Tower Mill Motor Inn [2013] QBCCMCmr 42 (12 February 2014)

Last Updated: 1 April 2014

AJUDICATOR’S ORDER

Office of the Commissioner

for Body Corporate and Community Management

ORDERS MADE:

REASONS FOR DECISION

APPLICATION

[1] This is an application dated 21st June 2013 and amended on 1st July 2013, by Burnitt Investments Pty Ltd, the owner of sixteen lots in the scheme, against the body corporate, for declarations and orders as follows –

1. that Motion 2 of an extraordinary general meeting held on 18th December 2012 was carried as a resolution without dissent, or in the alternative
2. that Motion 2 of an extraordinary general meeting held on 18th December 2012 is deemed to be carried;

100. that the Applicant and the body corporate do all things necessary to give effect to the terms of settlement mentioned in Motion 2 of an extraordinary general meeting held on 18th December 2012; and

4. that the chairperson affixes the body corporate seal to the deed of settlement within 7 days of an order requiring him to do so; and
5. That the deed of settlement is in any event declared to be effective “pursuant to section 138 of the Body Corporate and Community Management (Accommodation Module) Regulation 1997 (as amended)”.
   
   

JURISDICTION

[2] “Tower Mill Motor Inn” CTS 1918 is a 107-lot scheme in Brisbane governed by the Accommodation Module and created under a building unit plan of subdivision. One of the conditions of buying a lot in the scheme is that each owner must enter into a leaseback arrangement with Transmetro Corporation Ltd (Transmetro) enabling it to sublet the lot for gain until 2024. Transmetro is therefore the occupier of almost all lots in the scheme.

[3] I am satisfied that this matter falls within the legislative dispute resolution provisions.[1] This is a dispute between a lot owner and the body corporate. Section 276(1) of the Act provides that an adjudicator may make an order that is just and equitable in the circumstances to resolve a dispute in the context of a community titles scheme about a claimed or anticipated contravention of the Act.

OVERVIEW

[4] The Applicant owns 16 lots in the scheme being Lots 4, 7, 8, 9, 17, 18, 22, 23, 24, 25, 28, 29, 30, 71, 96 and 103. There are other multiple lot owners.

[5] The Applicant encroached on various parts of the common property, making improvements at his own expense.[2] The body corporate commenced several dispute resolution applications to this Office about the encroachments. In 2008 the Applicant commenced proceedings in the Supreme Court against the body corporate, seeking the right to use the improvements which he had made to certain areas of common property for his hotel and restaurant business, and the grant of exclusive use of certain other areas of common property. A survey of the relevant areas of common property was prepared for the Court by Conics Brisbane Pty Ltd (Conics) in February 2009, and the areas divided into “regions” for identification purposes.

[6] Lawyers for the Applicant and the body corporate have now negotiated a draft settlement deed (the deed) to conclude the Supreme Court proceedings. The deed proposes that the Applicant buys 10 “regions” of common property, and is granted exclusive use of four other “regions” of common property for the sum of $450,000 payable in two instalments. The Applicant is also to carry out specified works to the driveway to which the body corporate will contribute 50% against the average taken of three quotations to be obtained by the body corporate.

[7] On 18th December 2012, Motion 2, to approve the deed, was put to a general meeting by the committee which noted that a resolution without dissent was required. The voting tally on the motion was 66 – 3. The motion failed because there were three dissenting votes. The Applicant now makes this application for the dissenting votes, belonging respectively to owners Robert Cox (Mr Cox), Des Faggotter (Mr Faggotter) and Jeffrey Wharton (Mr Wharton), to be voided because they are unreasonable, and for Motion 2 to be acted upon as a resolution of the body corporate.

SUBMISSIONS

[8] The Applicant says that it is arguable that Motion 2 required a resolution without dissent as it was a motion to finalise a court proceeding and not a motion to transfer land. In the event that it did require no dissenting votes in order to carry, the dissenting votes are unreasonable for the following reasons –

• Owners do not have use of the relevant areas of common property in any event because their respective lots are let to Transmetro who is the tenant;
• There is no inconvenience to owners;
• The deed proposes only to legalise an existing situation;
• Some of the “regions” of common property are only accessible to the Applicant’s lots;
• The three dissenting voters do not have lots on the same levels as the proposed “regions” mentioned in the deed;
• Justice Mullins in December 2009 found that the Applicant had a right to use all the “regions” pursuant to scheme by-laws which allow the owner of Lot 4 to use certain areas of common property in the pursuit of the restaurant business subject to section 167 Act (nuisance).
• The committee strongly recommends that the deed is signed;
• The three dissenting votes are made by owners who have a personal dislike of Peter Burnitt, who is the director and nominee of the Applicant, in the following ways –
  1. Mr Faggotter was a witness in the District Court in 2006 for the respondent Ron Davy (Mr Davy) in a defamation action brought by Mr Burnitt against Mr Davy. Mr Davy lost the case and had to pay damages and costs to Mr Burnitt;
  2. Mr Cox and Mr Faggotter were both on the committee when Mr Davy was chairperson, and have previously indicated support for Mr Davy;
  100. Mr Wharton is influenced in his voting by the discredited Mr Davy and has no personal opinion on the matter;
  4. None of the three joined in the proceedings against the body corporate in the Supreme Court which they could have done.

[9] In accordance with section 243(2)(a) Act, submissions were invited from all lot owners.

[10] There were six submissions made against the application, and one in favour. The body corporate committee did not make a submission but the chairperson Warren Tapp advises that his submission is the view held by the committee.

[11] One submission was made by Mr Davy who is technically no longer a member of the body corporate since his lot is now held by his trustee in bankruptcy. I see no reason why Mr Davy cannot make a submission in this application as he is person with knowledge of the matter, and submissions are not restricted to persons who are owners. I have taken his submission into account.

[12] The submitters against the application say in brief –

• The Applicant has for years been getting away with using the premises illegally;
• He has not paid any rent on the unlawful use made of the common property;
• $450,000 is not a fair price for “approximately 400 m²” of common property and the valuation at $3,000 per square metre is out of date;
• Transmetro is “in cahoots” with the Applicant;
• The Applicant deserves the mess he is in;
• The voting power of the Applicant and Transmetro combined is a fraud on the minority owners;
• Minority owners will never improve rental income whilst the Applicant and Transmetro own so many lots between them;
• The improvements are not for the benefit of the body corporate but for the benefit of the Applicant;
• The Applicant did not get development approval from the Council for the improvements made to his restaurant and bars until July 2013 and retrospectively;
• The lots in the scheme are a poor investment;
• There should be a conciliation process with the dissenting voters;
• The Applicant should have done the right thing from the start;
• Dissenting votes should not be over-ridden.;
• There is no obligation for a dissenting vote to be reasonable;
• The control by the Applicant and Transmetro should be the subject of ministerial intervention;
• If areas of common property are to be sold, then the money should go to owners and not to the body corporate. The owners own the common property in shares proportionate to their contribution schedule lot entitlements ;
• The body corporate is not allowed to make a profit.
  
  

[13] Warren Tapp says that he has been negotiating a settlement for the body corporate since January 2012 when he became chairperson. New lawyers were engaged by the body corporate and an independent valuer asked to value the relevant ‘regions’ of common property. He says that the deed is the result of mediation. The body corporate has spent $50,000 on these proceedings in the last 12 months. None of the three dissenting voters raised any objections when the process was explained to owners. Mr Faggoter was on the committee at the time and voted to accept the draft deed before it went to a general meeting. Common sense should prevail and it is inequitable that three owners should hold back the majority. The Applicant already uses the areas with no disruption to owners. The $450,000 would also be useful to the body corporate to reimburse legal costs and perhaps be used for maintenance.

[14] The Applicant exercised his right of reply. He says that the distribution of funds is not a matter of dispute and that the dissenting voters are concerned with the Applicant’s behaviour and the poor rental returns rather than the transfer and use of the various regions. A continuing lawsuit is not in the interests of the body corporate.

[15] I sought further information from the body corporate including a copy of the valuation referred to and a copy of the committee minutes whereby the draft deed was approved by the committee and recommended to the body corporate

DETERMINATION

Issues

[16] The Applicant seeks a declaration that Motion 2 of a general meeting held on 18th December 2012 and said by the committee to require a resolution without dissent, actually needed a resolution without dissent. The motion was for the body corporate to consent to a deed concluding proceedings in the Supreme Court between the Applicant and the body corporate. Whilst this in itself would not require a resolution without dissent, (a settlement of proceedings might be authorised by the committee), since the deed proposes that the body corporate sells certain areas of common property to the Applicant, then pursuant to section 159(2) Accommodation Module, a resolution without dissent is required.

[17] I am of the view that the committee was correct in describing Motion 2 as a motion which needed a resolution without dissent, because it also authorised the signing of the deed by the body corporate secretary. Thereafter there were no further steps to take for the body corporate to authorise the sale of the surveyed “regions” of common property to the Applicant. The signing of the deed will enable the sale to take place. I therefore declare that Motion 2 required a resolution without dissent.

[18] The Applicant next seeks to dispense with the dissenting votes of the three voters recorded as voting against Motion 2, for the reason that a vote against the motion was unreasonable in the circumstances.

[19] Schedule 5 of the Act lists examples of orders which an adjudicator may make and it is without doubt that an adjudicator has the power to overrule a dissenting vote if it is found that opposition to the motion was unreasonable. An adjudicator also has the power to overturn a decision ‘not to pass’ a motion if not to carry a motion is unreasonable.[3]

[20] Section 94(2) Act requires the body corporate to act reasonably in all things in the administration of the common property including making or not making a decision at a general meeting. This imposes a requirement on owners to vote reasonably and contrary to the submission that there is no obligation for a dissenting vote to be reasonable, I am of the view that voters who vote capriciously or maliciously may have their vote overturned. That is not to say that a voter may not reasonably take a different view from the majority for reasons which are personal to that owner.

[21] It is therefore necessary to look particularly at the submissions of the three voters who voted against the majority and the reasons given by them for doing so.

The votes of Mr Faggotter, Mr Cox and Mr Wharton

[22] The test of “whether the opposition is in the circumstances unreasonable has to be considered “objectively” taking into account all relevant circumstances.”[4] However, the “objective test” has an element of subjectivity in it since the “reasonably objective person” is put in the shoes of the dissenting voter in the circumstances prevailing at the time.

[23] In Zenith,[5] where the test was applied, the adjudicator found that courts have held that where a statute expressly provides that a decision is to be made ‘reasonably’ or upon ‘reasonable grounds’, the test is an objective one that requires a balancing of factors in all the circumstances according to the ordinary meaning of the term ‘reasonable’.[6]

[24] In Sirocco Resort[7], in considering the balancing operation, the specialist adjudicator said -

“In determining whether the conduct was reasonable, it is not necessary to determine that it was either right or justifiable, if the conclusions which led to refusal of consent might have been reached by a reasonable person in the circumstance. [para 66]

“ ... although the essence of a reasonable decision is that there are reasons for it which can be justified at some level (even if only by showing the reasons are genuine and not wholly fanciful), what is not required is for those reasons to be justified by reference to some objective standard of correctness.” [para 67]

“ the subjectivity arises because it is sufficient if a reasonable person in the Respondent’s position might have regarded the [motion] as objectionable, even though some persons might take a different view, it being enough that such a person has genuine concerns on matters relevant to the value of the interest the person has, even if the prospect of those concerns being realised is small...” [para 68]

“ in the end, it is necessary to work out "what was the real and true reason for the refusal of consent" “ [para 72] [8]

[25] The onus rests with the Applicant, as is usual, to demonstrate that opposition to the motion as proposed was unreasonable.

[26] Mr Wharton says his vote was influenced by former chairperson Mr Davy and a letter sent to owners by Mr Faggotter and forwarded by Mr Davy on 5th December 2012 urging owners to vote against the motion. He has had “very little involvement in any meetings or decisions...” He says “Ron Davy was my only contact.” In the circular sent by Mr Faggotter, Mr Faggotter expressed his view that Motion 2 was “definitely not a just solution” or “even close”. Mr Davy told Mr Wharton and others that no owners had seen the valuation referred to in the explanatory note and that the area that the Applicant was going to get was not “relatively small” as described in the explanatory note but “over 400 square metres”. Mr Davy also pointed out that the Law of Property Act allowed unlawful encroachments to be assessed at three times their value. Mr Davy said: “It seems Warren Tapp and the rest of the committee are planning to give Peter Burnitt a lovely Christmas present. Please rain on his parade!” These statements influenced Mr Wharton to vote against the motion.

[27] Mr Cox’s submission records the history of encroachments by the Applicant and how the improvements to common property made by the Applicant have not increased the rental return as promised by the Applicant years ago. He says that there will be no justice for minority owners whilst the Applicant and Transmetro together own the majority of lots.

[28] Mr Faggotter’s submission has a heading: “My reasons for dissenting”. Included in his reasons are that the scheme is dysfunctional as it is overwhelmed by the Applicant and Transmetro and there can never be justice for minority owners. The minority owners have been unable to stop the Applicant from breaking the law by building illegal additions to his lots on common property and monopolising the common property, for which he has paid no rent, to the detriment of the body corporate. The majority owners can also dominate the committee by nominating their own representatives.

[29] In respect of the price proposed in the deed of $450,000 he says that the valuation of $3,000 per square metre as assessed by CB Richard Ellis would make the value of the benefit to the Applicant “ ... in the vicinity of $1.2 million”. He is of the view that $3,000 per square metre is anyway now out of date, and the value should be “well above that...” He points out that the valuation of $3,000 per square metre is referred to in the adjudicator’s decision on 18th March 2008.[9]

[30] I asked the body corporate if the valuation had been circulated with the notice of the meeting convened on 18th December 2012. The reply came from Mr Tapp that it was not, but that “the summary was mentioned in the notice”.

[31] I find that Mr Faggotter’s objection to Motion 2 was reasonable. His submission highlights that owners were not supplied with any or sufficient information on which to base the value of the assets which it is proposed to be transferred to the Applicant. There was no mention of $3,000 per square metre in the motion or in the explanatory note to the motion, but this appears to be knowledge gained from a previous adjudicator’s order in 2008. Nor was there any indication in the motion or the explanatory note of the size of the areas of common property to be transferred or granted by way of exclusive use.

[32] Owners were told in the explanatory note that the previous committee had accepted the figure of $450,000 by way of compensation, based on an independent valuation. The valuation was not provided. There does not appear to me to be any “summary” of the way in which the $450,000 has been arrived at in the notice of the meeting. The compensation was simply described as “fair” for the loss of “the relatively small area of common property”.

[33] Nor does the attached draft deed state the size of the areas to be conveyed, nor how the valuation has been assessed. It is not at all easy to read from the plan attached to the deed (Annexure D Copy of Structure/encroachment location plan) the sizes of the various areas, or work out a total area to be conveyed or granted.

[34] In the absence of this vital information, how were owners to know or to work out that the compensation proposed was “fair” as described by the committee? In the circumstances, although owners may also be voicing their personal disappointment about their respective investments, and looking backwards at the behaviour of the Applicant, which is not helpful in the search for a solution, from an objective viewpoint in the circumstances, there are justifiable reasons for voting against Motion 2.

[35] It is not within the ambit of this adjudication to comment on the valuation and whether the price is or is not “fair”. I merely have to be satisfied that those casting votes had a valid reason for voting against, and I am satisfied that Mr Faggotter had, and that Mr Wharton and Mr Cox relied in part on Mr Faggotter’s point of view.[10] It seems to me that the “real and true reason for the refusal of consent” is that the three dissenting voters were of the view that the proposal was not a fair one. They are entitled to hold that view in the circumstances.

[36] I am not satisfied that there is any evidence that Mr Faggotter, as a committee member, had previously approved of the content of the draft deed. He may have agreed that the document should be put to a general meeting, as was correct procedure. There are no minutes of committee meetings available which demonstrate that he voted on any motion concerning the deed.

The Valuation

[37] For the benefit of owners who have not seen the valuation, I note that the CBRE valuation was concluded on 29th July 2012 and contained valuations in respect of the Applicant’s encroachments for three different dates between 2006 and 2012. The latest analysis in respect of the date of 25th July 2012 was that the value at that time was $3,000 per square metre of site area and that the site of the encroachments was 212.7m² giving a value of $638,000. The site area excluded the covered patio area (38.5m², known as “region 16”) and the “open services area” (21.7m² known as “region 20”) both of which areas it is now proposed to be transferred to the Applicant.

[38] The valuation was therefore relatively up-to-date at the meeting on 18th December 2012. It seems to me from the Conics report and plans[11] on which the valuation relied, that the total area to be conveyed as per the draft deed to the Applicant is approximately 269.9m².[12] That excludes regions 17,18, 25 and 26 which it is proposed are to be granted as exclusive use areas.

[39] The sum proposed of $450,000 does not therefore appear to be based on the independent valuation of $3,000 per square metre of the areas to be conveyed, as stated by the body corporate in the explanatory note, but perhaps is a commercial decision negotiated between the body corporate and the Applicant as parties in the court proceedings. This information should be available to members in order for them to make a decision.

CONCLUSION

[40] The Applicant has not discharged the onus of establishing that the withholding of the body corporate’s approval to Motion 2 as presented, was unreasonable, given the circumstances that exist, and I dismiss this application.

[41] There is nothing to prevent Motion 2 from being resubmitted to a general meeting. It would be prudent for the body corporate to provide any relevant valuation to owners well before the meeting, and/or to provide information about how the figures in any draft settlement deed have been calculated in relation to the areas to be conveyed, exclusive use areas to be granted and any works to be performed.

Notes on submissions

[42] For completion, I find that the fact that the three dissenting voters are not in occupation and that their lots are not on the same level as the subject areas of common property, is an irrelevant consideration. That their lots are rented for the foreseeable future does not deny owners enjoyment of the capital value of common property and the balance of lots and common property in the scheme as a whole. The common property is clearly a valuable asset as an adjunct to all the lots.

[43] I also note that Mullins J. found in December 2009 that the use made of region 11 and region 19 by the Applicant amounted to an unreasonable interference with the use and enjoyment of the common property by those otherwise entitled to make use of those areas as common property.[13]

[44] I am of the view that the question “to whom should money under the settlement deed be paid?” is not an issue in this dispute, which concerns only the status of Motion 2. However, in the hope of avoiding this as an issue in future, it is without doubt that the common property belongs to the body corporate, which is responsible for maintaining it and which is the respondent in the Supreme Court proceedings and a party to the deed. A divisible share of the common property would only be of relevance to owners in the event that the scheme was terminated.

[45] The question of “fraud on the minority” also does not arise. Unfortunately for individual owners, voting rights are based on property rights, and it is well established that barring actual fraud or oppression exercised over voters, both of which require a high standard of proof, that the majority owner will win the day at a general meeting.[14]

[46] Finally, there is nothing in the legislation which prevents a body corporate from making a profit in any lawful way, save that it may not carry on certain businesses.[15]

[1] Sections 227,228, 276 and Schedule 5 Act

[2] The Applicant acknowledges this, per Justice Mullins Burnitt Investments –v- Body Corporate for Tower Mill Motor Inn CTS 1918 [2009] QSC 427 para 14.

[3] Item 10: If satisfied that a motion....considered by the body corporate and requiring a resolution without dissent was not passed because of opposition that is unreasonable, an order giving effect to the motion proposed, or a variation of the motion as proposed.

Item 24: If satisfied that a decision to pass or not to pass a motion at a general meeting was unreasonable, an order declaring that the motion was invalid or giving effect to the motion as proposed, or a variation of the motion as proposed.

[4] Points North [2004] QBCCMCmr 423 (specialist adjudication 0261-2004)

[5] Zenith [2007] QBCCMCmr 115 (28 February 2007).

[6] Secretary, Department of Foreign Affairs and Trade v Styles [1989] FCA 342; (1989) 88 ALR 621.

[7] Sirocco Resort [2006] QBCCMCmr 426.

[8] Sirocco Resort [2006] as above, paras 66 , 67, 68 and 72 quoting Young CJ in Eq in Tamsco Ltd –v- Franklin [2001] NSWSC 1205 at 54.

[9] Tower Mill Motor Inn [2008] QBCCMCmr 102 (18 March 2008)

[10] Emails from Des Faggotter to Mr Cox and others, forwarded by Ron Davey to Mr Wharton on 5th December 2012

[11] Survey report dated 27th February 2009 by Conics Brisbane Pty Ltd

[12]From the Conics report. Areas for sale: region 11 - 40.1m² - bar area; region 13 - 35.7m² building manager’s office and reception ( 2 areas); region 14 – an exclusive use area - 1.8m² - part office space used by building manager; region 15 - 1.2 m² - exclusive use area occupied by block wall and decking; region 16 -38.5 m² - outdoor deck extension; region 19 - 86.3m² new deck plus roof posts 2.9 m² ; region 20 - 23.1 m² - bar/restaurant extension into exclusive use area; region 21 - 23 m² - signs; region 22 ( 2 areas) - 6.5 m² – surveillance equipment room; region 23 -10.8 m² - hallway and toilets. (269.9 m² in total).

[13] Burnitt Investments Pty Ltd –v- Body Corporate for the Tower Mill Motor Inn CTS 1918 & Ors [2009] QSC 427

[14] Dindas & Anor v Body Corporate for One Park Road CTS2114 & Ors [2006] QDC 302

[15] Section 96 Act