Castaway Cove [2010] QBCCMCmr 279 (24 June 2010)

Last Updated: 24 August 2010

REFERENCE: 0228-2010

ORDER OF AN ADJUDICATOR

MADE UNDER PART 9 OF CHAPTER 6

BODY CORPORATE AND COMMUNITY MANAGEMENT ACT 1997

Number of Scheme:	16564
Name of Scheme:	Castaway Cove
Address of Scheme:	528 David Low Way MARCUS BEACH QLD 4573

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

Glen Toyer, of Sea Change Resort Management Pty Ltd, the Caretaking Service Contractor

I hereby order that the application for the following orders: That Motion 10 adopted at the Annual General Meeting (AGM) held on 18th February 2010 be declared invalid. That an administrator be appointed for one year to replace the existing Committee. That the administrator be requested to negotiate with my Company the final wording of new Agreements within one month. That the administrator be authorised to approve the new Agreements without a vote of the Body Corporate. is dismissed.

STATEMENT OF ADJUDICATOR’S REASONS FOR DECISION - REF 0228-2010

“Castaway Cove” CTS 16564

Application

This application is lodged by Glen Toyer, the director of Sea Change Resort Management Pty Ltd, the caretaking service contractor for Castaway Cove, against the body corporate for Castaway Cove, seeking the following orders:

1. That Motion 10 adopted at the Annual General Meeting (AGM) held on 18th February 2010 be declared invalid.
2. That an administrator be appointed for one year to replace the existing Committee.
3. That the administrator be requested to negotiate with my Company the final wording of new Agreements within one month.
4. That the administrator be authorised to approve the new Agreements without a vote of the Body Corporate.
   

Motion 10 was recorded as follows in the minutes of the AGM of 18 February 2010:

10. APPOINTMENT OF CARETAKER AND LETTING AGENT (Ordinary Resolution by Secret Ballot)
    

That conditional upon Sea Change Resort Management Pty Ltd CAN 105 469 467 as trustee for the Toyer Family Trust (the current resident manager) paying the Body Corporate’s reasonable legal costs (including the Body Corporate Manager’s fees and expenses) the Body Corporate resolves to:

(a) enter into a Caretaking Agreement with Sea Change Resort Management Pty Ltd ACN 105 469 467 as trustee for the Toyer Family Trust in the form attached to this Motion;
(b) enter into a Letting Agreement with Sea Change Resort Management Pty Ltd ACN 105 469 467 as trustee for the Toyer Family Trust in the form attached to this Motion; and
(c) affix its seal to the Agreements.

MOTION LOST Yes – 9 No – 14 Abstain - 1

The Applicant provides the following background to the dispute and grounds:

• Management rights were purchased at Castaway Cove by Sea Change Resort Management Pty Ltd (as trustee of the Toyer Family Trust) (Sea Change) on 20 October 2003. The existing 8 year caretaking and letting agreements were transferred from the previous managers for $600,000. The Applicant and his wife have undertaken the duties of service contractor and letting agent for the last six and a half years without a holiday break.
• The current agreements will expire on 8 December 2010 and the Applicant and his wife are desperate to get new contracts out of the Body Corporate so that they can sell their business, recover their investment, and move on.
• The Applicant and his wife have attempted on a number of occasions over the past 5 years to get extensions to their Caretaking and Letting Agreements, or more recently to get new agreements approved by the Body Corporate. They have been frustrated on each occasion by unfair tactics of the Committee, in particular by the past and present chairperson.
• The intention of a small, but influential group of residents is “to make the Resort private”.
• After influencing many of the owners, particular members of the Committee and some residents have managed to secure a “No” vote to new Agreements on three occasions, which, should it come to fruition, will result in the complete loss of the Applicant and his wife’s business investment and their retirement savings. This would be manifestly unfair on them and their business. The decision would also adversely affect the letting owners in the complex who rely on on-site management for the letting of their units, and who purchased into the complex knowing that on-site managers were available to look after, and let their unit.
• The Applicant and his wife believe that they should have the right to on-sell their business. It is their belief that the Committee and the Chairperson in particular, have not acted fairly and reasonably towards the resident managers and the letting owners as required under section 94(2) of the Act.
• The Applicant takes particular issue with a letter, written by the chairperson to all owners, dated 25 January 2010, which was attached to the Notice of AGM at which Motion 10 was considered. He claims that the chairperson’s comments on the proposed new agreements were without disclaimer and proper balanced argument. To claim that some changes to the agreements were bad and not acceptable to the majority of the Committee without explanation or admission of counter argument was irresponsible, unfair and unreasonable.
• The letter, which the Applicant claims breaches section 73(6 – 8) of the Standard Module, was a deliberate and successful tactic by a small number of Committee members and disgruntled owners to discredit the Managers in the eyes of the majority of owners and to advance their agenda for no on-site management and no holiday makers.
  

Jurisdiction

“Castaway Cove” Community Titles Scheme 16564 was registered as a building format plan of subdivision comprising 25 lots and common property on 3 November 1995. The scheme is regulated by the Body Corporate and Community Management Act 1997 (the Act) and the Body Corporate and Community Management (Standard Module) Regulation 2008 (the Standard Module).

On the application form, in section 4(b), the Applicant specifies that he is applying as a “letting agent” and “caretaking service contractor”. As the Applicant is a letting agent and service contractor, he is, by definition under the Act, a “caretaking service contractor”. This then is a dispute between a caretaking service contractor and the body corporate concerning an alleged contravention of the Act and comes within the dispute resolution provisions of the Act (see ss.226, 227(d) & 228).

An Adjudicator may make an order that is just and equitable in the circumstances to resolve a dispute about the exercise of rights or powers under the Act (Act, 276(1)(b)). This may include an order declaring that a resolution purportedly passed at a general meeting of the body corporate was, at all times void (Act, Schedule 5 – Item 8). It may also include an order appointing an administrator (Act, Schedule 5 – Item 23).

Procedural Matters

On 10 March 2010, a copy of the application was provided to the body corporate care of Mr Rob Brinkworth of Sound Body Corporate Management for distribution to the owner/s of each lot (excluding the Applicant), with an invitation to respond to the matters raised in the application.

A dispute resolution recommendation has been made under section 248 of the Act referring the dispute to departmental adjudication.

Submissions

A total of 16 submissions were received.

Of the 16 submissions received, I regarded 5 as being supportive of the Applicant and this application; 2 as supportive of on-site management, but not the Applicant or the orders sought in this particular application; and 9 as being opposed to the application.

Those submissions which were supportive of the application were to the following effect:

• Believe that the body corporate has been misled by false, lack or, or badly presented information. Correspondence with owners has been deliberately avoided or constructed to unfairly bias voting against Sea Change.
• The alleged defects in caretaking are considered by many to be petty, but if true, fairly normal in the day to day running of any resort. Visitors to the resort and most owners are generally very favourably impressed with the state of maintenance and presentation of the resort.
• Express concern that the decisions imposed by a narrow majority provide a benefit considerably outweighed by the consequences for a significant minority.
• The permanent residents have taken every opportunity to find fault with the Applicant’s performance as a manager.
• The decision on Motion 10 did not and could not take fair and due regard to the interests of owners representing ten of the twenty-five units in the resort. It should therefore be invalidated as an unreasonable decision.
• Believe that the Committee had a duty to the body corporate to enter into discussion with Sea Change over concerns to ensure that the agreements put were acceptable had they been passed.
• The chairperson mistakenly believed that the new agreements gave Mr Toyer rights to commission over every real estate transaction or sale in the resort. This misinformation spread quickly among residents and over three months became entrenched.
• The view was promulgated and evident among the resident group and majority committee members before the AGM that the Toyers may not be serious in their stated desire to move on.
• Of major concern with the chairman’s letter accompanying Motion 10 was the overall negativity, and failure to present a balanced view of previous voting.
• Absent letting owners depend on the services of on-site management; it was in place at purchase and they will continue to depend on it to maintain demonstrated rental income and resale value. It impacts on perceived asset value for all owners.
• Letting owners have a right to expect that they will be permitted to manage their investments without hindrance or interference causing loss of income and undue devaluation of the investment.
• No strategy has been communicated as to what the future for managing the complex will be.
• The chairperson’s letter to all owners attached to the AGM agenda criticising the agreements seemed inappropriate and unfair as it gave Sea Change no chance to reply and unduly influenced the recipients. It was not supported by all members of the Committee.
  

Those submissions which oppose the application are to the following effect:

• Do not agree that the current and previous chairpersons have influenced the vote in relation to on-site management.
• The on-site manager is aggressive and rude to any owner who is not in the rental pool.
• Express belief in the democratic process by which a majority were clearly not in favour of on-site management.
• Suggestion that an administrator be appointed is unbelievable. Castaway Cove has been managed very well by numerous Committees. To suggest that the body corporate should incur administrative expenses in order to provide the on-site manager with contracts that he can on-sell is not acceptable.
• Owners are well aware of the situation at Castaway Cove and have formed a view of matters accordingly. Voting in this matter was not influenced by any comment from the chairperson, but rather by individual observations and experiences with on-site management.
• The majority of owners do not want any on-site management at Castaway Cove when the current contracts mature. Arrangements can easily be put in place to take up the various caretaking duties using contractors at the conclusion of the current agreements. There are several alternatives for future letting management, including the use of an offsite rental agency or direct letting to permanent tenants.
• When buying a unit at Castaway Cove owners are aware that the resident manager’s contracts as a caretaking and letting agent have a specified end date and that there is no automatic renewal of the contracts. When purchasing the management rights, the current resident manager knew that the contracts had a specified end date and that renewal might not be granted by the owners. By voting at several general meetings not to renew those contracts and not to continue with the resident management after the current contracts terminate, owners have made it quite clear that they wish to move on with the outsourcing of resident management duties and no resident manager.
• Caretaking is sub-standard in most respects. This would not occur if these duties were outsourced with no resident managers. Preliminary enquiries have indicated that the outsourcing of caretaker duties would result in both the lowering of overall costs as well as the elevation of standards to acceptable levels.
• There is no dispute – it is just the manager not willing to accept the wishes of the majority of the owners.
• Mr Toyer’s conduct is volatile and highly unprofessional.
• Owners who are not in his rental pool are treated with extreme bias and like second class citizens.
• Express utmost confidence in the current functioning committee who are working tirelessly to put in place the necessary contract services to cover the maintenance of the common property after 8 December 2010 when on-site management ceases.
• Owners have voted on numerous occasions to either extend the existing Agreements or enter into new agreements. All of the motions have been lost.
• The committee denies that “many of the owners have been irreversibly and deliberately corrupted”, as alleged by the Applicant. The chairperson’s letter of 25 January 2010 to owners was simply a statement of the facts surrounding the issue. The chairperson sought input from all committee members in relation to the drafting of this letter.
• An administrator is only appointed where a scheme is in complete disarray and unable to manage its own affairs. In this case, the body corporate is functioning in the normal manner. The only issue is that the Applicant does not agree with the decision of the body corporate not to renew its agreements with him.
• The Applicant admits that presenting the new agreements again “will probably only result in the same outcome”. The manager cannot override a decision of the body corporate acting reasonably in accordance with section 94 of the Act by the appointment of an administrator simply because the manager does not like the outcome of the body corporate’s decision.
• There was no attempt by the committee to “de-rail the vote”. The proposed agreements were different to the existing agreement and the committee simply pointed out this fact.
• If new agreements were to be put up with the support of the committee then they needed to be in a form acceptable to the committee.
• Owners were given all relevant information so that they could make an informed decision.
• The statement by the manager that “we are desperate to get new contracts out of the body corporate so that we can sell our business, recover our investment and move-on” sums up the attitude of the manager. Whilst it is understandable that the manager wishes to recover his investment, the body corporate is under no legal obligation to renew the existing agreements. The manager has not in any way given the body corporate any reason to renew the existing agreements.
• The manager is under a mistaken impression that he has a right to a new agreement. This is simply not correct. The body corporate is not acting unreasonably in not renewing the Agreements.
• The chairperson’s letter of 25 January 2010 clearly states that whilst the majority of the committee did not support the motion, this should not influence lot owners’ decision in the way they vote. It can hardly be said that the chairperson’s letter influenced the result in such a way that owners would have voted in a different way. There is no evidence to suggest that owners have been unduly influenced by the chairperson’s letter.
• This issue has been going on for a long time. All owners are very well aware that the agreements will expire on 8 December 2010. They have simply chosen not to renew them.
• The application has no grounds in law, is without substance or merit and should be dismissed in its entirety.
  

The Applicant exercised his right to inspect the submissions made and replied to the following effect:

• There is nothing stopping the Applicant, or other owners, from putting up motions for new agreements as many times as they like. If they get adopted, then past voting intentions to allow the agreements to expire are irrelevant. They have every right to dispute the actions of the committee. The Committee must act fairly and reasonably at all times, irrespective of past voting results.
• The Applicant and his wife bought the business in good faith with every intention of making the best of it. They are not naturally confrontationist; however, the attitude towards them by a small number of owners from the very beginning has meant an inevitable change in their character, resulting in them retaliating.
• Freely admit that they have taken a hard-line approach to those owners who were completely hypocritical in expecting them to do things for them, but at the same time voting against on-site management.
• Believe that they have a right to sell an on-going business and they had that belief and understanding when they were told about and bought into, management rights.
  

Determination

There are three issues for determination in this dispute. In relation to the validity of Motion 10 of the AGM of 18 February 2010, the legality of the inclusion of the Chairperson’s letter of 25 January 2010 with the Notice of AGM and whether the vote on Motion 10 of the AGM of 18 February 2010 was an unreasonable decision of the body corporate. A further issue is whether the appointment of an administrator is warranted.

Chairperson’s Letter of 25 January 2010

This letter, a copy of which was provided with the application, was stated to have accompanied the Notice of AGM. The Applicant believes its distribution with the Notice of AGM contravenes section 73(6 – 8) of the Standard Module.

Section 73 of the Standard Module provides for explanatory material accompanying voting papers. It provides, relevantly as follows:

73 Explanatory material accompanying voting paper

(1) A voting paper for a general meeting must be accompanied by an explanatory schedule if—

(a) the submitter of a motion stated in the voting paper gives the secretary an explanatory note about the motion, and the note is not longer than 300 words; or

(b) the voting paper is for an annual general meeting; or

(c) the voting paper states a motion with alternatives; or

(d) the voting paper states a motion proposing that a regulation module be applied to the community titles scheme that is different from the regulation module identified in the scheme’s community management statement; or

(e) an explanatory schedule is required to accompany the voting paper under another provision of this regulation.

Note—

See, for example, section 43 (Exceptions to restricted issues for

committee).

(2) The explanatory schedule must, for a motion mentioned in subsection (1)(a), include only the following—

(a) the number assigned to the motion on the voting paper;

(b) the explanatory note in the form given by the motion’s submitter;

(c) the submitter’s name.

(6) 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) or required under another provision of this regulation, written by a person other than the submitter of the motion.

(7) A notice of a proposed general meeting may be accompanied by explanatory material given by the committee, other than an explanatory note mentioned in subsections (2) to (5), if the material is contained in a schedule of the committee’s explanatory material that is separate from the explanatory schedule.

Example—

The schedule of a committee’s explanatory material might contain

general explanatory material that does not relate to a particular motion

stated in the voting paper, or information relating to a motion.

(8) Explanatory material may accompany a voting paper or a

notice of a proposed general meeting only if required or

permitted under this regulation.

Section 40C(6 – 8) (the previous s.73(6 – 8)) was considered in some detail in Batwing Resorts Pty Ltd v Body Corporate for Liberty CTS 27241[1] (Liberty). In that case, at paragraphs 55 to 56, it was held that section 40C(7) does not prohibit the committee from including “explanatory material”. Moreover, it provides an express “permission”: see the words “may be accompanied by”. 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 about the motion and that note is to be no longer than 300 words. It is only sensible to give a reasonably liberal interpretation of “explanatory material” ... Hence, it cannot be that section 40C(7) must be so limited that the committee itself must actually draft the words that are contained within 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” (emphasis added); but that must, by its very terms, be limited to the “explanatory schedule”.

Furthermore, the fact that the chairperson’s letter of 25 January 2010 was not specifically designated as an “Explanatory Schedule” by the committee is of no consequence. In Liberty it was held that the broad term of the “schedule of the committee’s explanatory material” easily covered the 2 documents in question in that case, despite the absence of a specified “schedule” naming.

It was further held that there was no express or implied statutory obligation to present both sides of the argument (whatever that means in practical terms) in the “explanatory material”.

Given the decision in Liberty, the Applicant’s arguments with respect to the Chairperson’s letter dated 25 January 2010 which was attached to the Notice of AGM, cannot be upheld. Section 73(7) of the Standard Module expressly permits the inclusion of explanatory material by the Committee. That explanatory material is not required to be included in a document titled “Schedule of the Committee’s Explanatory Material”. Further, there is no requirement to present both sides of an argument in such material.

In any event, the submissions quite clearly reveal that owners who voted against Motion 10 were not misled by the chairperson’s letter. As one owner making submission put it, “owners are well aware of the situation at Castaway Cove and have formed a view of matters accordingly. Voting in this matter was not influenced by any comment from the chairperson, but rather by individual observations and experiences with on-site management”. The only owners who claimed that the chairperson’s letter was misleading were absentee owners who let their units and who presumably voted for Motion 10 in any event.

Whether the failure to pass Motion 10 of the AGM of 18 February 2010 was an unreasonable decision of the body corporate

Section 94 of the Act obliges the body corporate to carry out its functions reasonably, including making, or not making, a decision.

The relevant question to determine is whether the nine votes cast against Motion 10 of the AGM of 18 February 2010 constituted “opposition that in the circumstances is unreasonable”.

I do not consider there is any particular formula or test for reasonableness and note that the High Court has supported a view that a paraphrase can place an unwarranted gloss on relatively plain words applying a test of reasonableness.[2] The preferred approach is to determine objectively whether the votes against a new appointment of Sea Change as caretakers and letting agents constitute opposition that in the circumstances is unreasonable.

In my view the Applicant simply disagrees with the body corporate’s decision; he has not argued nor provided any substantive grounds for why an Adjudicator’s order should overrule the preference expressed on behalf of the 23 lots voting that the body corporate not enter into new caretaking and letting contracts with him.

The Applicant appears to be relying on a perceived “right” to have new contracts entered into with the body corporate. The Applicant has no such right. Under section 114 of the Standard Module, a body corporate can engage a person as a service contractor and authorise a person as a letting agent by ordinary resolution (by secret ballot and without the exercise of proxies). Under sections 119 and 120, the term of the agreements may not be longer than 10 years (including any rights or options to renew or extend the term). The body corporate may subsequently agree to amend the agreements to include a right or option to renew or extend the term, providing that the unexpired term at the time of the amendment is no more than 10 years. Under section 122 the person holding the engagement and authorisation may sell their business and transfer their interest in their agreements if the body corporate authorises the transfer (although the body corporate must not unreasonably withhold approval).

Owners have a right to exercise their voting rights as they see fit. It is not sufficient grounds for the Applicant to allege that an owner exercised their votes in their own interests without also providing grounds that can establish that the decision of the body corporate was objectively unreasonable in the circumstances. The only grounds put forward by the Applicant relate to his financial situation and the desirability, from his point of view, of maintaining on-site management for those owners who let their units. While it is apparent from the submissions that those owners who let their lots have a preference for on-site management, that is not sufficient to overturn the clearly expressed views of a majority of owners. In any event, it appears as though some of those owners who are in favour of maintaining on-site management are not in favour of retaining the services of the existing caretaking service contractor.

An Adjudicator has previously stated[3] that “While I accept that the caretakers think it would be unfair if the Agreements were not renewed or extended, that is the contractual term that they signed up to and is certainly not unreasonable for the Body Corporate to simply abide by the current Agreements and no more. Similarly, while some owners bought into the scheme on an expectation of on-site caretaking, they should have been aware that the caretaking and letting arrangements for the scheme were for a fixed term and there was no guarantee that all owners would agree to continue the Agreements.

I consider that there is nothing inherently unreasonable in owners passing a resolution that expresses their view that the scheme work towards a situation of no on-site caretaking.”

I am not persuaded that there is anything objectively unreasonable about the body corporate deciding not to enter into new caretaking and letting agreements with the Applicant.

Appointment of Administrator

An order appointing an administrator for a scheme is not made lightly. Generally, to be successful in an application for the appointment of an administrator, an applicant must demonstrate that the day-to-day administration of the body corporate has broken down irretrievably, and/or that the affairs of the body corporate are in such disarray as to warrant the appointment of an administrator. One of the secondary objects of the Act is “to balance the rights of individuals with the responsibility of self management as an inherent aspect of community titles schemes”. In my view the right of a body corporate to administer its own affairs should therefore only be disrupted in very serious circumstances.

There has not been any material presented that persuades me that the appointment of an administrator is warranted in this case.

I note that the body corporate appears to be meeting its legislative obligations, financially and administratively. It holds AGMs, maintains adequate insurance, has a bank account, budgets for the administrative and sinking funds and has an elected and functioning committee.

Order

The application is therefore dismissed and the results of the voting on Motion 10 of the AGM of 18 February 2010 will remain unaltered.

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[1] [2008] CCT KA004-08
[2] McKinnon v Treasury [2006] HCA 45 per Hayne J at paragraph 61. Waters v Public Transport Corporation (1991) 173 CLR 349.
[3] Castaway Cove  [2006] QBCCMCmr 452 (17 August 2006)