Millennium [2009] QBCCMCmr 414 (23 October 2009)

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

Ron Goodwin, Ken Allsop, Carlos Cid and Kerryn Green, owners or co-owners respectively of
Lots 205, 204, 206 and 103

I hereby order that the application for orders as follows

“1. ... that alternative one of Motion 2 at the EGM held on 27th February 2009 which purported to change the due date for payment of Administrative Fund levies from payment in advance to payment by the end of the quarter be void on the basis that it conflicts with section 94(2) of the Body Corporate and Community Management Act 1997 and has placed the body corporate in a position of having liquidity problems; having no funds to pay its debts.

...that alternative one of Motion 3 at the EGM held on 27th February 2009 which purported to change the due date for payment of Sinking Fund levies from payment in advance to payment by the end of the quarter be void on the basis that it conflicts with section 94(2) of the Body Corporate and Community Management Act 1997 and has placed the body corporate in a perilous financial position.
That an order be made directing all committee members to comply with decisions relating to the administration of the common property and the body corporate assets for the benefit of all owners and the enforcement of the by-laws which are to be made by majority vote of the committee.”

are dismissed.

This is an application dated 3rd April 2009 but not received by this Office until 7th April 2009, and amended on 30th April 2009 and again on 6th May 2009, by Ron Goodwin, Ken Allsop, Carlos Cid and Kerryn Green, (the Applicants) owners or co-owners of Lots 205, 204, 206 and 103 respectively against the body corporate for Millennium CTS 37467 (the body corporate) for orders as follows –

On 20th May 2009 I made an interim order dismissing an interim application for Motion 2 of the EGM of 27th February 2009 – “Administrative Fund Budget & Contributions, Alternative 1” – be put on hold until an adjudicator had decided that the motion should be overturned; and also dismissing an interim application that Motion 3 of the same general meting, in respect of the Sinking Fund Budget & Contributions, be put on hold until an adjudicator had decided that the motion should be overturned.

“Millennium” CTS 37467 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 16 lots in the scheme.

Section 276(1) of the Act provides that an adjudicator may make an order that is just and equitable in the circumstances (including a declaratory order) to resolve a dispute, in the context of a community titles scheme, about-

(a) a claimed or anticipated contravention of the Act or the community management statement; or

(b) the exercise of rights or powers, or the performance of duties, under the Act or the community management statement; or

(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)).

The Applicants say that there is a majority lot owner, McGrath Corporation Pty Ltd (McGrath Corp) which at the time of the extraordinary general meeting held on 27th February 2009 (the EGM) owned 10 of the 16 lots. McGrath Corp was the developer of the scheme, and the committee is dominated by members of the McGrath family as nominees of the company.

In June 2008, Kerryn Green one if the Applicants was treasurer and found that the administration fund was in debt and that there were insufficient funds to pay for essential services and outstanding bills from service contractors; maintenance of the penthouse swimming pools had been paid for out of body corporate funds; and that McGrath Corp’s contributions were in arrears for both the Administrative and Sinking Fund in the sum of $73,662.55. The next contributions were due on 1st October 2008.

On 1st October 2008, McGrath Corp failed to pay its several contributions on the due date, although they were paid by 19th December 2008, prior to the annual general meeting on 22nd December 2008 (the AGM).

At the AGM, McGrath Corp used its majority vote to defeat budgets prepared and approved by the committee, contrary to the wishes of the minority lot owners. Because the budgets were not set, the body corporate manager was unable to send out contribution notices for payments normally due on 1st January 2009. It also defeated a motion for applying a penalty provision for late payments of contributions.

At the time for electing the committee, “Stephen McGrath voted himself chairman, his mother secretary and his brother treasurer.” The four ordinary member positions were filled from nominations from the floor. The ordinary members attempted to discuss with the secretary the urgency of holding a committee meeting to pass the budgets in early January 2009. The secretary did not respond, even after receiving a request from the committee in writing in accordance with section 44 Standard Module. The ordinary members themselves called a committee meeting on 29th January 2009 for the purpose of setting the budgets.

At the EGM, the budgets for the administrative and sinking funds were presented in the alternative, the “motion of the chairman” being that the levy notices be issued quarterly on 1st January, 1st April, 1st July and 1st October and paid at the end of each quarter; and the “motion of the committee” being that the contributions be due and payable on 1st January, 1st April, 1st July and 1st October. The quarterly amounts of each of the alternatives was identical. Alternative 1 of each motion received 10 votes, and alternative 2 received 6 votes. Levy notices were issued without delay, with a statement that levies were due on 2nd April 2009. Only one lot owner paid the contribution on 2nd April 2009. The Applicants say that “[a] poll of owners established that owners had no confidence in the ability of the treasurer to manage the affairs of the body corporate.”

Mr McGrath signed a submission at the interim stage of this application as chairman of the body corporate, but as requested, made a submission on behalf of the 10 lots of which McGrath Corp is owner. He said that the ordinary members of the committee, who are the Applicants, have “seriously exceeded their authority and made several large unauthorised purchases and have otherwise failed to recover outstanding monies owed to the body corporate.” He says that McGrath Corp has paid the costs of gardening and a concierge since the committee has stopped paying these services.

He said that the body corporate has failed or refused to implement several motions passed at general meetings, and that he would make further submissions on these at the final order stage about this. He also said that the Applicants had deleted vital expenditure form the budget and at the same time made frivolous purchases. Funds for some service contractors have also not been included in the budget so that despite legitimate prior contracts, these service providers are not getting paid by the body corporate.

However there was no further submission from Mr McGrath, despite asking for further time in which to make a final submission. There were no submissions from any other lot owners.

The Applicants exercised their right of Reply to Mr McGraths’s interim submission. They note that Mr McGrath does not contest or dispute the facts of the application, but has raised further issues. They believe that McGrath Corp has sold Lot 109 and now owns only 9 lots.

They deny that the previous committee exceeded its authority in making unauthorised purchases, or that the previous committee exceeded its authority by failing to recover outstanding debts owed to the body corporate. They say that McGrath Corp has consistently failed to pay fees and levies by the due date since the inception of the scheme in 2007. There was at the time of making the Reply the sum of $22,000 outstanding by the lots owned by McGrath Corp.

The body corporate says in respect of the gardener, that the administrative fund was in deficit because McGrath Corp owed body corporate debts of about $60,000 in 2008, and there was no money for a gardener. Five lot owners volunteered to take responsibility for the gardens. McGrath Corp has not presented a motion to the committee for reimbursement; nor has the committee authorised any gardening contractor to be engaged.

The agreement with the concierge was initiated by McGrath Corp prior to the first annual general meeting. At that time there was a “severe lack of funds” in the administrative fund so the committee had to “prioritize allocation of funds.” It agreed that no new contract could be initiated.

In respect of the body corporate failing to implement certain motions of the EGM, the Applicants say that those motions are the subject of this dispute. The body corporate has no funds to enter new contracts of any type which the motions required. Reimbursement of unauthorised expenses allegedly incurred by McGrath Corp is also not in the best interests of lot owners. They say that, in respect of these motions, that it could be deemed that McGrath Corp used its majority vote improperly for personal gain.

In this matter, the Applicants seek to overturn certain resolutions of the body corporate being the chosen alternatives on both Motion 2 and Motion 3 made at the EGM on either 26th or 27th February 2009 (the minutes of the meeting carry the date of 26th February 2009), on the grounds that the body corporate was not acting reasonably (section 94(2) Act.) The vote on alternatives numbered “1” of both Motion 2 and Motion 3 was 10 – 0; and the vote on alternatives numbered “2” of both Motion 2 and Motion 3 was 6 - 0.

The motions were carried by the fact that one owner, McGrath Corp, at that time owned 10 lots. In a scheme of 16 lots, the McGrath Corp will always be able to exercise a majority vote. As noted in the interim order, the four minority lot owners can carry the day at committee meetings where the McGrath Corp holds three of the executive positions on the committee, but the majority owner will carry the day at general meetings.

Motion 2 was about setting contributions for the administrative fund budget for the year, and Motion 3 was about setting contributions for the sinking fund budget.

“Alternative 1” to Motion 2 was that levy notices for the administrative fund be issued quarterly on 1st January, 1st April, 1st July and 1st October but “paid by the end of each quarter” in the sum of $1680 for the quarter 1st October 2008 to 31st December 2008, and thereafter in the sum of $1840 per lot entitlement. It was submitted by the chairperson Stephen McGrath. “Alternative 2” to Motion 2 was that contributions were to be payable on 1st January, 1st April, 1st July and 1st October in the same sums, in accordance with section 150 Act and “Regulation Section 146(2) (sic)” with the treasurer issuing notices of contributions payable. The motion was submitted by the committee.

Alternative 1 and Alternative 2 in respect of Motion 3, for the sinking fund budget, followed the same format, with identical sums sought but with alternative 1 submitted by chairperson Stephen McGrath seeking issuing of levy notices on the dates as above with payment at the end of the quarter; and the committee’s alternative 2, proposing that the sums are payable on the quarterly dates, with notice given in accordance with the legislation.

The committee sent out with the notice of the EGM explanatory notes that “alternative 1 requires payment in arrears, whereas alternative 2 requires payment in advance.” It said that Alternative 1 conflicts with section 94(2) Act in that the body corporate must act reasonably in anything it does. It says such a decision would not be reasonable as it “would put the body corporate in a perilous financial position” and should be ruled out of order. The chairperson for the meeting, refused to rule the motion out of order.

At the EGM, on both Alternatives numbered “1”, there was objection to the motions from the floor, requesting that each be ruled out of order. The minutes state that the request in each case was “denied by the chairperson of the meeting – Paul McGrath.” Paul McGrath had been elected to chair the meeting in the absence of the chairperson, and was present at the meeting “representing the McGrath Corporation.”

Both the Applicants and the body corporate (represented largely by the McGrath Corp) agree that the body corporate is short of funds. Mr McGrath accuses the ordinary committee members of unauthorised spending and the Applicants accuse Mr McGrath of paying McGrath Corp contributions late, and thereby impoverishing the coffers of the body corporate. The Applicants have not carried out certain motions passed by the body corporate, McGrath Corp using its majority vote, because they say there is not enough cash, and they have different priorities for spending the administrative fund.

However, the question currently before me is whether the body corporate acted unreasonably in proposing motions worded as per Alternative 1, and/or in voting for Alternative 1 on both Motions 2 and 3.

Section 146(2) and section 146(3) of the Standard Module, to which I believe the committee intended to refer in its drafted motions “Alternative 2” in each of Motions 2 and 3, read as follows -

(2) The body corporate must pay into its administrative fund any amount received by the body corporate that is not required under subsection (3) to be paid into its sinking fund.

Section 146(3) continues -
(3) The body corporate must pay into its sinking fund—

(a) the amount raised by way of contribution to cover anticipated spending of a capital or non-recurrent nature (including the periodic renewal or replacement of major items of a capital nature and other spending that should be reasonably met from capital); and

(b) amounts received under policies of insurance for destruction of items of a major capital nature; and

I am not of the view that either of these sections preclude the wording of the alternatives numbered “1”.

Section 141 Standard Module requires the body corporate to fix its budgets for a financial year, and to decide the date on or before payment of each instalment is to be made, and decide the number of instalments. Section 142 Standard Module requires that at least 30 days notice is given by the body corporate to each owner of the amount and date on which the contribution is due. There is no legislative requirement for contributions to be paid in advance rather than in arrears, such a decision being entirely a matter for the body corporate.

A chairperson must rule a motion out of order, if the motion, if carried, would conflict with the Act, or a regulation, or the by-laws, or a motion already voted on at the meeting; or be unlawful or unenforceable for another reason. (Section 81 Standard Module.) In my view, there is nothing unlawful or in conflict with the Act about the wording of “Alternative 1,” such that the Chairperson was obliged to rule it out of order. However, the Applicants say that there is conflict with the Act not only because of the wording itself, but that a vote in favour of such a motion would be “unreasonable” in the circumstances, pursuant to section 94 Act. The circumstances are a body corporate in a “perilous financial position.”

The Applicants provide balance sheets dated 30th September 2008 which show that at that time the body corporate had net assets of $41,378.56, being $23,055.45 in the administrative fund and $18,323.11 in the sinking fund. Levies in arrears were shown as $6,627.

The Applicants provided no evidence that the body corporate had specific bills to pay which they could not meet.

Whilst $41,378.56 is not a huge sum, it does not demonstrate to me a body corporate in a “perilous financial position” at the end of September 2008 such that the difference between receiving contributions in arrears and receiving them in advance will render the vote to do so “unreasonable.”

Further, this application was not lodged until 3rd April 2009, three days after the contributions for the quarter 1st January 2009 – 31st March 2009 were due in accordance with the resolutions which were passed, ie. “Alternative 1”. If the body corporate was in a “perilous financial position” I would expect the application to have been made very shortly after the EGM at the end of February 2009.

The Applicants say that only one owner had made a contribution by 2nd April 2009 because there is no confidence in the treasurer, Mr McGrath’s brother. There is no evidence of either any incompetence on the part of the treasurer, or of lot owners’ lack of confidence in him. A motion to pay contributions was passed at the EGM and whether owners agreed with it or not, at the latest the contributions for that quarter were due by 31st March 2009 (or 2nd April 2009 as set out in the contribution notice.)

I note that the body corporate manager was unable to send out levy notices normally due for payment on 1st January 2009, so that for the first three months of 2009 there was no income for the body corporate. I also understand the concern of the Applicants that McGrath Corp may continue to make late payments of contributions and that where the body corporate is heavily reliant on those contributions to manage the scheme, this necessarily hampers the administration and smooth running of the body corporate.

However, I am not satisfied that there was anything unlawful about the wording of Alternative 1, or that the use of its voting power was wielded in a way that provided any unfair advantage for McGrath Corp, as against any other lot owner. If all owners are not required to pay the contribution previously paid on 1st January 2009, until the end of March 2009, there is no disadvantage to any one owner.

To demonstrate a “fraud on the minority”, the Applicants would need to show that the majority owner had oppressed the minority motivated by a desire for some personal or particular gain which does not arise fairly, and is outside and inconsistent with the contemplated power given to a majority owner.[1] McGrath Corp is able to exercise a majority vote because it is a majority owner and the legislature does not find this to be in itself “unreasonable.” The voting rights are based on the principle of ownership of property, as is the nomination of committee members.

If the McGrath Corporation does not pay its contributions on time, it risks losing voting rights for the lots which owe a body corporate debt, and the committee has the power to seek payment of body corporate debts.

Other lot owners in the scheme might also use the powers given to them by requesting an extraordinary general meeting at which any motions, including a motion to set up a penalty provision for payment of contributions out of time, might be put. A requested general meeting requires a written request signed by the owners of 25% of lots in the scheme, so that in this scheme, owners of any four lots might request such a general meeting. (Section 67 Standard Module.) The body corporate is obliged to convene a general meeting when so requested. (Section 68 Standard Module.) McGrath Corp would need to have paid at least 7 of its lots’ contributions in order to be sure of defeating a motion it did not agree with.

I note that the Applicants believe that the McGrath Corp has sold Lot 109, although as at 20th October 2009, there is no new owner for any lot in the scheme recorded in the Land Titles Registry.

As mentioned in the interim order, where the body corporate becomes dysfunctional and fails to carry out its duties under the legislation, an administrator may be appointed under such conditions as are necessary, and for a period of time as is thought appropriate, to perform all the tasks of the body corporate.

Circumstances in this relatively new scheme should improve over time, as lots are sold by the developer, and in respect of this application, the initial gap in income caused by the vote on “Alternative 1” to Motions 2 and 3 of the EGM should now be closed by subsequent contributions. If the body corporate finds that a liability arises for which no, or inadequate, provision has been made, it can seek a special contribution. (Section 141(2) Standard Module.)

In respect of the third outcome sought, making such an order would be pointless since committee members are required by the legislation to comply with decisions of the committee and the body corporate. The committee is also required to enforce scheme by-laws. Further, there is no evidence about a failure to enforce by-laws in the scheme, and the order sought is too general and vague to be applicable or enforceable. It appears to me that the Applicants have the power in the committee, and may seek specific orders in this Office to require compliance by specific committee members to take certain actions if that is a decision of the committee.

Whilst I have some sympathy for the Applicants, I am not satisfied that in the matters the subject of this application, the body corporate has acted unreasonably and contrary to section 94(2) Act. I therefore dismiss this application.

Finally I note that in the Reply, the Applicants say that the fact that the committee has apparently not proceeded with some of the motions passed by the body corporate in reliance of the McGrath Corp majority vote at the EGM “is the subject of this application.” That does not appear to me to be the subject of this application as the Applicants have concurred in their opening remarks about Mr McGrath’s interim submission raising new issues. This seems to me to be a new issue, and a dispute not currently in this Office.

[1] Dindas & Anor v Body Corporate for One Park Road CTS 2114 & Ors [2006] QDC 302

Number of Scheme:	37467
Name of Scheme:	Millennium
Address of Scheme:	1 O’Connell Street KANGAROO POINT QLD 4169

Queensland Body Corporate and Community Management Commissioner - Adjudicators Orders

Millennium [2009] QBCCMCmr 414 (23 October 2009)