Q1 [2012] QBCCMCmr 138 (26 March 2012)

Last Updated: 5 April 2012

ADJUDICATOR’S ORDER

Office of the Commissioner

for Body Corporate and Community Management

ORDERS MADE:

REASONS FOR DECISION

Introduction

[1] The applicant in this matter is seeking declaratory orders regarding payment of legal expenses from body corporate funds. The expenses were incurred by the body corporate when it engaged a legal firm to respond to certain allegations made by the applicant.

• [2] More specifically, the applicant seeks the following declaratory orders:
  • That the body corporate committee did not authorize the Chairperson to initiate defamation proceedings against the applicant.
  • That legal expenses incurred in issuing defamation proceedings against the applicant are not body corporate expenses.
  • That the Chairperson did not have authority to issue a copy of the body corporate lawyers’ letter to all owners dated 21 June 2011.
• [3] The applicant also seeks the following orders:
  • That the body corporate committee request the Chairperson to reimburse the body corporate $1,732.50 being legal costs invoiced and charged to the body corporate bank account for the defamation action.
  • That the committee request that this reimbursement be provided within 30 days of an order issuing and to take all necessary steps to ensure the reimbursement is made.
  • That the body corporate committee obtain copies of all correspondence including emails to and from the body corporate lawyer in connection with all matters listed in the lawyers’ “work performed” schedule attached to the invoice and place this on body corporate records as well as forwarding a copy to the applicant.

Background

[4] Q1 Community Titles Scheme (Q1) consists of 526 lots and common property. The Community Management Statement (CMS) for Q1indicates that the Body Corporate and Community Management (Standard Module) Regulation 2008 (Standard Module) applies to the scheme. Queensland Land Registry records show the scheme is registered on a Building Format Plan.

[5] The applicant states that on 17 June 2011 he received a letter from MBA Lawyers alleging that correspondence written by him was misleading and defamatory. He believes the cost of engaging MBA to write to him was $1,732.50, which was charged to the body corporate. However, he says there is no record of committee authorisation of this expenditure and it would appear that the expenditure was authorised by a single committee member.

[6] On 3 October 2011 MBA Lawyers issued an invoice for $1,732.50 to the body corporate manager. The applicant says that the body corporate manager referred the invoice to the Treasurer for payment but the Treasurer refused to authorise payment of the invoice. The invoice was then referred to the Chairperson who authorised payment on 17 October 2011.

[7] The applicant argues that the commencement of “legal action” against him was not authorised by the committee which has denied any knowledge of this “action”. Further, he argues that the ”legal proceedings” should have been commenced in accordance with section 312 of the Act, which requires approval by a special resolution of the body corporate.

Procedure and jurisdiction

[8] In accordance with section 248 of the Act, the Commissioner for Body Corporate and Community Management has referred the application to me for adjudication and I am satisfied that it is a matter which falls within the legislative dispute resolution provisions.[1] 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.

[9] Pursuant to section 243 of the Act, all owners and the body corporate committee were invited to make submissions regarding the final outcomes sought by the applicant. Detailed submissions made on behalf of the body corporate which I have summarised below.

[10] Pursuant to a resolution of the body corporate, the relevant spending limit for the committee is $450 per lot or $236,700 in total. On 8 March 2011 the body corporate committee passed a resolution that the Chairperson has authority to approve expenses and fees up to $5,000 plus GST.

[11] In 2010, a lot owner sought to have the contribution lot entitlements changed. A report was prepared for this purpose by Stewart Silver King & Burns (SSKB) which recommended certain changes to the contribution lot entitlements. QCAT made an order adjusting contribution lot entitlements and as a result of the order, the applicant’s contribution lot entitlements increased. Subsequently, on or about 8 November 2010, the applicant co-authored a circular which was distributed to all owners. That circular stated that “ levy contributions have increased by up to 30% for around 450 out of 526 owners..... On behalf of lot owners adversely affected by this change to the levies George Friend OAM and Ken McCarthy have made submissions to the Minister and sought support from other politicians for the change to the legislation. We have submitted a detailed analysis of how costs should be apportioned at Q1, which in our view proves that the adjustment was unfair to the 450 owners affected by this change. We are unaware of any action the committee has taken on behalf of the affected lots i.e. the vast majority of owners”.

[12] On 14 April 2011, amendments to the Body Corporate and Community Management Act 1997 came into effect which allowed a lot owner who had been affected by an adjustment order to seek a reversion. On 26 April 2011 the applicant submitted to the committee a motion for reversion of the lot entitlements. The applicant subsequently issued a number of circulars including a circular dated 8 May 2011 titled “Why the delay in adjusting our levies?” and containing the following:

“For this writer levies increased by $1,116 per year. For the seven committee members, three members had their levies increased by a combined $4,367 and four members had their levies reduced by a combined $17,161. It will take four committee members to vote in favour for the levies to be adjusted without further and unnecessary delay. Surely it is too much to expect the committee to recognise these as real and stressful issues for many lot owners and to act swiftly to have the levies adjusted. Unfortunately, this does not seem to be their intention. The beneficiaries of any delay would only be those owners whose levies were reduced after July 2010. As there is no reason to delay, the committee should issue notices (for revised contribution levies) immediately. Otherwise the committee should explain to lot owners the reason for the delay and why the majority of lot owners will be forced to continue paying higher levies for longer than is necessary”.

[13] On 12 May 2011 the applicant sent an email to Kellie Wright of SSKB stating that there had been an unacceptable delay in amending the contribution lot entitlements and that the actions of the body corporate in seeking legal advice regarding his motion were improper and unauthorised. The applicant further stated that any such legal advice was improperly obtained and the body corporate should not be required to pay for it.

[14] On 7 June 2011 the committee met to discuss various matters including the motion received from Mr & Mrs McCarthy and the advice received from MBA Lawyers. It was resolved that it would not be taking action to revert the lot entitlements as it was of the view that the QCAT order was not an “adjustment order”. This was communicated to all owners on 7 June 2011 and a further letter was addressed specifically to the applicant.

[15] Subsequently, on 15 June 2011 Mr McCarthy sent an email titled “Notice to Q1 Lot Owners”. In this document the applicant advised that as the committee had refused to revert the lot entitlements, he had lodged a dispute resolution application and stated that “the four

[16] members of the committee who benefit from the current levy settings will probably not be disposed to acting quickly....I may come to you with a request to vote to hold an EGM to throw out the committee”. The committee received advice that the applicant’s statements were inaccurate, misleading and defamatory. It therefore decided to follow their lawyers’ advice that a letter be sent to the applicant, requesting that he withdraw a number of statements including his statements about the committee members.

[17] A response was received from the applicant’s lawyers on 22 June 2011 and a reply to that lettere was prepared and sent by MBA Lawyers. No further action was taken and no court proceedings were commenced. The committee believes that it was entitled to obtain this legal advice and assistance.

[18] On 3 October 2011 MBA Lawyers sent an invoice for $1,732.50 to the body corporate for providing advice regarding the applicant’s communications and corresponding with the applicant. A payment authority dated 12 October 2011 was sent by the body corporate manager to the chairperson who was the person designated to authorise payment for legal work. The payment authority was signed on 17 October 2011. On 1 February 2012 a meeting of the committee unanimously resolved to ratify a number of payment authorities generated between 5 October 2011 and 20 January 2012. The former Treasurer, Ms. Bale, did not refuse payment but asked for the invoice to be forwarded to the Chairperson for approval.

[19] The respondent says the action which it took was not a legal proceeding or defamation action but a course of correspondence aimed at stopping the applicant from making misleading and defamatory statements. The expenditure was approved by the committee and was within its spending limit.

[20] The respondent further states that the applicant would be aware that the lodgement of the dispute resolution application would involve considerable expense. The cost of distributing the application and any subsequent order to all owners would cost in the vicinity of $10,000 and legal expenses would be in the vicinity of $5,000. The body corporate therefore seeks an order that costs of $2,000 be paid to the body corporate by the applicant because the application is frivolous, misconceived and without substance.

• [21] A number of owners supported the application and raised concerns including the following:
  • They believe the engagement of lawyers by the committee was an attempt to bully an outspoken critic;
  • body corporate funds should not be used for what appears to be a personal legal action;
  • the committee is not interested in suggestions or input from other members of the body corporate;
  • the committee has rejected suggestions aimed at improved governance.
• [22] On the other hand however, a large number of owners signed a letter opposing the application. Submissions contained in this letter included the following:
  • The applicant is seeking to discredit and impugn the reputations of committee members in the eyes of the other owners;
  • It was unnecessary for the applicant to distribute various circulars because the committee was keeping owners up to date regarding the application for re-adjustment of contribution schedule lot entitlements; and
  • MBA Lawyers were engaged to enable the committee to do its work without continuing interruption. This was a proper body corporate expense that was properly authorised.
• [23] The applicant made certain submissions in response including the following:
  • He does not believe much weight can be given to the submission signed by various lot owners because many owners probably signed the document without reading it in detail;
  • Many owners were probably motivated to sign the document as a result of his persistence in having contribution lot entitlements re-adjusted;
  • He was entitled to question legal advice regarding the adjustment of lot entitlements which he believed to be wrong;

• He believed that the “Concerns Notice” was the first step in the commencement of legal proceedings against him by the body corporate and as a result, he had to engage a legal firm to defend him at considerable cost; and
• He does not believe that lot owners’ money should be spent on inappropriate and unauthorised legal action.

Analysis

[24] The applicant seeks the following orders:

• That the body corporate committee did not authorize the Chairperson to initiate defamation proceedings against the applicant.
• That legal expenses incurred in issuing defamation proceedings against the applicant are not body corporate expenses.
• That the Chairperson did not have authority to issue a copy of the body corporate lawyers’ letter to all owners dated 21 June 2011.

• That the body corporate committee request the Chairperson to reimburse the body corporate $1,732.50 being legal costs invoiced and charged to the body corporate bank account for the defamation action.
• That the committee reimburse this amount within 30 days of an order issuing.
• That the body corporate committee obtain copies of all correspondence including emails to and from the body corporate lawyer in connection with all matters listed in the lawyers’ “work performed” schedule attached to the invoice and place this on body corporate records as well as forwarding a copy to the applicant.

[25] Much of the animosity between the applicant and the body corporate committee has arisen following his submission to the committee of a motion to reverse contribution lot entitlements to the “pre-adjustment level”. Based on advice that it had obtained from MBA Legal, the committee declined to lodge a new community management statement reflecting “pre adjustment lot entitlements”. As a result, the applicant issued a number of circulars to other lot owners regarding his request for a reversion of lot entitlements.

[26] Within bodies corporate, few issues have been more polarising than the adjustment and/ or readjustment of contribution schedule lot entitlements (CSLE’s) which set the proportion each owner contributes to body corporate expenses. The Body Corporate and Community Management Act 1997 previously provided that in certain circumstances, an owner could apply to the District Court or a specialist adjudicator for an order to have the original entitlements adjusted. Where such an order was made, levies payable by some owners decreased while others increased.

[27] In November 2010 the Minister for Tourism and Fair Trading introduced into parliament a bill to amend the Body Corporate and Community Management Act 1997. This bill was passed by parliament in early 2011 and changed the criteria for adjustment of contribution lot entitlements. These amendments also include a procedure for certain owners to seek a reversal of previous adjustment orders. Except in limited circumstances, such as where the adjustment order merely formalized an agreement made by the parties, or there has been a material change such as further subdivision, the body corporate is obliged by the legislation to lodge a new community management statement reflecting the original lot entitlements. Where such action is taken, levies payable by some owners decrease while others increase.

[28] Given that all lot owners are members of the body corporate, it is important that they have an opportunity to air any grievances and have input into the management of the scheme. Owners often have opposing views on various matters, but in my view robust discussion and debate is an important part of body corporate decision-making. This requires that, within reason, all owners feel free to express their point of view without unreasonable threats of defamation proceedings.

[29] On the other hand, there is a point beyond which criticism can amount to defamation. In this regard section 8 of the Defamation Act 2005 provides that a person has a cause of action in relation to the publication of defamatory matter about the person. The term “matter” is defined to include a letter, note or other writing; material published on the Internet and oral statements.[2] An individual who has been defamed by such matter is within their rights to seek damages and other remedies for defamation. However, it is the individual, not the body corporate, who has the cause of action, and accordingly, the individual should meet the cost of any proceedings.

[30] In the present case there is no evidence that a proceeding has commenced. Merely sending a letter or notice does not amount to a “proceeding”. A proceeding is an action commenced in a court or tribunal, by lodgement of an application or other originating process.[3]

[31] It is evident that the applicant’s persistence has been a source of annoyance to the committee, which engaged MBA Lawyers. While it is not appropriate for committee members to use body corporate funds for private legal proceedings, it is arguable that some of the material circulated by the applicant was incorrect or misleading. Where the committee believes that incorrect or misleading information is being circulated throughout the body corporate, I do not believe it is unreasonable for the committee to seek legal advice. I have reviewed the itemised account from MBA Lawyers and note that the sum of $1,732.50 is for a number of items including the letter dated 17 June 2011. While this letter contains a threat of defamation proceedings, it also serves to inform the applicant of their view that information circulated within the scheme by the applicant is incorrect and/ or misleading. In these circumstances I do not believe it is practicable to break down the sum of $1,732.50 so that a proportion is payable by individual committee members while a proportion is payable by the body corporate.

[32] The next matter that I turn to is the claim that the expenditure was not properly authorised. I am of the view that the sum of $1,732.50 was largely an expense incurred in the management of the body corporate’s affairs. I note that on 1 February 2012, a meeting of the committee resolved to ratify the payment of $1,732.50[4] and that the relevant spending limit for the committee is $450 per lot or $236,700 in total.

[33] The next matter for consideration is the applicant’s request for an order that the Chairperson did not have authority to issue a copy of the body corporate lawyers’ letter to all owners. While the circulation of this letter may have been little more than a point-scoring exercise, I do not believe I am empowered to declare that the Chairman acted improperly by doing so. Obviously the applicant has remedies available to him if he is of the view that the letter contained defamatory material.

[34] Next, the applicant seeks an order that body corporate committee obtain copies of all correspondence including emails to and from the body corporate lawyer in connection with all matters listed in the lawyers’ “work performed” schedule attached to the invoice and place this on body corporate records. I am of the view that in accordance with section 203 of the Standard Module Regulation, the body corporate is obliged to keep these documents, and subject to any claim of legal professional privilege, should be available for inspection by the applicant.

[35] Finally, the respondent body corporate seeks an order that costs of $2,000 be paid to the body corporate by the applicant because the application is frivolous, misconceived and without substance[6]. However, I do not believe the application was completely lacking in substance. It would appear to me that the applicant had a genuine, albeit mistaken, belief that defamation proceedings had been commenced and in such circumstances individual committee members rather than the body corporate, would be liable to meet the cost of such proceedings. It would also appear that the applicant was unaware that the payment to MBA Lawyers was ratified by the committee.

[1] See sections 227, 228, 276 and Schedule 5 of the Act.

[2] See Schedule 5 to the Defamation Act 2005

[3] see for example Herbert Berry & Assoc. v Inland revenue Commissioners [1977] 1 WLR, Forrest v Kelly (1991) 32 FCR.

[4] As to ratification see 5 Warren v Body Corporate for Buon Vista CTS 14325 [2007] QCA 160

[6] See section 270(3) of the Act