Admiralty Towers [2014] QBCCMCmr 305 (25 August 2014)

Last Updated: 3 September 2014

ADJUDICATOR’S ORDER

Office of the Commissioner

for Body Corporate and Community Management

INTERIM ORDERS MADE:

REASONS FOR DECISION

Introduction

[1] Admiralty Towers is a community titles scheme consisting of 151 lots and common property. This application relates to the proposed assignment of the scheme’s management rights.

[2] The applicant, Mr Robert Boundy is the owner of lot 143. He seeks an interim order to restrain the body corporate from granting consent to the proposed assignment pending a final order requiring the current caretaking service contractor to undertake remedial action for claimed breaches of the caretaking agreement. The body corporate committee says it is not aware of any remedial action required and therefore fails to see any reason for an interim order to be made.

[3] An interim order is normally only justified when:

1. The application raises a serious question that will need to be determined; and
2. The inconvenience likely to result from the interim order is outweighed by the potential detriment if the order is not granted.

Jurisdiction

[4] 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 regarding a claimed contravention of the Act particularly in terms of whether the body corporate has acted reasonably in the performance of its functions.[2]

[5] 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. Section 279(1) of the Act specifically allows 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.

[6] However, it should be noted that the Office of the Commissioner for Body Corporate and Community Management has no jurisdiction to consider disputes about a claimed or anticipated contractual matter regarding the engagement of a person as a caretaking service contractor.[3] The Dictionary in the Act defines a ‘contractual matter’ about an engagement of a service contractor as:

(a) a contravention of the terms of the engagement or authorisation; or

(b) the termination of the engagement or authorisation; or

(c) the exercise of rights or powers under the terms of the engagement or authorisation; or

(d) the performance of duties under the terms of the engagement or authorisation.

[7] Accordingly, I consider any issues regarding the terms or performance of duties by the caretaking service contractor under the caretaking agreement to be contractual matters outside the jurisdiction of our Office. These matters can only be considered by QCAT or a specialist adjudicator. Consequently, no such arguments can be considered by our Office when determining any orders sought.

Procedural Matters and Investigation

[8] In accordance with section 247 of the Act, the Commissioner for Body Corporate and Community Management has referred the application to me to decide whether the nature or urgency of the circumstances of the application warrant an interim order. The Commissioner has referred the application notwithstanding that affected persons have not been given notice of the application or afforded an opportunity to make submissions about the application[4].

[9] Initially, the application indicated that settlement of the assignment was due to be effected on 31 July 2014. In accordance with my investigative powers under section 271 of the Act, I requested the body corporate to advise on the current status of the proposed assignment. On 6 August 2014, the body corporate manager advised that settlement of the assignment had not taken place; that the committee was in the process of considering the information it had received about the proposed assignee; and that the committee would be making a decision about the requested assignment within the following three weeks.

[10] As such, in the circumstances I provided the body corporate committee and Collberry Pty Ltd, the current caretaking service contractor (“Caretaker”) with a limited opportunity to make a written submission in response to the interim application. The applicant inspected the submissions and made a written reply.

Matters in Dispute

[11] The only issue at this time is whether an interim order is warranted. However, to determine whether it is just and equitable to grant interim relief, it is necessary to consider the substantive issues in dispute in the application.

[12] On 13 December 2013, the applicant carried out an inspection of the body corporate records and following the inspection, he produced an audit report indicating various “potential contraventions of the Caretaker in the performance of its contract”. The applicant sent the report to the body corporate on 10 January 2014 and the committee responded in a letter dated 14 January 2014.

[13] Set out below is a summary of the issues as raised by the applicant and the responses of the committee and the Caretaker.

On-selling of services by the Caretaker to the body corporate

[14] The applicant alleges that the Caretaker has interposed itself as an intermediary supplier of services to the body corporate and points to examples in which the Caretaker has allegedly failed to provide supporting invoices from the original supplier to confirm there has been no mark up of services. The applicant says the Caretaker should be required to provide original supporting invoices from the suppliers for each of the 70 invoices he has questioned and that any charges that are not a legitimate body corporate cost as determined under the caretaking contract are to be refunded by the Caretaker to the body corporate. The applicant also submits that if the Caretaker has marked up any of the original invoices and charged the body corporate a higher amount, that difference should also to be refunded.

[15] The committee says it is satisfied to the best of its knowledge that there is no mark up by the Caretaker in the supply of services provided to the body corporate. Included with the committee’s submission is a spreadsheet explaining the expenses paid by the Caretaker and then reimbursed by the body corporate.

[16] The Caretaker says there is nothing in the caretaking agreement or the legislation that precludes the Caretaker from providing the body corporate at competitive prices with services for items that are not part of the caretaker’s duties under the caretaking agreement. In the course of doing so, the Caretaker says it may at times engage other contractors to perform services in addition to providing its own expert input. The Caretaker also denies that it failed to provide any supporting invoices from any external suppliers that the body corporate was asked to pay. It says that whenever an invoice included a claim for reimbursement of expenditure, the original supplier invoice was attached and was signed off by the treasurer and then sent to the body corporate manager for payment.

QFRS Infringement notices

[17] The body corporate paid for infringement notices it received from the Queensland Fire and Rescue Services for failing to comply with certain regulations. The applicant argues that under the Caretaker’s contract, these invoices were payable by the Caretaker due to its failure to meet its obligations, resulting in the infringement notices.

[18] The committee says it sees no justification in seeking reimbursement from the Caretaker for the QFRS infringement notices as the appropriate records were kept on an on-line portal however this was not accepted by QFRS. The committee considers this is not the fault of the Caretaker.

[19] The Caretaker argues it is not responsible for the infringement notices as it says the body corporate had engaged a new specialist fire services contractor, Firevac which implemented a system of keeping the requisite fire safety records in electronic format. The Caretaker and committee assumed, given Firevac’s expertise in fire safety compliance, this method of keeping records complied with the relevant legislative requirements but QFRS determined otherwise and issued infringement notices to the body corporate.

Other invoices

[20] The body corporate was required to replace the building’s grand master keys which had been lent to a lot owner but not returned. The applicant claims that the replacement cost of the keys should have firstly been sought from the owner who lost them, and failing that, the Caretaker should have been made responsible for the cost, not the body corporate. The applicant refers to a clause of the caretaking contract which he considers makes the Caretaker responsible for this cost.

[21] The committee and Caretaker both state that the cost of replacing the grand master key system was reimbursed to the body corporate by way of an insurance claim against the contractor who lost the master key.

Accountability for security access devices

[22] The applicant claims the Caretaker has failed to comply with its obligations under the contract in respect of administering security access devices (“fobs”), and in particular with respect to how the Caretaker is accounting to the body corporate for the fobs deposits from owners.

[23] The committee says that all fobs have been accounted for by the Caretaker however the funds are currently accounted for in the Caretaker’s trust account which will be rectified by way of transfer to the body corporate bank account.

[24] The Caretaker states that the monies from the sale of the fobs were held in the Caretaker’s trust account, an arrangement that the committee was happy with. The Caretaker maintains that the sale proceeds for fobs have been accounted for to the body corporate at all times.

Lack of accountability by treasurer

[25] The applicant refers to examples in which expenditure has been allegedly wrongfully reimbursed by the body corporate to the Caretaker.

[26] The committee disputes the applicant’s claim that that there is a lack of accountability by the treasurer and outlines the approval process for payment of invoices, which it says has undergone scrutiny and external independent audit by accounting firm, HLB Mann Judd. The committee says to the best of its knowledge, the invoices queried by the applicant are justifiable expenses of the body corporate.

[27] The Caretaker submits all of the items referred to by the applicant are properly reimbursed to the Caretaker as the items are not part of its duties under the caretaking agreement.

Disclosure to buyer

[28] The applicant submits that the body corporate should make full disclosure to the prospective assignee about the current dispute and the possible remediation required of the Caretaker so that the assignee is aware of the potential impact this may have on the actual profitability of the business.

[29] The committee says it does not see any action required as the purchaser would need to carry out its usual due diligence and verifications as they consider necessary.

[30] The Caretaker states that the proposed purchaser had an accountant conduct an income verification investigation into the Caretaker’s operation of the management rights business and was able to ascertain whether or not payments made to the Caretaker were in accordance with the caretaking agreement. The Caretaker also says the purchaser conducted a body corporate records search and is therefore fully aware of the payments made to the Caretaker by the body corporate and satisfied with the bona fides of the payments.

Legal advice from the body corporate’s solicitors

[31] The applicant submits that the body corporate’s solicitors should consider and provide advice in respect of the audit report he has produced.

[32] The committee confirmed it has engaged solicitors and will provide the applicant’s report to their solicitors.

Analysis

Serious Legal Question

[33] Pursuant to section 122 of the Standard Module, a person’s rights under an engagement as a service contractor or letting agent may be transferred only if the body corporate approves the transfer. The approval may be given by the committee or by ordinary resolution of the body corporate. The issue for me to consider is whether there is any basis to restrain the body corporate from granting its consent to the proposed assignment.

[34] The arguments that have been raised by the applicant largely concern the body corporate’s decisions to pay for particular expenses which the applicant considers should have been the Caretaker’s responsibility or at least scrutinized by the committee as to whether it is a body corporate cost. While the applicant may have concerns regarding these payments, I consider this to be a separate issue to whether the body corporate should be permitted to proceed with the proposed assignment.

[35] For me to make an interim order restraining the body corporate from consenting to the assignment, the applicant needs to demonstrate that the proposed assignment may in some way be a contravention of the legislation, such that it should not be allowed to proceed pending a final order to resolve the dispute. The applicant has not raised any arguments about the validity of the proposed assignment. While the body corporate has a legislative obligation to act reasonably in anything that it does, including making or not making a decision[5], the applicant has also not satisfied me that the body corporate would be acting unreasonably if it were to consent to the proposed transfer.

[36] On the contrary, section 122(6)(a) of the Standard Module provides that the body corporate must not unreasonably withhold approval to the transfer. Section 122(3) sets out the considerations a body corporate may have regard to in deciding whether to approve a proposed transfer, including for example the character of the proposed transferee, the financial standing of the proposed transferee, the proposed terms of the transfer, and the competence, qualifications and experience of the proposed transferee. The applicant has not pointed to any of these considerations as being grounds for the interim order sought.

[37] Finally, I note the audit report relied upon by the applicant was prepared by himself and that the body corporate has obtained a separate independent audit report which raised no concerns with the body corporate financial accounts.

[38] Based on the above, I see no justifiable basis for an interim order to be made restraining the body corporate from consenting to the proposed assignment.

Inconvenience from an Interim Order

[39] In considering whether to grant the interim order sought, it is relevant to balance:

1. the inconvenience of granting relief now if final orders are ultimately refused; against
2. the inconvenience of refusing relief now if final orders are ultimately granted.

[40] The applicant submits it is essential for any restitution or remediation to occur prior to consent being given to the assignment because it will not be possible to retrospectively pursue any remediation action by the Caretaker following an assignment. The applicant says the Deed of Assignment has not been provided therefore it is not known whether it contains the usual condition that absolves the Caretaker from responsibility for any past claims lodged after the assignment has taken place but that have not been remedied.

[41] The Caretaker submits that there can be no possible basis for any interim order to prevent the assignment from proceeding. It argues that if, as the applicant contends the Caretaker has been paid too much by the body corporate (which the Caretaker denies), and the applicant is able to convince enough owners to take some action against the Caretaker, such action will be open to the body corporate after an assignment takes place.

[42] I requested the body corporate to provide me with a copy of the Deed of Assignment however the committee advised that the document is yet to be finalised. It is not the role of an adjudicator to provide legal advice on contractual matters associated with the Deed of Assignment. Rather, if the parties have concerns regarding any such issues, they are at liberty to seek their own independent legal advice. Even if the applicant is correct in that the assignment will release the Caretaker from all liability, this is not in itself a basis for me to make the interim order particularly given that I am not satisfied there is sufficient evidence to demonstrate any invalidity or unreasonableness about the proposed transfer.

Conclusion

[43] On balance, I am not satisfied that the applicant has presented sufficient evidence of a serious legal issue relating to the proposed assignment that would justify an interim order to restrain the body corporate from proceeding with the transfer. Accordingly I have declined to grant an interim order at this time.

[44] The applicant has made several assertions regarding the Caretaker’s performance of duties pursuant to the terms of the caretaking agreement. These may be contractual matters that fall outside the jurisdiction of a department adjudicator and if that is the case, I will not be taking such arguments into consideration in the determination of final orders.

[45] The matter will now proceed in accordance with the normal processes undertaken by this Office. In the first instance I intend to refer the application to the Commissioner with a recommendation that conciliation be conducted in respect of the dispute. If conciliation is unable to resolve the dispute, the matter will proceed to the investigation of the final order, including calling further submissions.

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

[2] See sections 94(2) and 100(5) of the Act.

[3] See sections 149B and 229 of the Act.

[4] Section 247(3) of the Act.

[5] Section 94(2) of the Act.