Palmerston Tower [2009] QBCCMCmr 363 (22 September 2009)

Last Updated: 9 October 2009

REFERENCE: 0343-2009

ORDER OF AN ADJUDICATOR

MADE UNDER PART 9 OF CHAPTER 6

BODY CORPORATE AND COMMUNITY MANAGEMENT ACT 1997

Number of Scheme:	9565
Name of Scheme:	Palmerston Tower
Address of Scheme:	114 Marine Parade SOUTHPORT QLD 4215

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

Leone Ross, the Owner(s) of lot 48

I hereby order that, at the next general meeting at which it is practicable, the body corporate must consider a motion by ordinary resolution proposing to amend resolution 7 of the 2007 annual general meeting to provide for the 1 June 2007 to 30 May 2008 audit to be conducted by AM Giles & Company rather than Keith Moon & Co. I further order that, at the next general meeting at which it is practicable, the body corporate must consider a motion by ordinary resolution proposing the ratification of the spending without authority of $14,532 (or $13,925) in defending the lot entitlement application.

STATEMENT OF ADJUDICATOR’S REASONS FOR DECISION - REF 0343-2009

“Palmerston Tower” CTS 9565

Application

Palmerston Tower Community Titles Scheme (Palmerston Tower) is a 49 lot scheme under the Body Corporate and Community Management Act 1997 (Act) and the Act’s Standard Module Regulation (Standard Module). The scheme is designed for residential purposes.

This application is by Leone Ross, owner of lot 48 (applicant) seeking orders against the body corporate for Palmerston Tower (respondent). The applicant is seeking an order requiring the body corporate to complete an audit voted for by owners at the 2007 annual general meeting and a declaration that $14,908.53 was spent by the body corporate without authority.

Decision

Investigation and Submissions

Submissions

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

• The proposed audit of the 2007-8 accounts which was to be done by Diverse Business Solutions reached a stalemate as the body corporate manager refused to provide the auditor with requested documents; and
• The body corporate manager has spent a total of $14,908.53 of body corporate funds on Hynes Lawyers in relation to a lot entitlement dispute. There does not even appear to have been a committee meeting authorising the expenditure but the amount exceeds the committee spending limit of $9,800 anyway.
  

A response by Kim Elliott of Complete Body Corporate Services Pty Ltd, was to the effect that

• The resolution passed by the body corporate requiring an audit by “Keith Moon & Co” could not be carried out as there did not exist a company, firm or practice described as “Keith Moon & Co”. Further, no quotation had been attached for the owners’ benefit and the motion did not authorise the expenditure of any funds. The committee therefore appointed AM Giles & Company to undertake the audit;
• The committee wrote to all owners on 11 November 2008 seeking feedback in relation to the lot entitlement application. In response, 26 owners voted in favour of the committee challenging the application with only 13 votes against. Of those 13 votes against, 5 votes were associated with the applicant. Given this overwhelming support it is expected the expense will be ratified and the committee had a limited time to instruct Hynes Lawyers to oppose the application before the Commercial and Consumer Tribunal. Of the amounts spent, $4,125 was payable to a separate firm for preparation of a report and Kim Elliott has since secured an undertaking from a Hynes Lawyers senior partner to grant a refund of the $607 by which Hynes fees exceeded the committee spending limit.
  

All owners were given an opportunity to provide written submissions. All submissions are available for inspection by interested persons and it is unnecessary to summarise the submissions here.

The applicant exercised the right to inspect the submissions and then replied to those submissions to the effect that:

• Kim Elliott as body corporate manager refused to allow an audit to take place and resisted an audit throughout the year. The firm appointed was Keith Moon and Associates, Unit 1, Rothcote Court, Burleigh Heads, phone [phone]. The same firm is now known as Diverse Business Solutions and its address remains Unit 1, Rothcote Court, Burleigh Heads. It is suspicious if someone refuses to be audited by someone she does not know but is prepared to be audited by an auditor of her choosing; and
• It is disturbing that payments have been made without the treasurer or secretary sighting any invoices. It is noted that Kim Elliott has approached Hynes Lawyers for a refund and has had some success but the lack of any invoices is unacceptable.

Investigations following receipt of submissions

On 22 September 2009 I made telephone and internet enquiries regarding the existence or otherwise of Keith Moon and Associates. I was informed that Keith Moon has sold Diverse Business Solutions and a business operating under the name “Spectrum Financial” now operates from Unit 1, Rothcote Court, Burleigh Heads, phone [phone]. I was informed that Keith Moon works part time for this business but is not a principal. An internet search indicates that Spectrum Financial provides accountancy services, financial planning, and home loan services.

Issues for determination

Summary of issues

The main issues for determination can be summarised as follows:

1. Was there a failure to implement motion 7 at the 2007 annual general meeting requiring an audit of accounts for 1 June 2007 to 31 May 2008 by Keith Moon & Co?
2. Was there proper authorisation for the spending of body corporate funds on defending the lot entitlement application?

Change of Auditor

Applicable law

Legislation relevant to the present dispute has provisions to the effect that:

• The body corporate must have its accounts audited for each financial year unless the scheme is a basic scheme and the body corporate resolves by special resolution not to audit the accounts. The motion for agreeing to the auditor to be appointed must be by ordinary resolution an must include the name of the auditor proposed to be appointed (Standard Module, 155);
• The auditor must have at least two years auditing experience and be a ‘CPA’, ‘FCPA’, ‘CA’, ‘FCA’, ‘MNIA’, ‘FNIA’, ‘PNA’ or ‘FPNA’ (Standard Module, 156);
• A resolution passed in general meeting may only be amended or revoked by a resolution of the same type (Standard Module, 95); and
• Owners must generally be given copies of two quotations for motions being considered in general meeting that involve spending above the relevant limit for major spending (Standard Module, 152).

Conclusions

On 27 July 2007 owners resolved in general meeting that accounts for 1 June 2007 to 31 May 2008 be audited by Keith Moon & Co.

It is not disputed that the committee failed to implement this resolution. I have a number of concerns with the submissions by Kim Elliott seeking to explain why this resolution was not implemented. Firstly, it seems no excuse that no quotation has been attached for the owner’s benefit and the motion did not authorise the expenditure of any funds. It was obvious that owners wanted the accounts audited by Keith Moon & Co and the committee could have obtained a quotation itself for a properly qualified auditor from that business to prepare the report. Assuming the quotation was within the relevant limit for committee expenditure the committee could have passed a resolution authorising the expenditure. The resolution passed by owners could then have been put into effect.

Secondly, despite the change of business name, if the committee had obtained a quotation for an audit report signed by Keith Moon as principal of the renamed firm Diverse Business Solutions then this would appear to have put into effect the resolution passed by owners as nearly as is practicable. If the committee continued to have concerns and wanted to amend the resolution accordingly then this amendment would need to be by ordinary resolution rather than committee resolution (Standard Module, 95). It is difficult to see any good reason for the committee appointing an entirely different company to perform an audit when resolution 7 remained without amendment and Keith Moon was available to perform the audit.

In the circumstances, I consider it necessary and appropriate that owners be allowed to consider in general meeting whether to amend resolution 7 of the 2007 annual general meeting to provide for the audit to be conducted by AM Giles & Company rather than Keith Moon & Co. If this resolution is not passed then owners may wish to consider obtaining quotations and proposing motions for an audit by Keith Moon of Spectrum Financial or another auditor who meets the requirements of section 156 of the Standard Module.

Spending to defend lot entitlement application

Applicable law

Spending above the relevant limit for committee spending must generally be authorised by ordinary resolution (Standard Module, 151(1)). If a serious of proposals forms a single project then the cost of carrying out any one of the proposals is taken to be more than the relevant limit for committee spending if the cost of the project as a whole is more than the relevant limit (Standard Module, 151(2));

Conclusions

I am satisfied that the body corporate spent $14,532 on defending the lot entitlement application (or $13,925 if a partial refund has been given). This amount exceeds the relevant limit for committee spending and I note that it is irrelevant if these funds were ultimately paid to two different entities as these amounts form part of spending for a single project (Standard Module, 151(2)).

Based on the submissions referring to the committee sending a letter to owners and the failure to provide any minutes of a body corporate meeting authorising the expenditure, it seems more likely than not that this expenditure was never properly authorised. I therefore consider it appropriate to make an order requiring owners in general meeting to consider whether or not to ratify this expenditure.[1] If necessary, an ordinary resolution should also be passed to modify the relevant budgets or adopt a special levy. If owners fail to ratify the expenditure then owners may subsequently wish to consider whether the body corporate should take any further action in that respect.

I also note with concern the applicant’s allegations that, as treasurer, she has been unable to obtain copies of invoices. The legislation requires that the body corporate allow all members of its committee reasonable access to the body corporate’s records without payment of a fee (Standard Module, 204). This does not require allowing access to records that are privileged from disclosure due to legal proceedings (Standard Module, 204(2)). However, it is difficult to imagine that the invoices in question are the subject of legal professional privilege.

Order

For these reasons, I make the order above.

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[1] Refer Warren v Body Corporate for Buon Vista Community Titles Scheme 14325 (No 2) [2006] QDC 398.