Stainstreet Apartments [2011] QBCCMCmr 39 (8 February 2011)

Last Updated: 18 March 2011

REFERENCE: 0930-2010

ORDER OF AN ADJUDICATOR

MADE UNDER PART 9 OF CHAPTER 6

BODY CORPORATE AND COMMUNITY MANAGEMENT ACT 1997

Number of Scheme:	17929
Name of Scheme:	Stainstreet Apartments
Address of Scheme:	85-87 Martyn Street, Parramatta Park, Qld 4870

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

Craig and Felicity Poole, the Owner(s) of unit 13

I hereby order that resolution 2 at the general meeting for Stainstreet Apartments of 17 July 2010 is, and was at all times void. I further order that the body corporate for Stainstreet Apartments must pay the excess for the insurance claim affecting units 2 and 13, and must raise a special levy for this purpose if it has not budgeted any amounts for this purpose.

STATEMENT OF ADJUDICATOR’S REASONS FOR DECISION - REF 0930-2010

“Stainstreet Apartments” CTS 17929

Introduction

This dispute results from the floor under the unit 13 bathtub collapsing and destroying the ceiling of unit 2 below. The body corporate’s insurer has accepted a claim for the repair of both units. However, there is a dispute over who should pay the $5,000 excess.

On 17 July 2010, owners resolved, by four votes against two, that the entire excess should be paid by the owners of unit 13. Craig and Felicity Poole, as owners of unit 13, have lodged the present application challenging this decision.

This application raises the question of whether it is unreasonable for the body corporate to decide that Mr and Mrs Poole should pay the entire excess. I will decide this question with reference to the Body Corporate and Community Management Act (Act) and the Act’s Standard Module Regulation (Standard Module).

Overview

Stainstreet Apartments is a block of ten units located in Cairns. There have been numerous problems with the plumbing associated with the building, leading to comments that the original state of the plumbing was ‘nothing short of criminal’.

A number of owners have made insurance claims as a result of water damage caused by defective pipes and drains. These claims were originally subject to an excess of only $100. However, the insurers for Stainstreet Apartments subsequently refused to renew the insurance policy on the same terms and the current policy has an excess of $5,000 per claim.

Debra Baleilevuka, an owner of lot 2, submitted a motion to a body corporate meeting proposing that the owners of unit 13 pay the entire excess. The meeting material indicates that the tenant of unit 13 had told Ms Baleilevuka that the bath had been leaking for some months, that the leak had been reported to the agent, and that nothing had been done. Ms Baleilevuka therefore appears to have thought that if Mr and Mrs Poole had properly maintained unit 13 there would have been no need to make the claim. However, Mr and Mrs Poole claim that they do properly maintain their unit and that no leak had been reported.

A key issue is therefore whether there was any obvious leak within unit 13 and whether that leak was reported.

It is then necessary to determine if it was reasonable for the body corporate to decide that the insurance excess should be paid solely by Mr and Mrs Poole.

Analysis

1. Was there an obvious leak within unit 13?

Claim that unit 13 well maintained

In their application, Mr and Mrs Poole say that their agent inspects the property regularly and that no crack or leaks from the bathtub had been reported. They say that the bathtub only cracked because the floor beneath the bathtub collapsed. They argue that the flooring collapse was not their fault and seek an order to overturn the body corporate’s decision that they be solely responsible for the excess.

No submissions regarding cause of floor collapse

Following the procedures set out in the Act, the Commissioner invited each owner to make a written submission regarding this application. The Commissioner also invited the committee to make a written submission. However, no one has made a submission disputing what Mr and Mrs Poole have said or opposing their request for an order that the body corporate pay the excess.

Investigation of cause of floor collapse

Even though nobody opposed the orders sought, I was concerned the orders sought would not be justified if the floor collapse had been caused by a failure by Mr and Mrs Poole to properly maintain their unit.

A letter on behalf of the body corporate’s insurers indicates the wooden supports under the bath were rotted.[1] There is no reason to doubt this report and this report would imply that the area under the bath had been moist for a lengthy period. Particularly given the reported statements by Ms Baleilevuka that the unit 13 tenant had told her the bath had been leaking for some months, I considered it necessary to make some investigations to determine if there were any obvious water leaks around the bathtub area.

Result of investigations

Following my investigations, I am satisfied Mr and Mrs Poole did not ignore any obvious problems with the plumbing in their unit. This conclusion is based on enquiries made of the tenant of unit 13, the managing agent and the body corporate manager.[2] The further information provided as a result of these investigations is largely consistent and credible. It can be summarised as follows:

1. The tenant of unit 13 says there were no leaks from the bath area (although she does claim she had reported a ‘hardly noticeable’ crack in the bathtub).
2. The agent for unit 13 also says there were no leaks reported leading up to the collapse of the floor under the bathtub. Further, the agent says no crack in the bathtub or other maintenance requirement relating to the bath was reported to them prior to the tenant phoning them to say the bath had collapsed.[3]
3. The body corporate manager says no leaks concerning the bathtub of unit 13 were reported. However, the body corporate manager confirms numerous plumbing problems with the building. Specific reference is made to a leak affecting the unit 17 bathtub resulting from the area around the plug hole not being properly sealed. The body corporate manager also says a plumber had fixed similar problems with bathtubs in three other lots in Stainstreet Apartments and that another plumber has said this type of problem could have caused the timber under the bath to rot. However, the body corporate manager has not provided any information indicating owners or occupiers of unit 13 would have been aware of any water leaks.
   

Should Mr and Mrs Poole have been aware of the leak?

Based on the above information, it seems likely that small amounts of water were seeping under the unit 13 bath. This was most likely because the area around the plug hole had not been properly sealed when the bath was originally installed.

However, it seems any seepage of water was in quantities too small to be apparent to the occupiers of unit 13 or the occupiers of unit 2 below. It is not clear why anyone would have said the bath was leaking for some months. It is simply not credible on the evidence provided that any leak affecting the floor under the unit 13 bathtub was readily apparent.

The information provided does not allow me to determine with any certainty whether the bath was cracked before the floor collapsed. However, the managing agent has provided a detailed list of known issues with unit 13 and the absence of any records relating to a crack in the bath would indicate it is more likely than not that no cracking to the bath was reported prior to the floor collapsing. Rather than the bath cracking for no apparent reason, it also seems more likely that any cracking resulted from the rotting of the floor under the bath.[4]

Given the material for the relevant body corporate meeting states that the unit 13 tenant told the lot 2 owners the bath had been leaking for some months, questions are raised by the statement by the unit 13 to this office that there were "no leaks". For example, did the unit 13 tenant mislead the owner of lot 2 or did the owner of lot 2 misunderstand statements made by the unit 13 tenant? However, it is not necessary for me to determine these questions as part of the present application.

2. Is it unreasonable to require unit 13 to pay the entire excess?

Relevant legislative provisions

The legislation provides that, for an event affecting only one lot, the owner of the lot is liable to pay the insurance excess unless the body corporate decides it is unreasonable in all the circumstances for the owner to bear the liability (Standard Module, 184(3)). However, for events that do not just affect one lot, the body corporate is liable to pay the excess unless the body corporate decides it is reasonable in all the circumstances for the excess to be paid by a particular owner or group of owners (Standard Module, 184(4)).

The legislation also requires that the body corporate act reasonably in carrying out its functions, including in making decisions (Act, 94). Individual owners who vote at a general meeting are not under any statutory obligation to act reasonably or to provide any reasons why they voted in a particular manner. However, section 94 provides a statutory obligation that the body corporate act reasonably in making a decision. This statutory requirement is only satisfied if the ultimate decision is objectively reasonable.[5] This requires a balancing of factors in all the circumstances according to the ordinary meaning of the term ‘reasonable’.[6] The question is not whether the decision was the "correct" one but whether it is objectively reasonable.[7]

The question raised by this application is whether it was reasonable for the body corporate to decide the insurance excess should be paid solely by Mr and Mrs Poole.

Unreasonable to require Mr and Mrs Poole to pay the entire excess

I have concluded it was unreasonable for the body corporate to require Mr and Mrs Poole to pay the entire excess themselves. This is primarily because of my earlier finding that there was no obvious leak. It seems most likely the floor under the bathtub collapsed because the wooden supports rotted. This was probably due to seepage of small amounts of water over a long period of time. There is no evidence satisfying me that Mr and Mrs Poole should have been aware of this problem.

The body corporate is responsible for maintaining floors in a structurally sound condition (Standard Module, 159(2)(b)(iii)). If Mr and Mrs Poole had caused damage to the floor by failing to rectify a known water leak then the body corporate could recover associated costs from them (Standard Module, 159(4)). However, there is no evidence satisfying me that Mr and Mrs Poole failed in their duty to maintain their lot.[8]

The resolution by owners requiring Mr and Mrs Poole to pay the entire excess is objectively unreasonable in all the circumstances. This is particularly given that both unit 2 and unit 13 were damaged and none of the owners affected had a realistic opportunity to prevent the damage or even a good reason to suspect this damage might occur.

To the extent that a majority of owners voted in favour of requiring Mr and Mrs Poole to pay this excess, it appears that these owners were influenced by a misleading statement in the meeting material that the tenant had said ‘the bath had been leaking for quite some months’.[9]

Conclusion

Owners appear to have voted to require Mr and Mrs Poole to pay the entire excess based upon incorrect claims that the damage was caused by Mr and Mrs Poole’s failure to rectify known leaks within their unit.

I am satisfied that this was not the case and that it was unreasonable in all the circumstances for the body corporate to require Mr and Mrs Poole to pay the entire excess. The resolution should therefore be declared void and the body corporate will need to raise a special levy for this excess if insufficient funds have been budgeted for this purpose.

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[1] Letter from Crawford & Company (Australia) Pty Ltd dated 25 March 2010.
[2] By way of a letter dated 10 December 2010 and letters dated 20 December 2010.
[3] In fact, the agent has provided a detailed list of known plumbing issues with unit 13 since 2008, based upon her records. This list indicates that Mr and Mrs Poole had the shower screens replaced upon initially buying the unit to prevent leaks, that there had been significant flooding in February 2008 from body corporate stormwater drainage that had blocked, and that there had been significant flooding in September 2009 from a leak associated with the toilet.
[4] Although obviously cracks resulting from damage to the floor would be likely to contribute to further damage if those cracks allowed additional water to seep under the bath.
[5] Greiner v Independent Commission Against Corruption (1992) 28 NSWLR 125; Commonwealth Bank of Australia v Human Rights and Equal Opportunity Commission (1997) 150 ALR 1 at page 12.
[6] Secretary, Department of Foreign Affairs and Trade v Styles [1989] FCA 342; (1989) 88 ALR 621. See also McKinnon v Treasury [2006] HCA 45 per Hayne J at paragraph 61.
[7] Commonwealth Bank of Australia v Human Rights and Equal Opportunity Commission (1997) 150 ALR 1 at page 34.
[8] The statutory duty to maintain is likely to require that a person has a reasonable system in place to detect problems with their unit and actually fixes known defects as soon as they become aware of those defects : Klinger & Anor v Body Corporate for Costa D’Ora Units [2007] QDC 300; Ridis v Strata Plan 10308 [2005] NSWCA 246. However, a single unexpected breakdown or incident is unlikely to establish a breach of a statutory duty of maintenance by itself : Austral Bronze Company Pty Limited v Ajaka (1970) 44 ALJR 155 at 156 and BCS Strata Management Pty Ltd v Robinson [2004] NSWCA 80.
[9] Note that the minutes of meeting indicate those present at the meeting were mislead by this statement and formed a view that ‘if due care had been taken, the fault would have been discovered before it was and it could have been fixed more easily at not expense to the Body Corporate’. Further, owners who submitted voting papers but did not attend the meeting would probably have also been mislead by this statement because Mr and Mrs Poole did not have an opportunity to provide information disputing the statement as part of the meeting material.