, but those persons not attending the meeting do not have access to this information before they decide how to vote on a motion. Provision is made for the committee to prepare a separate Committee Schedule containing such information. This allows the committee to provide appropriate background information but distinguishes this from the explanatory material.....” [4] (my underlining)

The example given of “permitted” material in section 73(7), attempts to incorporate both the matters detailed in the Explanatory Notes, as underlined above. It appears to be permissible for the committee to include “information relating to a motion”; and/or “general explanatory material that does not relate to a particular motion.” It is not clear from the example in section 73(7) if the phrase: “that does not relate to a particular motion”, is simply descriptive of the type of “general explanatory material”, or if it contains a prohibition, that is, that “general explanatory material” relating to a motion (as opposed to “information”) should not be sent out by the committee. The permissive view would allow the incorporation of the word “even” into the Explanatory Notes, ie: the committee can include an explanatory note for a motion it submits to the meeting, and the committee can also include general explanatory material [even] if it does not relate to a particular motion.

It would seem to me to be a nonsense if the committee was permitted to send “informative” material about a motion, but not “explanatory” material about a motion. In most cases it would be very difficult to distinguish between what was “informative,” and what was “explanatory”, if possible at all. It is clear that the Explanatory Notes resulting in the legislation, intended to curb the committee from interfering with motions as submitted by lot-owners; and that if the committee is in possession of relevant information, that lot owners should have it made available to them.

If the body corporate was in possession of technical reports for example, about the way to repair a body corporate asset; or had procured a sinking fund forecast, it would be expected that such reports, which are body corporate records commissioned by the body corporate and at its expense, are made available to lot owners, whether sent with the notice of a general meeting or available from the office of the body corporate manager or building manager. I see no difference in the obtaining of a lawyer’s opinion.

In law, I find that there was no reason why a legal opinion should not have been circulated with the notice of meeting.

The Applicant says that sending out the legal opinion was “inappropriate” and a breach of the committee’s obligation to act fairly, because it was extensive, relating to a particular motion, and favoured one alternative over another. Any “appropriate background information” should be accurate and fair. Further, the opinion did not form part of the committee’s explanatory schedule as required by section 73(7), but was a “stand-alone document.”

What material then, is not permitted, as envisaged by section 73(8) Standard Module? In Batwing Resorts Pty Ltd –v - Body Corporate for Liberty CTS 27241[5] (“Liberty”), an appeal from an order of an adjudicator to the Commercial and Consumer Tribunal, Mr Dorney QC whilst not exploring all prohibitive material, noted that explanatory material “written by a person other than the submitter of the motion” and greater in length than 300 words, would be prohibited, but that only related to the “explanatory schedule,” and not the committee’s “explanatory material” (Section 73(6)) required by section 73(7) to be in a separate schedule.

“Liberty” concerned explanatory material being sent with an agenda where the motion was to vary a term of the caretaking contract. The Tribunal found that section 40C Accommodation Module (identical to section 42C Standard Module as it then was) covered three sets of explanatory material - “ the explanatory note”, then “the explanatory schedule”, and then the broad term “schedule of the committee’s explanatory material.” Mr Dorney QC said –

“Given the width of “explanatory material”, provided it is otherwise “permitted” under section 40C(8), it is able to be of unlimited width and unconfined as to the information it contains, using “information” in a broad sense, although constrained as to being “ explanatory.”[6]

The Tribunal also found that it did not matter from whom the committee had obtained the explanatory material, or what its content was, as long as it was “explanatory”, and not prohibited by (the equivalent provision to) section 73(8) Standard Module. [7]

It said: -

“Section 40C(7) [Accommodation Module former numbering] does not prohibit the committee including in its “explanatory material” documents given to it. Moreover, it provides an express “ permission”.... There is nothing in section 40C(7) which in any way resembles the terms of section 40C(1)(a) whereby it has to be the “ submitter” of the motion who gives an explanatory note to the secretary and that note is to be no longer than 300 words. It is only sensible to give a reasonably liberal interpretation of “explanatory material” because it may well be, as here, that the committee itself could not rephrase the actual wording given to it by Batwing, without, for instance, distorting its true meaning. Hence, it cannot be said that section 40C(7) must be so limited that the committee itself must actually draft the words that are contained in the “schedule” of the “ committee’s explanatory material.” This can be contrasted with section 40C(6) which does prohibit “explanatory material” which is “ written by a person other than the submitter of the motion”; but that must, by its very terms, be limited to the “ explanatory schedule.”[8]

The Tribunal found that the committee’s explanatory material covered two loose documents provided by the caretaker, despite the absence of a “specified schedule naming.” Further, there is no express or implied statutory obligation when sending out explanatory material to present “both sides of the argument” in the explanatory material.[9]

This view may be contrasted with that of a specialist adjudicator in an earlier matter Palm Springs Residences [2007] QBCCMCmr 381 (23 June 2007) (“Palm Springs”) which is currently on appeal to the Commercial and Consumer Tribunal.

In this matter, a “damning” explanatory note was sent out by the committee as proposer of a motion to terminate the caretaker’s contract. There was no balancing material from the caretaker. The specialist adjudicator said that the committee had tried to circumvent “the prohibition in section 40C(8) [Accommodation Module, former numbering, equivalent to the current section 73(8) Standard Module]... by incorporating the notice of default in the wording of the motion” and also by sending separate communication to all lot owners not with the notice of the general meeting. He said that “the committee has clearly contravened section 40C(8) which appears to have been inserted by the legislature to ensure a fair presentation of issues...”[10]

This view can in part be reconciled with the “Liberty” decision in the Commercial and Consumer Tribunal, since in “Palm Springs”, there was no separate schedule of the committee’s explanatory material as required by section 73(7); and the “explanatory material” was not general in nature, but put forward the committee’s personal opinion. However, on the matter of a fair presentation of the issues, the “Liberty” decision and the “Palm Springs” decision can not be reconciled.

I am not, as a departmental adjudicator, bound by precedent, but the view of a higher tribunal is likely to be very persuasive in determining similar matters.

The Teys Legal opinion commences by saying that the committee has requested it to provide lot owners with Tey’s Legal’s view on the body corporate’s legal position. The opinion is thus a document commissioned by the committee on behalf of the body corporate.

The committee was already in possession of a document which is described as “legal advice” from Herdlaw. It is not clear how the committee came to be in possession of this document but it appears that Herdlaw has previously advised the committee in connection with the caretaking contracts and amendments between 2005 and 2007. This document contained what the committee describes as “general advice” and it was not commissioned to address the failure of Roma to exercise the option and the body corporate’s legal position in that case.

The Herdlaw document is entitled: “Options available to bodies corporate on the expiration or termination of management rights agreements.” It is more along the lines of a “fact sheet.” It is not addressed to lot owners, nor to anyone within the scheme of Admiralty Towers ll. It does not appear to contemplate the particular circumstances then existing at Admiralty Towers ll. It does not mention Roma by name. It explains what management rights are, the duties of the committee and the body corporate once a management rights agreement has expired; and provides a non-exhaustive list of options. The advice has a footnote disclaimer on the last page which reads -

“Disclaimer. The above is for discussion only and is not to be relied upon as legal advice. A lot owner or body corporate should seek specific legal advice in relation to any issues relating to management rights relevant to its own special circumstances.”

It is unsurprising then that the committee sought a legal opinion on the specific occurrence: that of a caretaker failing to exercise an option. For example, the committee might have wanted to know if such a failure automatically brought about the end of this particular contract, without more. Unfortunately, that is a question which the Teys Legal advice did not answer. There are no references to saving provisions of the contract, if any, or presumptions that might be made, or legal authorities on what has previously occurred in such a situation. It was certainly presumed by all concerned that the Roma contracts had come to an end, such that new contracts needed to be executed for the effective engagement of Roma.

The committee decided at its meeting on 12th May 2008 to send out the Teys Legal opinion and the Herdlaw “general advice” with the agenda for the meeting. On 2nd June 2008 it revoked this decision and inter alia, decided to send the “specific legal advice provided to lot owners by Ros Janes of Teys Legal”, with the meeting material.

Alternative (b), the Applicant’s motion, was described as giving the committee the mandate to call for expressions of interest and provision of caretaking and letting services. Teys Legal looked at the possibility of having no on-site manager but bringing in external contractors and letting agents. Teys Legal pointed out that if the body corporate chose this option, then “the on-site manager can continue to own and reside in lot 3.” It concluded that “given the size of the scheme, and the requirement for the monitoring of security arrangements, this option would appear to be of no benefit to lot owners.”

I find the treatment of “no on-site manager” somewhat vague. It is not explained why the size of the building is relevant to having “on-site managers.” The reference to the “on-site manager” continuing to live in and own Lot 3 is confusing, since the scenario envisaged is that Roma is no longer the on-site manager. The by-laws (by-law 11(a)) provide that only Lot 3 may be used for residential purposes as well as “for management and letting purposes on terms agreed by the body corporate with the owner...” All other lots are for residential purposes only. This concern might have given rise to some discussion about the work actually done in Lot 3, and about the factual possibility of changing the by-laws. The “requirement for monitoring the security arrangements” is alluded to but also not explained. The current caretaking contract requires the manager to monitor and supervise the common property.

In the consideration of a new on-site manager Teys Legal says the body corporate needs to consider where the on-site manager will live; where its office will be; and whether storage will be required. These are legitimate concerns. However, I find certain considerations, such as whether the on-site manager is to be an employee or an independent contractor, to be hurdles which do not need to be considered at the time of voting on the alternatives proposed. Whether an on-site manager is to be an employee or an independent contractor, may well depend partly on the entity to perform the tasks required. I also find that asking lot-owners to consider whether the body corporate should be setting up an owner company for managing the scheme to be unnecessarily complex at this stage.

Teys Legal advances an argument about section 113 Act. It is its view that if the remuneration for a caretaking contract was “well below the market value for such a service” this “would be seen as a conferral of a benefit under section 113 Act” and the difference could be “recovered by the caretaker.” It provides no legal authority for this view. In my view it would be an extraordinary outcome, and not one envisaged by the legislation. The market value of a contract is whatever a willing purchaser is prepared to pay. The market value would depend on the work required, the nature of the scheme, and the goodwill of the business. Teys Legal’s argument might have some academic weight. However, to state that such an outcome “would be” the certain result has the potential to scare lot-owners. In submission, the body corporate said the advice stated that the body corporate “may well be in contravention of section 113” if it accepted a tender that “was well below the current market rates.” [11] The legal advice in fact stated this with some conviction.

The advice looked at the “pro’s” and “cons” of alternatives (a) and (b). It pointed out that the caretaking and letting contracts were only re-negotiated three years ago; that the contracts are “fair and reasonable” and that the remuneration for Roma is “very reasonable – indeed, it is below that paid on similar buildings in the CBD area.” There was no material to support this statement or comparisons of the “similar buildings” which the writer had in mind. In the body corporate submission, Teys Legal advised that it had sought information about the current remuneration by telephoning someone with the relevant expertise. The information came from a survey by ARAMA “ with over 500 responses.” I am of the view that since the business of each scheme is different, that the only way to value the caretaking and letting contracts would be to employ a specialist valuer.

There are no “pro’s” given for alternative (b). The problem is seen to be the occupation of Lot 3 which Teys Legal says means that the management rights might have to be conducted “off-site” at least in the short term. The other issue is the occupation of the office exclusive use area of common property. The opinion goes on: “... if a dispute arises, then the body corporate may be required to pay compensation to the on-site manager for the relinquishment of the exclusive use area.” This could turn into “ a long and costly legal battle.”

The Applicant says this “dispute” whilst not detailed, implies that Roma “could somehow bar entry to the Manager’s office.” This is “shadowy”, “deceptive” and “fanciful” because by-law 35 gives the body corporate power to revoke the exclusive use of the manager’s office if the owner of Lot 3 has no management and letting agreement. The same goes for the storage areas.

The body corporate in submission said that it was not a simple matter to “hand it back over.” It says that the by-laws must be read in conjunction with section 178 Act (review of exclusive use by-laws), section 180 Act (limitation of by-laws); section 318 Act (prevention of contracting out.) “All these matters need to be considered and weighed up and considered (sic) by lot owners.”

I note that none of these sections were mentioned in the advice, and I do not follow this line of argument. It would not have been possible for lot-owners to consider it and weigh it up, when it was not presented to them. Section 178(1)(c) Act refers only to the position where the lot owner is no longer the manager and the exclusive use by-law is not for the continuing engagement of the lot owner as manager. In this scheme, it is clear that the body corporate has prevented this situation from occurring by drafting exclusive use by-laws 35 and 38, which reads as follows -

By-law 38(a) – Manager’s Office

“The Owner of Lot 3 shall be entitled to the right of exclusive use to that part of the common property shown in Schedule E and on the plan annexed hereto and marked “Manager’s Office” and any equipment installed therein for the provision of management and letting services within the building and for the provision of other services as set out in the Management and Letting Agreement for so long as the Owner of the Manager’s lot or his nominee shall be the Manager.” (my underlining)

Schedule E of the Community Management Statement also states that the right allocated to Lot 3 subsists only whilst the management and letting agreement referred to in By-law 35 remains in force with the proprietors of Lot 3.

The body corporate does not explain how section 180 Act (limitation for by-laws) or section 318 Act (prevention of contracting out) are applicable in this case. The reference appears to be that the scheme by-laws as drafted are inconsistent with the legislation, but this argument is not made out. For the record, such by-laws were common, and I see nothing immediately apparent which would deem them unlawful.

The Applicant’s argument concerning section 91(5)(e) (now section 136(5)(e)) Standard Module is not applicable in this case. Section 136(5)(e) allows the body corporate to give an “occupation authority”, including a personal exclusive use of common property, to a caretaker to occupy a particular part of the common property for the performance of the caretaking and/or letting agent duties. The occupation authority ends immediately on the ending of the contract of engagement or letting authorisation. This section does not have application where there is a by-law, (which may pre-date the legislation) giving an exclusive use of a particular area to a particular lot.

In submission, the body corporate denies that the Teys Legal opinion said that the body corporate would be powerless to have security of the building if it did not continue to engage Roma, but says that the advice pointed out only that if Roma terminated “immediately”, the building’s security could be compromised in the short term. On reading the advice, I do not find this to be the overall impression. There was no consideration of the time when Roma would cease caretaking duties.

In its summary, Teys says:

“(a) there should be no compromise to the security of the building (currently security is monitored from the exclusive use office),” and gives no further explanation.

The Applicant says that the argument appears to be that because closed circuit security monitors are located in the manager’s office, the body corporate would lose the ability to monitor its security.
The Applicant says that since by-law 30 for the scheme states that all security systems installed on common property are the property of the body corporate, that such an argument is far-fetched, and Roma could be restrained by injunction from refusing the body corporate access to its equipment.

Since the Applicant’s motion was not proposing that Roma be terminated but that the body corporate enter into a one year contract with Roma, and meanwhile seek tenders, I find that the suggestions in the advice that Roma might hold the body corporate to ransom in some unspecified way, or that “a dispute” (the details of which are not given) could invite costly litigation, tended towards “scaremongering.” Lawyer’s advice is often cautious and should point out the real dangers and effects to the client of a proposed action. The committee was entitled to say it preferred option (a) and the advice might have found in favour, on balance of the various considerations, that option (a) was the better view. However, in all, I find the tenor of the advice to be alarmist and not balanced. To set out that if a “long and costly legal battle” ensues then “the focus of the effective ongoing management of the scheme will be lost whilst the parties are focusing on the legal battle” is pure embroidery. Lot owners might wish to know what choices they had; about their obligations to Roma; and what remedies Roma might have. To speculate about the effect of a legal action (“a long and costly battle”) with the result that the management of the scheme is “lost” is unnecessarily imaginative.

Teys Legal concluded: “We consider the better option open to lot owners is to vote “yes” to the motion and then alternative (a)”. The body corporate submits that an advice should form an opinion and guide the client, and that a conclusion in favour of one option over another is not biased. I share that view, but find overall, the advice makes allusions to the difficulties and dangers which might (but not might not) arise from a vote for ‘alternative (b)’ without balanced analysis of those dangers.

However, I am of the view that lot owners would by page 4 of the opinion, have noted that the Teys Legal opinion was strongly in favour of retaining Roma as caretaker, and that the description by the committee in “the committee’s explanatory schedule” that the advice was “independent legal advice” was open to doubt. The fact that Roma was to pay for the legal advice was also clearly stated. I find that the advice promoted the view of the committee and Roma.

There is some question about whether a departmental adjudicator has the power to say what is “misleading” material per se but there is no evidence that anyone was misled by this opinion. The opinion clearly favoured a particular outcome, but that does not mean it was misleading. What might have been “misleading” was the committee’s claim that that it had obtained “independent legal advice.” The word “independent” conveys that the writer is not partisan, but the body corporate might have meant that it was not an advice from either Roma’s lawyers (Hynes) or the body corporate’s former lawyers (Herdlaw).

The Applicant refers to authorities on misrepresentation in contract and equitable remedies, but that is not a relevant matter here. There is no “presumption of being misled” on reading misleading material. On receipt of the advice, some owners immediately contacted the committee, saying that it was tainted with the view of the committee. It was obvious to them that the tone of the advice was biased.

In “Liberty”[12] the Tribunal looked at the material alleged to be “misleading” and found that inaccurate statements in the “Q and A” document created by the caretaker might have been misleading but that any “ordinary reader” would have understood it. Mr Dorney QC in Liberty said –

“... it is not sufficient merely to find that the “misleading” information, in the absence of any contradictory material (when in fact, as analysed, there was), was persuasive in favour of an affirmative vote. What needs to be considered is whether there was some breach of the relevant provisions such that, for instance, the Adjudicator was empowered to make an order under section 276, including one mentioned in Schedule 5, of the BCCM Act. Justice and equity do not work in a vacuum.” [13]

What the Tribunal was saying was that in order for the “misleading information” to render a motion invalid, there must have been some contravention of the legislation, for example that the body corporate did not act reasonably, under section 94 Act, such as is claimed by the Applicant in this matter. To find that the majority was actually misled and voted to their detriment might render the provision of the legal advice by the body corporate, unreasonable and thus open to invalidity. If there is no evidence of anyone being misled, then an adjudicator can only speculate that someone “may have been” misled by the misleading material, and such speculation cannot void a motion. The Tribunal said that making findings eg. that material was misleading, and then drawing inferences from them without evidence, was an error of law.

However, in “Palm Springs”, the specialist adjudicator found that misleading information circulated by the committee, which was information which after hearing oral evidence was found to contain figures which were untrue, “ ... would almost certainly have created a negative attitude in the minds of owners..... It would almost certainly have influenced the vote of otherwise fair-minded unit owners.....”[14] Even though the applicant in “Palm Springs” circulated his own material, the specialist adjudicator found that it would not have balanced the misleading information because it was competing with the “ official communication from the committee” written in “the strongest possible terms..”. It was also sent only to investment owners.

The Applicant and Roma both provided “explanatory notes” with their alternatives (a) and (b). Roma says that the Applicant had “ample opportunity” to circulate his own material, including the Herdlaw advice, and obtain his own legal advice if he wished. I find this impractical in that the Applicant would have had between 11th June (receipt of the notice of meeting) and 2nd July (the meeting) to circulate material and owners might already be casting postal votes in that period.

It appears to me that there was, following the notice of meeting, certain other material available and that canvassing for the two options took place, but that this material was available only within the building and to residents.

On balance I find that the Teys legal advice was over-enthusiastic of alternative (a); and that alternative (b) was promoted as a dangerous alternative and that those dangers were exaggerated. However, I am of the view that an “ordinary reader” might see clearly that the support of alternative (a) was unbalanced, and would have questioned the independence of the opinion.

The submitters who read the Teys Legal advice and who say it was inaccurate, unfair, and baised, are the people who support the Applicant, and who voted for alternative (b), thus demonstrating that the advice was not persuasive in getting them to vote for alternative (a). Relying on Dorney QC’s decision in “Liberty”, even if the advice was misleading, it does not follow without evidence, that the motion should be invalidated or the vote held to be unsafe.

I am able to distinguish the “Palm Springs” case on a question of degree. In that matter, the specialist adjudicator was concerned that the material, (which was more than biased and in fact untrue), might result in the caretaker losing his valuable management rights, his job and his income. In this matter, the worst that the biased material might achieve was putting the body corporate in the same position that in 2007, it thought it would be in 2008. The failure of Roma to exercise the option was an opportunity which the body corporate cannot have expected to arise.

The final question for consideration is therefore, did the committee act reasonably in sending out an opinion which was not “independent” in the meaning of “non partisan”, or did it breach its duty under section 94(2) Act. If so, what is the result of that breach of duty?

The committee is the elected body of people chosen by the body corporate each year to represent lot owners’ interests. The committee acted reasonably in engaging a lawyer to present the alternatives to lot owners once this unusual situation had arisen. The committee erred in instructing Teys Legal to promote its point of view, although without doubt the committee is of the view that its view is in the best interests of the body corporate. The committee also wished to place Roma back in the position it would have been in had it exercised the option, and that is an understandable ambition. In a scheme of 193 lots, there are bound to be alternative ideas about how a body corporate should be managed. It is the duty of the committee to present a fair playing field for all lot owners’ views to be considered. The committee did this by inviting lot owners to submit motions for its meeting to be held on 23rd June.

The Teys Legal advice, as advice to the committee was in existence by 12th May 2008. A submitter provided a copy of this advice, and pointed out that it stated as follows -

“The body corporate is under no legal obligation to put the on-site manager back into the position it was as if it exercised the option. This is a matter for lot owners to decide.”

This paragraph was removed from the second draft, dated 27th May 2008, and from the final draft dated 30th May 2008 sent to lot owners. There can be no reason for these sentences to be removed other than to lend support to the committee’s and Roma’s desired outcome in the face of an alternative motion. The committee is entitled to promote its point of view but not at the expense of the body corporate.

However, whilst I consider that the committee did not act reasonably in sending the particular legal opinion which it did, I do not find that there is any evidence on which the motion might be invalidated.

The Applicant has provided no evidence that the new contract, as proposed by alternative (a), will be contrary to the “best interests” of lot owners, or of their interests at all. On the question of the financial advantage of alternative (a) or alternative (b), I am not persuaded by either party to this application. Whether Roma are poorly, correctly or well remunerated, or whether another caretaker would be cheaper, and even then, if it were cheaper it would perform the duties required better than, or as well as Roma, is something which is purely speculative. There is no evidence of any weight that putting the contract out to tender would lead to reduced costs for lot owners, or that reduced costs alone would be in the best, or other, interests of lot owners. There is nothing, as the Applicant admits, which demonstrates that the Teys Legal advice had any affect on lot owners, or that it was even read by them.

It is claimed that Roma has changed directors recently, possibly without notice to the body corporate. This is not a matter which comes within the ambit of this dispute. Clause 2.1(c) of the agreement commencing 26th March 2005 allows the body corporate to treat an alteration to the board of directors which, in the reasonable opinion of the committee, alters effective control of Roma, to be deemed an assignment of the agreement.

The question of whether or not proxy votes were used also does not fall within the ambit of this dispute. The dispute is about the validity of the motion itself and the convening of the meeting prior to 2nd July 2008. I note that the body corporate engaged a returning officer for the secret ballot, and lot owners are entitled to check the tally of votes which are body corporate records.
Proxy votes, if any, should have been recorded. There should have been no votes by proxy for this motion.

In respect of the claim that Teys Legal’s advice was affected in some way by the fact that Teys Legal is an associated company of a group which has interests in body corporate management and management rights, I find this argument less than convincing. Teys commercial interests are not secret, and if the Queensland Law Society sees fit that a legal firm might be under the same umbrella as a company with commercial or professional interests in other fields, then such operation is lawful. It might equally be argued that Teys would find new management rights coming onto the market to be advantageous to it, in that it might legitimately exploit a new resource. In any event, the Applicant says there is no need to “arrive at a finally concluded view about such matters.”

For the reasons above, the application is dismissed.

Costs have been sought by Roma. Section 270(3)(a) Act allows an adjudicator to award limited costs to the respondent and/or the body corporate and/or an affected person where an application is dismissed for being frivolous, vexatious, misconceived or without substance. I do not find that this application was frivolous, vexatious, misconceived or without substance. This application voiced valid concerns about explanatory material sent with a notice of general meeting, and there exists relevant legal authority in consideration of this issue, where distinguished lawyers have each differed in their opinions in similar circumstances.

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[1] Section 69(1) Standard Module; section 71(5)(a)(i) Standard Module
[2] 73(3) motions to an AGM about budgets; 73(4) motions with alternatives; 73(5) a motion to change the regulation module of a scheme
[3] Boulevard North [2007] QBCCMCmr 660 (26 November 2007)
[4] Body Corporate and Community Management Legislation Amendment Regulation (No.1)2003 Explanatory Notes for SL 2003 No. 263
[5] [2008] CCT KA004-08 (30 October 2008)
[6] Batwing Resorts Pty Ltd –v- Body Corporate for Liberty CTS 27241 supra. para 45
[7] Ibid. para 46
[8] ibid para 55
[9] ibid . para 56
[10] Palm Springs Residences [2007] QBCCMCmr 381 (23 June 2007) para 54
[11] Clause 5(g)(ii) submission dated 24th July 2008
[12]Batwing Resorts Pty Ltd –v- Body Corporate for Liberty CTS 27241 2008] CCT KA004-08 (30 October 2008)
[13] Ibid para 66 and 67
[14] Palm Springs Residences para 51