Surf Sound [2008] QBCCMCmr 44 (7 February 2008)

Number of Scheme:	14546
Name of Scheme:	Surf Sound
Address of Scheme:	12 Darwalla Avenue CURRUMBIN QLD 4223

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

I hereby order that the application for an interim order –
“ that the body corporate instruct Mr Danieletto, to cease immediately from appointing any person or contractor to conduct business or act on behalf of Surfsound (sic) Body Corporate.”
is dismissed.

I further order that this interim order expires when a further interim order is issued, or when the application is finally determined or discontinued, or upon the expiry of 12 months from the date of this order, whichever is the earliest.

This is an application dated 26^th October 2007 and amended on 19^th December 2007 and on 8^th January 2008 by Margaret Allan and Kalglen Pty Ltd, owners of lots 6, and lots 1, 2 and 8 respectively (the Applicants) against the body corporate for Surf Sound in administration (the body corporate) for an order as follows –

The Applicants also seek an interim order, quoting a breach of the Body Corporate and Community Management Act 1997 (the Act) requiring that the administrator ceases immediately from appointing any person or contractor to conduct business or act on behalf of the body corporate since the body corporate is “in a serious financial position” and the Applicants are concerned that the body corporate is insolvent or close to it.

“Surf Sound” Community Titles Scheme is a community titles scheme governed by the Act and the Body Corporate and Community Management (Standard Module) Regulation 1997 (Standard Module). There are five lots in the scheme created under a Building Unit Plan of subdivision and re-subdivision.

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

(i) the engagement of a person as a body corporate manager or service contractor for a community titles scheme; or

(ii) the authorisation of a person as a letting agent for a community titles scheme.

An order may require a person to act, or prohibit a person from acting, in a way stated in the order (section 276(2)). An adjudicator's order may contain ancillary and consequential provisions the adjudicator considers necessary or appropriate (section 284(1)).

Section 247(3) of the Act allows the Commissioner to refer an application to an adjudicator for consideration for an interim order even though proper notice of the application has not been given to the body corporate or other affected persons, and despite the fact that parties to the application have not been given an opportunity to make a submission about the matters in dispute. It seems to me that the Act allows this process because applications for interim orders often relate to emergency or otherwise urgent circumstances, where it is simply impractical or impossible to allow a period for submissions prior to the consideration of the application for interim orders. It is also relevant that generally the purpose of an interim order is simply to maintain the “status quo” of a situation, and not finally to resolve the matters in dispute.

Section 279(1) of the Act allows an adjudicator to issue an interim order in response to an application “if satisfied, on reasonable grounds, that an interim order is necessary because of the nature or urgency of the circumstances to which the application relates”. Read together with section 247(3), section 279(1) appears to allow an adjudicator to issue an interim order without any reference to other parties to the dispute.

Notwithstanding that the Act allows for interim orders to be issued without reference to other parties, I am of the view that when possible, it is far preferable and more consistent with the principles of natural justice, to allow affected persons to make a submission about an application (even if the time allowed for submissions is brief) prior to the determination of an application for an interim order.

I therefore sought submissions from the remaining owner in the scheme, and from the Administrator, Attilio Danieletto (Mr Danieletto), giving them until 29^th January 2008. The Applicant Margaret Allan (Ms Allan) advised on 24^th December 2007 shortly after filing the first amended application that she would not be able to be contacted until 1^st February 2008 since she was going overseas.

The Applicants seek the interim order since they are concerned about the spending by the Administrator from the sinking fund. They say that the sinking fund is being used for administrative purposes contrary to the Act. They say that the body corporate cannot support the engagement by the Administrator of contractors.

On this Office seeking further details of the application for an interim order, the Applicants stated that the contractors which they wish to stop the administrator from engaging are ABKJ Lawyers, since to engage them would mean the body corporate “is trading insolvently.” They are unaware of what other contractors the Administrator has engaged.

In support of the contention that the Administrator is using sinking funds improperly, they say this is Mrs Allan’s “understanding from our discussions with Mr Danieletto ...” and that there is only $3299.00 in the sinking fund as at 15^th October 2007. She believes “there still to be outstanding invoices for Mr Danieletto’s services incurred in October and legal costs which will amount in excess of the cash available at Surfsound’s bank account.”

The Applicants provide a letter dated 24^th October 2007 from Mr Danieletto based at Challenge Strata Management to Mrs Allan, stating –

“No funds have been transferred from the Administrative Fund to the Sinking Fund ( or vice versa) since my appointment as administrator. This was confirmed to your Mr Patty in our phone conversation on 15^th October 2007 and is supported by the financial records of the body corporate.”

They say that this letter “outlin(es) that no monies have been spent on Sinking Fund items” and that in the telephone conversation referred to, Mr Danieletto “ confirmed that $0.00 had been spent on the sinking fund items and that all levies raised have been used against Administrative Fund items only.”

They say that confirmation of this conversation is shown by Mr. Danieletto’s “recovery report”. They provide a copy of a “Running Time Sheet” which shows that Mr Danieletto had a telephone conversation with a Mr P. Patty on 15^th October 2007 about the bank balance. The Applicants say-

“As such we have affirmation from Mr Danieletto that no sinking funds raised have been spent on sinking fund matters and only on administrative fund matters.”

Finally, they supply a letter dated 17th October 2007 from themselves to Mr Danieletto setting out their own case and concerns about the bank balance.

Submissions were made on the interim matter by Patricia Jeude (Mrs Jeude) who holds a Power of Attorney for Helen Denison (Ms Denison) who is the owner of Lot 7; and from Mr. Danieletto, the Administrator, on behalf of the body corporate. The submitters have also taken the opportunity to address the final outcomes sought.

In respect of the interim outcome sought, Mrs Jeude says that the Applicants owe a substantial debt to the body corporate, and that Mr Danieletto “has chosen to use all available funds and keep a paper record of balances to keep the body Corporate operating and to recover the debt.” The Applicants withholding of their due contributions is the sole reason that the body corporate is in a serious financial position.

The ‘contractors’ which Mr Danieletto proposes to engage are lawyers Adamson Bernays Kyle and Jones (ABKJ) who are instructed to recover arrears of levies from the Applicants. She does not think that a legal firm should be considered to be a contractor. She says that if the Applicants really had grave concerns about whether the body corporate was solvent, they would pay their outstanding levies immediately. Further, the balance of funds as at 15^th October 2007 is outdated and should “not be considered in an interim Order request.” She has confidence that the Administrator will not allow the body corporate to become insolvent and that he will continue to raise special levies to cover costs. She says that the sole reason that the Applicants have withheld contributions, alleging a mistake in the sum sought by the Administrator which they will not explain, is to put pressure on Ms Denison to sell Lot 7 to the Applicants. The Applicants desire to gain ownership of the entire property and this application, as with others since 2005, is unmeritorious.

In respect of the interim outcome sought, Mr Danieletto says that the body corporate has not incurred any “third party liabilities”...” without sufficient funds in hand.” He provides financial statements as at 28^th January 2008 showing that no funds have been transferred between the administrative fund and the sinking fund. He says –

“All funds received have been correctly allocated into the respective Funds and then in turn placed into the body corporate’s bank account.”

He has assured Mr Patty, Mrs Allan’s representative, of this in the telephone conversation which has been mentioned, and explained it to him in great detail.

The legal recovery costs are attributable to the Applicants who have not paid body corporate contributions since Mr Danieletto was appointed as Administrator. He is acting under a mandate from this Office to recover contribution arrears and he is doing this as a priority so that repairs to the building may be effected. The application has no merit. The Applicants have not exercised their right to look at body corporate records. Mrs Allan’s representative has been informed of the true position already. The body corporate seeks that the application is dismissed with costs of $330.

In this matter, I am considering only the interim order sought by the Applicants and that is that the Administrator cease immediately from engaging any person or contractor because to do so will make the body corporate insolvent.

The Administrator has engaged or proposes to engage solicitors to recover body corporate debts, (and that pursuant to an Adjudicator’s order). Whether solicitors can be said to be “contractors” is not really necessary to determine. They will certainly charge the body corporate for their services even though the sort of service they provide may allow the body corporate to recover some legal costs from the debtor.

However, I am not satisfied that the body corporate is insolvent, or is likely to be made insolvent by the hiring of the solicitors. It may in fact be impossible for a body corporate to be “insolvent.” Certainly there is no “trading” in a body corporate so that a body corporate cannot be “trading insolvently” in the way a company might. Since the body corporate is merely a collection of owners all of whom own real property, and common property between them, the body corporate cannot be “insolvent.” Whilst the units have a market value, there will always be an owner who will owe regular contributions to the body corporate. If an owner owes a debt, even a very large amount to the body corporate, the body corporate can proceed against the owner for payment of that debt and can as a creditor eventually take possession of the debtor’s land in the usual way. The body corporate even has the power to seek outstanding contributions from a new purchaser of the lot which owed the debt.

The body corporate may have debts, but it also has the ability to recover those debts. There are funds in the bank account, and the financial records show the levies in arrears as assets of the body corporate.

Finally, the Applicants have provided absolutely no evidence that the administrator has contravened section 100(7) Standard Module, (to which I believe they refer since there is no section 100(7) Act).

Section 100(7) Standard Module states –
“Funds must not be transferred between the administrative fund and the sinking fund.”

The Applicants’ submissions do not substantiate their allegations. The fact that Mr Danieletto recorded that he had had a conversation with Mr Patty is not proof of anything said during that conversation. Nor is a written statement by Mr Danieletto that he has not transferred monies between the sinking fund and the administrative fund, proof or even evidence that shows that he has not used sinking fund monies for “sinking fund matters.”

The sinking fund can be used for spending of a capital or non-recurrent nature; periodic replacement of major items of a capital nature; and other spending that should reasonably be met from capital. (Section 101 Standard Module). The Applicants have not demonstrated in what way the alleged spending from the sinking fund has contravened the law, or what has been bought with sinking fund monies which should not have been.

The Applicants’ own letter to Mr Danieletto stating their case, is evidence of nothing other than that the Applicants hold, or profess to hold, that point of view. You cannot use your own letter as evidence that what you are saying is true.

I am therefore dismissing the interim application. Since the only other persons affected by this application have made submissions, I shall give those submitters only a short time to make further submissions if they wish. The Applicants will also have the right to reply to the submissions received if they so wish prior to the final order being made.

Queensland Body Corporate and Community Management Commissioner - Adjudicators Orders

Surf Sound [2008] QBCCMCmr 44 (7 February 2008)