Magnetic International Resort Hotel [2009] QBCCMCmr 430 (30 October 2009)

Number of Scheme:	22894
Name of Scheme:	Magnetic International Resort Hotel
Address of Scheme:	61 Mandalay Avenue NELLY BAY MAGNETIC ISLAND QLD 4819

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

Halmarn P/L, the Caretaking Service Contractor and owner of lots 97, 99 & 100

I hereby order that the application for the following interim order:

That the respondent be restrained from taking any further steps in CCT proceedings KC018-09 pursuant to ss.149 and/or 151 of the Body Corporate and Community Management (Accommodation Module) Regulation 2008 until a final determination of this application, subject to the applicant consenting to any reasonable requests for an extension to the time by which the Respondent must file its defence in the CCT proceedings KC018-09 and such reasonable extension/s being granted by the CCT.

is dismissed.

Magnetic International Resort Hotel community titles scheme 22896 is subject to the Body Corporate and Community Management Act 1997 (Act) and the Body Corporate and Community Management (Accommodation Module) Regulation 2008 (Accommodation Module).

This application dated 6 October 2009 is made by Halmarn Pty. Ltd. the caretaking service contractor for the scheme, seeking the following Interim Order:

That the respondent be restrained from taking any further steps in CCT proceedings KC018-09 until its Committee has:-

The applicant holds the caretaking and letting rights to the scheme by assignment of the Caretaking Agreement and assignment of the Letting Agreement dated 18 December 2003 and states that the matters raised in this application are ancillary to the contractual dispute between the parties giving rise to the following:

The applicant states that it is mindful of the multiple applications which have been made pursuant to chapter 6, but has sought to resolve the disputes internally without first lodging adjudication applications and states that this is due to the unwillingness of the respondent to engage in meaningful dialogue.

The applicant further states that the current dispute arises out the actions of the committee in engaging a legal firm to represent the body corporate in legal proceedings brought by the applicant, without complying with its obligations pursuant to sections 149 to 151 of the Accommodation Module.

Under the above provisions the relevant limit for major spending is $10,000 as per the statutory definition in the Schedule to the Regulation and the relevant limit for committee spending is $20,600 as per the statutory definition in the Schedule to the Regulation (i.e. 130 lots at $200 per lot).

1. That Herdlaw be appointed as solicitors for the body corporate for Magnetic International Resort Hotel in relation to the following issues:

2. The Chairperson be authorised to sign the Costs Agreement and Disclosure Notice attached to this motion, appointing Herdlaw to attend to the matters listed above.”

The applicant noted that the resolution provides no details as to the anticipated costs of giving effect to the resolution/ proposal and therefore initially assumed that the spending required to give effect to the resolution/ proposal would be less than $10,000. On 11 August the applicant requested the body corporate manager to provide a copy of the Costs Agreement and Disclosure Notice provided by Herdlaw that should have been attached to minutes of committee meeting. It also requested and an account of the total fees invoiced to the body corporate for Herdlaw’s services. By email dated 7 September 2009, the body corporate manager subsequently notified all committee members that two invoices had been received from Herdlaw for the amounts of $14,049.75( which had been paid) and for $12,295.47, ie a total amount of $26,345.22.

The applicant submits that the committee has authorised Herdlaw to perform a significant amount of legal work in excess of the relevant limit for committee spending ($20,600) without obtaining at least 2 quotes. The applicant has put the committee on notice that committee members may be held personally liable for legal fees incurred beyond their authorised expenditure limit and has also requested the committee to call an Extraordinary General Meeting for the purpose of obtaining a quotation from another law firm.

By e-mail received on 29 September 2009, Herdlaw responded to the applicant, via their lawyers, Hynes Lawyers, as follows:

“It is rather disingenuous for your client to take our client to the tribunal and then try and hinder its defence by suggesting that the spending limit of the committee will be exceeded.
You will not get very far if you try and advance this argument in the tribunal.

To lodge the defence the committee expenditure limit will not be exceeded and it is not a restricted issue for the committee. In relation to ongoing expenditure the authorisation is catered for under section 149 of the Accommodation module and in recent decisions before the adjudicator. I suggest that you do a bit of research. Accordingly no such undertaking will be given in relation to obtaining two quotes”

“We dispute that our client is required to obtain a second estimate as to legal fees in relation to the CCT application and the contemplated Supreme Court action. Our client engaged this firm in relation to providing advice and taking action to terminate the Caretaking Agreement. It is our view that the subsequent actions in defending proceedings brought by your client, specifically the CCT and the Supreme Court will be covered in the scope of works contemplated by our client when this firm was initially engaged. Therefore our client will not provide any undertaking to obtain a second estimate on legal fees in relation to the CCT application and the contemplated Supreme Court action.”

The applicant believes that the above statement appears to be a concession by the body corporate that it decided to take action to terminate the Caretaking Agreement before-

The applicant goes on to state that there are no “exceptional circumstances” that are relevant to absolve the committee from complying with ss149 and 151 of the Accommodation Module and rejects the claim by the applicant’s solicitors that special circumstances exist because of their “knowledge of matters with this body corporate and the unreasonable cost of retaining new solicitors. It argues that these are not exceptional circumstances as “reading in” is a very common activity in the legal service industry.

Relying upon the decision Warren v Body Corporate for Buon Vista (no.2) [QDC] 398 the applicant submits that legal representation for different proceedings should be quoted according to ss 149 and 151 of the Regulation as they arise, as opposed to arguing that the expense was warranted in hindsight. It refers to the recent District Court decision of Body Corporate for Aleutian at Seaforth & Ors v Lot Owners of Each of the Applicant Bodies Corporate [2009] QDC 52 which applied the decision of Warren v Body Corporate for Buon Vista (No. 2) and affirmed the need for a body corporate to obtain 2 quotations when the cost of giving effect to the proposal, involving engagement of lawyers, exceeded a relevant spending limit. The applicant also refers to the comments of Dodds DJC in Body Corporate for Aleutian at Seaforth where he noted that the applicable regulations were in imperative terms and submits that sections 149 to 151 of the Accommodation Module regulation are also constructed in imperative terms viz:-

Section 149(1) provides that the committee may only give effect to a proposal involving spending above the relevant limit for committee spending for the community titles scheme if....

(2) the owner of each lot must be given copies of at least 2 quotations for carrying out the work or supplying the personal property or services.

(3) if the motion is proposed by the committee the committee must obtain the quotations

(4) if the motion is not proposed by the committee, the person proposing the motion must obtain the quotations and give them to the secretary

(2) before a motion to be moved at a motion of the committee is decided, the committee must obtain and consider at least 2 quotations for carrying out the work or supplying the personal property or services.

(3) if the motion is to be moved outside a committee meeting, the notice of the motion must be accompanied by copies of at least 2 quotations for carrying out the work or supplying the personal property or services.

It is further submitted that even if I were to disagree that 2 quotations are required in the current circumstances for “exceptional reasons”, sections 150(6) and 151(4) are also worded in imperative terms and therefore even if it is not practicable to obtain 2 quotations, at least one quotation must be obtained and considered.

The body corporate for the scheme was invited to respond to the application and made a number of brief submissions including the following:

In accordance with section 247 of the Act, the Commissioner for Body Corporate and Community Management has referred the application to me Section 276(1) of the Act provides that an adjudicator may make an order to resolve a dispute about a claimed or anticipated contravention of the Act; or the exercise of rights or powers, or the performance of duties, under the Act. An order

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

Section 279(1) provides that an adjudicator may make an interim order “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”. It is therefore necessary to determine whether, because of the nature or urgency of the circumstances, an interim order is in fact necessary or appropriate. The examples under section 279(1) are suggestive of the usual circumstances where an interim order might be made. Whilst the range of matters which might be the subject of an interim order is not capable of definition, the Applicant does need to establish that the circumstances of the application warrant the making of an interim order.

The applicant is seeking an interim Order That the respondent be restrained from taking any further steps in CCT proceedings KC018-09 pursuant to ss.149 and/or 151 of the Body Corporate and Community Management (Accommodation Module) Regulation 2008 until a final determination of this application, subject to the applicant consenting to any reasonable requests for an extension to the time by which the Respondent must file its defence in the CCT proceedings KC018-09 and such reasonable extension/s being granted by the CCT.
The argument presented by the applicant centres around alleged non-compliance with sections 149 to 151 of the Body Corporate and Community Management (Accommodation Module) Regulation 2008 which are summarised below:
• section 149 sets a relevant limit for committee spending at to an amount equal to $200 multiplied by the number of lots, which place limits of committee spending in this scheme at

• section 150 provides that where the cost of giving effect to a proposal is more than the relevant limit for major spending for the scheme (the lesser of $1100 x No. of lots OR $10,000), at least 2 quotations must be obtained and considered by the body corporate in general meeting;
• section 151 provides that where the relevant limit for committee spending is more than the relevant limit for major spending, the committee may approve a proposal involving major expenditure provided it is below the relevant limit for committee expenditure and the committee firstly obtains and considers 2 quotations;

It is argued that the committee has failed to comply with the above provisions because as at 7 September 2009, the body corporate had incurred a liability to Herdlaw of $26,3345.22 in legal costs and the only authorisation for this expenditure is the following committee resolution that was made on 29 June 2009:

1. That Herdlaw be appointed as solicitors for the body corporate for Magnetic International Resort Hotel in relation to the following issues:

2. The Chairperson be authorised to sign the Costs Agreement and Disclosure Notice attached to this motion, appointing Herdlaw to attend to the matters listed above.”

I am aware that there is a contractual dispute between the parties which has resulted in the applicant making a number of dispute resolution applications which include the following:

However the defence of legal proceedings brought against a body corporate is not a restricted issue for the committee and therefore a committee is entitled to engage a legal firm without obtaining 2 quotations where the anticipated expenditure does not exceed the relevant limit for major spending. Where the anticipated expenditure is likely to exceed the relevant limit for committee spending, the appropriate course for the committee is to call a general meeting or, if the matter is urgent, seek special authorisation of an adjudicator for the associated emergency expenditure.

In the present case the applicant believes it is probable that the cost of defending CCT Application KC018-09 will exceed $20,600 and therefore the circumstances of this case deed are not dissimilar to the circumstances considered by the adjudicator in The Phoenician [2006] QBCCMCmr . In that case the applicant brought two specialist adjudication applications against the body corporate. The body corporate had served points of defence and particulars that were likely to significantly increase legal costs and although it was estimated that the body corporate’s total legal costs would be well in excess of $200,000, there was no resolution of the body corporate authorising such expenditure. In that case the adjudicator made certain interim orders which included the following:

the body corporate is not to incur any further legal expenditure in the defence of the specialist adjudication applications concerning the body corporate unless or until the expenditure is approved by owners in general meeting.

However, in this case the interim orders sought by the applicant are much broader i.e.

Respondent must file its defence in the CCT proceedings KC018-09 and such reasonable extension/s being granted by the CCT

As an adjudicator, I am empowered by section 276 of the Act to 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 this Act or the community management statement; or
(b) the exercise of rights or powers, or the performance of duties, under this 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 authorisation of a person as a letting agent for a community titles scheme.

While section 279(1) of the Act enables an adjudicator to make an interim order “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”, for it to be just and equitable to grant injunctive relief pending a final determination, I would need to be satisfied that there is a serious issue to be determined and that the balance of convenience between the parties justifies the grant of injunctive relief. That is, I would need to balance the inconvenience of granting relief now if final orders are ultimately refused against the inconvenience of refusing relief now if final orders are ultimately granted.

The applicant’s material does indicate that there is a serious question to be determined, primarily in the allegation that the body corporate has incurred a significant liability for legal fees without authorisation by a general meeting. The Act sets out specific requirements for control of body corporate spending and in this scheme, a proposal involving spending in excess of $20,600 would normally require approval by ordinary resolution of the body corporate. Proposals involving spending of between $10,000 and $20,600 would normally require the body corporate committee to pass a motion approving one of at least two quotations for the spending.

It is evident that the body corporate committee has incurred a liability to Herdlaw of at least $26,3345.22 although the applicant has not established whether this expenditure relates solely to CCT Application KC018-09, or to a number of proceedings to which the respondent is a party.
Nevertheless, the applicant has established that the committee has engaged a legal firm to provide representation and the aggregate sum of legal fees payable to the firm exceeds the relevant limit for committee spending. The applicant argues that the committee should have obtained approval for this expenditure from the body corporate in general meeting. I therefore believe that the applicant has established that there is a serious question to be determined.

However, I am not satisfied that the balance of convenience favours the making the interim order requested by the applicant at this point in time. I do not believe that the alleged failure by the body corporate to properly authorise expenditure on legal fees would entitle me to make an order restraining the body corporate from defending an application brought before the Commercial and Consumer Tribunal by the applicant. As the defence of legal proceedings brought against a body corporate is not a restricted issue for the committee, the committee is entitled to defend proceedings without first obtaining approval at a general meeting.

The applicant states that it’s main concern is that the committee has incurred expenditure without obtaining approval for such expenditure from the body corporate in general meeting. In response, solicitors for the respondent have claimed that “Our committee’s expenditure limit is approximately $20,000. At this stage it is difficult to determine if this will be exceeded. The CCT matter is a new “project” from our original retainer and we have not exceeded the expenditure limit”.

The body corporate committee is entitled to defend the proceedings brought by the applicant without reference to a general meeting. It is the expenditure on legal fees that may need to be approved by the body corporate in general meeting if the quantum of fees exceeds $20,600. However, even if the legal fees exceed $20,600, it is possible, if not probable, that the body corporate in general meeting will ratify the expenditure on legal fees. On the other hand, it is evident that committee members are on notice of the possibility that if the expenditure is not ratified, they could be personally liable for the legal fees which they have incurred. Similarly, the solicitors for the body corporate are on notice that the expenditure has not been approved by a general meeting and are therefore aware that such lack of approval could impact upon their ability to recover their fees pursuant to section 310 of the Act if the expenditure is not subsequently ratified.

Clearly, the body corporate committee is entitled to defend proceedings brought against the body corporate. The extent to which the committee is entitled to incur legal fees in defending such proceedings is a separate issue. The committee has been made aware of the limitations upon the expenditure which it may incur without obtaining two quotations or obtaining approval for the expenditure in general meeting and the possibility that committee members could be personally liable for such expenditure if it is not subsequently ratified. For the above reasons, I do not believe it is appropriate to order that the respondent be restrained from taking any further steps in CCT proceedings KC018-09.

The application will be allowed to proceed to submissions and final determination in the normal course.

Queensland Body Corporate and Community Management Commissioner - Adjudicators Orders

Magnetic International Resort Hotel [2009] QBCCMCmr 430 (30 October 2009)