Dindas v Body Corporate for One Park Road CTS 2114

[2006] QDC 302

DISTRICT COURT OF QUEENSLAND

CITATION:

Dindas & Anor v Body Corporate for One Park Road CTS 2114 & Ors [2006] QDC 302

PARTIES:

Appeal:

EDITH DINDAS 

First Appellants

EDITH DINDAS PTY LTD ACN 077 609 959

Second Appellants

BODY CORPORATE FOR ‘ONE PARK ROAD’ CTS 2114

First Respondent

BENTONIC PTY LTD ACN 009 294 535

Second Respondent

CHUNG-MING SU and SHU-CHEN LIN SU

Third Respondents

NUNZIO LA ROSA

Fourth Respondent

KIARA HOLDINGS PTY LTD ACN 067 404 719

Fifth Respondent

I-YING WANG

Sixth Respondent

LEE CHEN and CHI-CHANG CHEN

Seventh Respondents

MAXWELL KEITH DUNSTAN, GUY DAVID DUNSTAN and ANTHEA JEAN DUNSTAN

Eighth Respondents

AUDAX AUSTRALIA PTY LTD ACN 062 151 311

Ninth Respondent

JIMMY LOK KEE MA and VERNEY MEI KUEN MA

Tenth Respondents

VANPOST PTY LTD ACN 010 982 751

Eleventh Respondent

WERNER SAUER

Twelfth Respondent

And by Cross-Appeal

KIARA HOLDINGS PTY LTD ACN 067 404 719

First Appellants

NUNZIO LA ROSA

Second Appellants

LI CHU LEE CHEN and CHI-CHANG CHEN

Third Appellants

JIMMY LOK KEE MA and VERNEY MEI KUEN MA

Fourth Appellants

CHUNG-MING SU and SHU-CHEN LIN SU

Fifth Appellants

WERNER SAUER

Sixth Appellants

I-YING WANG

Seventh Appellants

AUDAX AUSTRALIA PTY LTD ACN 062 151 311

Eighth Appellants

BENTONIC PTY LTD ACN 009 294 535

Ninth Appellants

VANPOST PTY LTD ACN 010 982 751

Tenth Appellants

EDITH DINDAS 

First Respondent

EDITH DINDAS PTY LTD ACN 077 609 959

Second Respondent

BODY CORPORATE FOR ‘ONE PARK ROAD’ CTS 2114

Third Respondent

FILE NO/S:

BD 559/05

DIVISION:

Appellate

PROCEEDING:

Appeal

ORIGINATING COURT:

Adjudicator under Body Corporate and Community Management Act 1997

DELIVERED ON:

25 August 2006

DELIVERED AT:

Brisbane

HEARING DATE:

6, 7 February 2006; further written submissions received 9 February 2006

JUDGE:

Alan Wilson SC, DCJ

ORDER:

Appeal allowed as to adjudicator’s order no.1, the second part of order no.3, order 4, order 5, the first sub-clause of order 6, and orders 7, 8, 9 and 10.

The cross appeal is dismissed.

CATCHWORDS:

Body Corporate – commercial premises – challenge to adjudicator’s decision on question of law

Alleged “fraud on power” – adjudicator decision contrary to wishes of the majority of lot entitlement holders - whether orders of adjudicator were within powers granted by the legislation – whether adjudicator can interfere with rights granted by the legislation to lot owners – whether democratic principles apply to body corporate operation

Cross-appeal – whether adjudicator should have appointed an administrator

Body Corporate and Community Management Act 1997

Gambotto v WCP Ltd [1995] 1982 CLR 432
Hablethwaite v Andrijevic [2005] QCA 336
Houghton v Immer (No 155 Pty Ltd) [1997] 44 NSW LR 46
McColl v Body Corporate for Lakeview Park CTS 20751 [2004] QCA 44
Peters’ American Delicacy Co. Ltd v Heath [1939] 61 CLR 457

COUNSEL:

Mr K C Fleming QC for the first and second appellants, and the first and second respondents in the cross-appeal

No appearance for the first respondent (third respondent in the cross-appeal)

Mr L Alford for the fourth, fifth, sixth, seventh, ninth, tenth, eleventh and twelfth respondents; and all except the fifth and ninth appellants in the cross-appeal.

Mr D K Kanitz for the eighth respondents

SOLICITORS:

Herdlaw for the first and second appellants, and the first and second respondents in the cross-appeal

Holding Redlich for the fourth, fifth, sixth, seventh, , ninth, tenth, eleventh and twelfth respondents; and all appellants in the cross-appeal

Dunstan Hardcastle for the eighth respondents

[1]      This is an appeal and cross-appeal from orders made by an adjudicator under the Body Corporate and Community Management Act 1997 (BCCMA) published, with reasons[1], on 12 January 2005.  A copy of the orders the adjudicator made is attached, marked “A”.  Each order is numbered; the numbering did not appear when the adjudicator made the orders, but the parties agreed it helps in addressing the issues.

[1] Exhibit 1, Appeal book, vol 2 pp 197-211

[2]      The proceedings involve commercial premises at Park Road.  The material, which is voluminous, reveals a sorry history of disagreement and dispute and several previous instances of recourse to adjudicative proceedings under the BCCMA.  I was told that, since the appeal and cross-appeal were lodged, an administrator has been appointed under the BCCMA with limited powers.  Nevertheless, the parties wished to proceed and did so over two days of oral argument, with lengthy written submissions and wide-ranging references to case law.  At the outset an attempt was made, by the respondents/cross appellants, to file an affidavit containing 405 pages of material about events involving the parties since the adjudicator’s order, but leave was refused.  The appellants then sought to set aside an ex parte order of this court made on 12 May 2005 giving some of the respondents leave to cross-appeal out of time but that application was also refused.

[3]      The purpose of the BCCMA is to provide a system of governance and management of ‘community titles schemes’ (CTS) through bodies corporate.  All lot owners are members of their CTS body corporate, which manages common property and assets.  The body corporate operates, here, through a committee[2] chosen at an annual general meeting.  Voting rights are determined by lot entitlements.  The appellants hold over 60% of the lot entitlements, and the respondents about 35%. 

[2] The Commercial Module

[4]      The BCCMA has a variety of mechanisms for resolving disputes about management, some of which have been tried here; they include the procedure which led to the adjudicator’s orders.  These matters reached the adjudicator via procedures under Chapter 6 of the Act, following ‘applications’ by persons concerned with disputes arising about matters touched by its provisions.  The appeal and cross-appeal are brought under ss 289 and 290, which permits a challenge to an adjudicator’s decision, but only on a question of law. 

[5]      The appellants’ primary attack is upon those orders of the adjudicator which, they say, over-ride their wishes as the majority, and disenfranchise them.  The respondents’ principal contention is that the adjudicator should have appointed an administrator[3] in the face of conduct by the appellants which, they assert, was oppressive and constituted what was, to borrow (as their submissions do) a phrase usually associated with corporations and their shareholders, a ‘fraud on the power’.

[3] Notice of Cross Appeal, Appeal Book Vol 2, pp 382-384

The Proceedings before the Adjudicator

[6]      The Adjudicator’s reasons show he dealt, simultaneously, with five ‘Dispute Resolution Applications’ brought by a number of the respondents/cross-appellants here.  He published five orders, each in identical terms[4].  The orders made in the first, second, third, ninth and tenth paragraphs of those orders relate only to one application (682-2003).  After the appellants brought their appeal, the adjudicator stayed two of his orders[5], concerning mailboxes and a directory board.  In the scheme of things, these were not important matters.

[4] In matters designated 266-2003, 361-2003, 682-2003, 703-2003, and 521-2004

[5] Letter 15 March 2005; Appeal Book, Vol 2, p 251

[7]      The adjudicator’s reasons are lengthy and detailed, covering 15 single spaced pages.  Those reasons and the orders they are said to justify rely heavily upon significant findings the adjudicator made about the meaning and effect of the BCCMA and, in particular, s 276 which provides:

276.        Orders of Adjudicators

(1)An Adjudicator to whom the application is referred may make an order that is just and equitable in the circumstances (including a declaratory order) to resolve a dispute, in the context of a community title scheme, about –

(a)A claimed or anticipated contravention of this Act or the community management statement; or

(b)The exercise of rights or powers, or the performance of duties, under this Act or the community management statement; or

(c)A claimed or anticipated contractual matter about:-

(i)The engagement of a person as the body corporate manager or service contractor for a community title scheme; or

(ii)The authorisation of a person as a letting agent for a community title scheme.

[8]      Before turning to a more detailed discussion of the way the adjudicator construed that section (and the legislation generally) it is relevant to note that this CTS operates under what is called the Commercial Module which, as the adjudicator noted, leaves matters of nomination and election to be determined by the body corporate itself in the form of a special resolution[6] - unlike the Standard Module which, as the adjudicator also noted, had been amended in December 2003 “…to improve the transparency of committee decision making and address issues including potential stacking of the committee with the advantage of a small number of owners, a body corporate manager, or the resident manager.”[7]

[6]Commercial Module Regulations, cl 13

[7] Adjudicator’s reasons, Appeal Book Vol 2, p 201

[9]      The adjudicator was persuaded that s 276 enlivened a wide ranging discretion to address the matters upon which he was called to adjudicate in a way which reflected certain principles found in company law, and equity.  His reasons contain the following, various statements:

It is a well accepted principle of equity that a majority shareholder in a company cannot alter the rules by which the company is governed in a way that is oppressive to a minority shareholder or group of shareholders.  More generally, courts in equity have established the doctrine of “fraud on a power” stating “a person having a power, must exercise its bone (sic) fide for the end designed, otherwise it is corrupt and void” and establishing that the doctrine of fraud on a power “authorises intervention where the power is exercised in bad faith or for purposes foreign to the power.”  The New South Wales Court of Appeal has recognised this doctrine of fraud on a power as being of general application and, specifically, as applicable to bodies corporate under the Strata Titles Act of New South Wales.

While the Body Corporate and Community Management Act 1997 does not expressly confer equitable jurisdiction on an adjudicator, an adjudicator is expected to make an order that is “just and equitable” to resolve a dispute adjudicators have jurisdiction to declare a resolution void if unreasonable or to declare a motion past if the opposition to it is unreasonable (Act, 276).  In considering whether a resolution is unreasonable it is instructed to consider the decisions of the courts that have found a procedurally valid exercise of a power invalid on the basis that it constitutes a fraud on the power.  In particular it is relevant that a fraud on a power can be constituted if the power is exercised for a purpose or with an intention beyond the scope of the power.  The conduct does not need to be dishonest or immoral to constitute a fraud on the power[8].

[8] Adjudicator’s reasons, Appeal Book Vol 2, p 202

[10]      It was in reliance upon these premises that the adjudicator found a number of the decisions of the committee of the body corporate were “unreasonable”.  An example concerns the adjudicator’s first order, which declared void a decision of an extraordinary general meeting which limited the committee’s decision making power to decisions involving spending of no more than $500.  The adjudicator said:

This is the type of decision by a majority group that the courts recognise as a fraud on the minority.  It is a resolution  that I propose to invalidate on the basis that it is unreasonable and that a just and equitable order requires restoration of effective decision making powers to the committee (Act 94  (2), 276).

Another example concerned Order 3, touching a decision of the body corporate to appoint the second appellants as building manager, which the adjudicator declared void “…on the basis that it was unreasonable”; and, the further order that the company was prohibited from voting for itself or an associate as replacement building manager “…on a just and equitable basis”.  In his reasons the adjudicator said:

The respondents are correct in submitting that members of a company may generally vote in their own interest.  However, the courts of equity have consistently invalidated the exercise of voting power by a majority of members in a company where the vote is a means of securing some personal gain rather than for purposes of the proper management of a company.

The Appellants’ Submissions

[11]      The appellants’ case is, in short, was that they were simply exercising statutory rights under the BCCMA and, in those circumstances, the principles the adjudicator sought to attach to the legislation simply had no application.  Moreover, it is asserted, he made no actual findings that they had been guilty of any fraud in the exercise of their rights or powers under that legislation, or had acted oppressively; or, in the alternative, if the adjudicator is deemed by implication to have found that the appellants were acting beyond their rights, that finding was wrong.

[12]      The adjudicator, the appellants say, undertook this incorrect process of reasoning: first, he determined that the legislation permitted him to apply principles brought across from company law; second, he determined (by implication) that the appellants lawful exercise of their rights attracted a sanction under those principles because the appellants’ acts constituted a fraud on the power and/or oppression; thirdly, he wrongly categorised those acts as “unreasonable”; and, fourthly, he took that process as the basis for a conclusion that he was, as a consequence, entitled to make wide ranging orders which took away the appellants’ statutory rights, on the basis those orders were “just and equitable” (under s 276) in the face of the appellants’ wrongful conduct.

The Respondents’ Submissions

[13]      The respondents’ submissions (on both the appeal and their cross appeal) went through a variety of forms, and the final one was filed by leave at the hearing.  Their first contention is a very interesting one: that the legislation rests on democratic principles and, as the submissions say: “…the democratic ethos of the legislation calls for the recognition of the voice of the community, not just the satisfaction of the wishes of one person who is the majority owner.  The general meetings and committee meetings are intended to reflect a communal voice… it is the intention of the Parliament of Queensland to encourage the democratic process through the Act and that the oppressive practices of the Appellants have subverted that intention”[9]. Reliance for this proposition was placed, among other things, upon an article co-authored by the respondents’ Counsel, Mr Alford[10].

[9] Respondents’ submissions on hearing of appeal and cross appeal, filed by leave 7 February 2006, p 4 par  

16

[10] Protection of Minority Orders in a Body Corporate, Australian Property Law Journal (Vol 11, No 2, 

January 2005).

[14]      Secondly, it is said that the adjudicator’s powers under s 276 are wide enough to permit the orders he made, and that this proposition is supported by three decisions of appeal courts: Houghton v Immer (No 155 Pty Ltd) [1997] 44 NSW LR 46; McColl v Body Corporate for Lakeview Park CTS 20751 [2004] QCA 44; and, Hablethwaite v Andrijevic [2005] QCA 336.

[15]      Finally, in support of the cross appeal, it is said that the appellants’ actions constituted such serious breaches of the legislative intent of the BCCMA and the principles of company law already mentioned that the adjudicator should have gone much further, and appointed an administrator to the scheme; and his failure to do so is described as “timid”[11].

[11] Respondents’ submission (SUPRA) p 6, par 24

[16]      Two additional matters were raised in the respondents’ submissions: the first asserted that the adjudicator erred in law by failing to recognise that an extraordinary general meeting of 6 September 2004 had been wrongly called and was invalid; and the second that, having found the appointment of the second appellants Edith Dindas Pty Ltd as building manager was invalid, the adjudicator should have ordered restitution to the body corporate in an amount of $41,275, plus interest.  The first claim ought not be ventilated: it was the subject of a separate application to the adjudicator[12] and did not fall for his determination in the proceedings under appeal.  Even without that procedural barrier I would not, in any event, be prepared to make an adverse finding: although, as the respondents contend, there was no secretary filling that office in the committee of the body corporate at the time that was, at worst, a procedural irregularity which should not automatically be taken to invalidate the meeting[13].

[12] 780 of 2004

[13] I accept, in this respect, the submissions made in the appellants’ reply to the cross appeal: appeal book Vol 2, pp 398-4 par 11(f) 

[17]      As to the second point the adjudicator found[14] that he did not have jurisdiction to make an order for restitution, that matter being properly a dispute between the body corporate and Edith Dindas Pty Ltd.  In any event, s 265 of the BCCMA indicates that disputes of this kind should be the subject of a “specialist” adjudication and that was not, it appears, what this process was. 

[14] Reasons, p 11: Appeal Book Vol 2 p 207

[18]      Two other aspects of the appeal, and the parties’ submissions, should be remarked: first, the appellants’ Notice of Appeal asserts that the making of identical orders in five applications required the unnecessary joinder of parties[15] but the respondents specifically disavowed the point[16] and it was not pursued at the hearing.

[15] Appeal Book Vol 2, p 263, par 12

[16] Respondents first outline of argument, appeal book Vol 2 p 309 par 37

[19]      Second, the respondents’ submissions otherwise make it clear that, if their cross appeal fails, they actively support all of the adjudicator’s orders save for the second part of Order 3, under which the body corporate was directed to refuse to accept votes from any owner in favour of appointing themselves or an associate as the replacement for the current building manager.  The respondents say that the owners ought to be able to make “…such an appointment on the merits from an open field of candidates”[17] .

[17] Respondents’ outline, Appeal Book Vol 2, pp 305-6 pars 12, 13 and 14 

A Democracy?

[20]      The notion that a body corporate operates on democratic principles underpins the respondents’ assertion that the adjudicator was required, under the legislation and, in particular, s 276 to “…balance the rights of the individuals ...within the statutory and equitable powers ascribed…” by that section[18].  Arguments in support of the contention that parliament intended to “imbue” the legislation with “a democratic principle” are summarised in Mr Alford’s article, and in the respondents’ Outline at paragraphs 15-20[19].  Those submissions rely upon the use of words like “community” and “corporate” in the legislation, as well as specific provisions – eg, ss 94 and 100, which require that a body corporate administer the common property and assets “…for the benefit of the owners”; and, some aspects of the Minister’s Second Reading Speech.

[18] Appeal Book Vol 2, p 308

[19] Appeal Book Vol 2, pp 306-7

[21]      Mr Alford, counsel for the respondent, submitted that these elements warrant a particular approach to construction of the BCCMA:

The construction of the Act is evidence for the precept that minority owners in a body corporate do have a right to be heard as part of the voice of the community and that actions that silence that voice, intentional or unintentional, run contrary to the ethos of legislation.

[22]      If, as I understand them, these submissions are intended to support the proposition that the adjudicator’s powers to make orders that are “just and equitable” under s 276 can be construed so that minority interests may prevail over the wishes of the majority (lawfully expressed through legitimate voting) in certain circumstances the proposition runs up hard, firstly, against the difficulty that the voting process is, in many instances, one based upon property interests – as the learned article co-written by Mr Alford fairly acknowledges:

Interestingly, although the Queensland legislation on its face supports a democratic ethos its Achilles heel is that it enables the ethos to be subverted because the voting process is based on a tally of ownership interests expressed as a percentage of ownership of the whole.

[23]      Counsel sought to circumvent this rather, on its face, significant difficulty by submitting that although the Act permitted a voting process based on ownership interests, that process was subsumed to other parts of the legislation which favoured a true democracy[20].  The legislation is, in truth, however, a reversion to “democratic” principles applying at an earlier stage in the evolution of the voting process in democratic countries – i.e. one based upon property rights.  Nothing could be clearer but that the “ethos” created under the legislation is not always one based upon an individual’s right to vote, but upon the property rights which accrue to lot owners.  That is a conclusion applying with particular force to schemes operating under the Commercial Module.

[20] T107.23 - 28

[24]      It is a manifest error, then, to assume that s 276 addresses either fundamental democratic, or moral principles; rather, it is posited on the existence of a dispute about legal rights arising within the parameters of the legislation and, hence, a just and equitable order made under the section is necessarily one made in accordance with the law, and is not one which rests on imported, and irrelevant, notions of a pure democracy.

[25]      The distinction is well made, albeit in the context of a corporation, in the fourth edition of Justice McPherson’s Company Liquidation, at page 177:

It has frequently been stressed that s 246 AA is not intended to provide minority shareholders with a means of stultifying the voting power of the majority:

The mere use of voting power at board meetings or at a general meeting to secure the passing of resolutions which the other members of the board or shareholders oppose would not in general constitute oppression for the purpose of the section or for any other purpose.  For a petition to succeed it must be shown that there has been oppression in a real sense of members qua shareholders, and not merely a subordination of their wishes to the power of the voting majority.

Hence, it does not constitute oppression for those in control to insist upon the adoption of a policy on a matter of business on which there may be legitimate differences of opinion, nor is it oppression if an existing state of inequality results from the provisions of a constitution of the company and not from any action on the part of those in control.

These remarks are, with respect, entirely apposite here: the “existing state of inequality” results not from any subversion of ordinary democratic principles but, simply, from the voting rights created by the legislation.

The Adjudicator’s Powers under the BCCMA

[26]      That the adjudicator was moved to make wide ranging orders is not, as various parts of his reasons show, unsurprising.  They reveal a history of disputes between the two camps, and unsuccessful earlier attempts at resolution.  Nevertheless, this appeal addresses, at its core, a simple question: whether or not the solutions he reached and the orders he imposed as a consequence (practical and sensible as they might, at first blush, appear) were within power.  As the parties argued this appeal, that question revolves around the construction of the Act, and the nature and effect of the three decisions of the NSW and Queensland Courts of Appeal, mentioned earlier.

[27]      In the course of his reasons the adjudicator referred to three sections of the BCCMA as founding a right to declare resolutions void as unreasonable: s 276, and ss 94 (2) and 152.  Section 94 provides:

94.  Body Corporate’s General Functions

1.           The body corporate for a community title scheme must –

(a)Administer the common property and body corporate assets for the benefit of the owners of the lots included in the scheme; and

(b)Enforce the community management statement (including any bye-laws for the scheme); and

(c)Carry out the further functions given to the body corporate under this Act and the community management statement.

2.The body corporate must act reasonably in anything it does under sub-section (1).

[28]      Section 152 provides, relevantly:

152.  Body Corporate’s Duties about Common Property etc.

1.           The body corporate for a community title scheme must –

(a)Administer, manage and control the common property and body corporate assets reasonably and for the benefit of all owners; and …

[29]      Houghton v Immer (both at first instance[21] and on appeal[22]), upon which significant reliance was placed by the respondents, was a case in which the body corporate passed a resolution permitting some lot owners to sub-divide common property for their own benefit.  In both courts it was held that because the common property had value, the special resolution of some lot owners was a fraud on the minority, voidable in equity; and, relevantly here, that the doctrine of fraud on a power is of general application and could be applied to bodies corporate under the NSW Strata Title Act 1973.

[21] 13 November 1996, SCNSW Equity Division, Cowdroy AJ; BC 9605329

[22] [1997] 44 NSWLR 46

[30]      As the judgment of Handley JA on appeal[23] makes clear, however, the transposition of company law principles into this jurisdiction does not change their nature, which continues to rely on actual wrong doing.  As he pointed out (at pp 52-53) the relief flowing from these principles will ordinarily attach where the party guilty of fraud or oppression has been motivated by a desire for some personal or particular gain which, in the words of Dixon J in Peters’ American Delicacy Co. Ltd v Heath [1939] 61 CLR 457 (at 511) “…does not fairly arise out of the subjects dealt with by the power and is outside and even inconsistent with the contemplated objects of the power”[24].

[23] with whom Mason P and Beazley JA agreed

[24] and, see Gambotto v WCP Ltd [1995] 1982 CLR 432 at 444 - 455

[31]      There was no evidence that the acts and decisions which led to the resolutions declared void by the adjudicator were motivated, on the appellants’ part, by a desire for personal or particular gain; or, that their actions were inconsistent with concepts of honesty or could, on any view, be classified as fraudulent. Significantly, the adjudicator made no findings to that effect.  Rather, he held that the resolutions themselves were “unreasonable”.   

[32]      Without evidence of fraud or actual oppression, that was a step too far.  This conclusion applies even to the finding that the resolution to appoint Edith Dindas Pty Ltd as building manager should be set aside.  The adjudicator’s reasons traverse the respondents’ assertion, before him, that the appointment constituted a fraud because the decision was for the benefit of that company, rather than in the interests of the body corporate, but the actual findings do not go so far; he simply concluded, after reviewing the contractual terms and evidence, that because the tender price submitted by the company was in excess of other tenders, the decision was “…unreasonable and not in the best interests of the body corporate”.

[33]      As the reasons also show, the company relied upon its “permanent onsite presence” as a justification for the higher price and the adjudicator acknowledged, while rejecting, that argument.  Importantly, however, the reasons plainly indicate that whatever difficulties beset this decision, it fell short of fraud, and there is nothing to suggest the adjudicator thought the appellant company was motivated solely by self interest; or that this was not a case in which there was no actual benefit to the body corporate (in that management actually occurred); or that fraud arose as an issue when the decision had several, concurrent benefits, albeit they included a financial one for the appellant company.  The respondents’ complaint is, essentially, that they did not get value for money.  That is, on its face, something which might in some circumstances constitute a fraud but was not, here, found by the adjudicator to be so and, indeed, any finding to that effect would be surprising.

[34]      Nor do the two Queensland decisions, McColl and Hablethwaite go so far as the respondents wish to take them.  McColl concerns the question whether a by-law passed at an extraordinary meeting of a body corporate was “exclusive use” by law under s 133 of the BCCMA.  On appeal from an adjudicator’s decision a District Court Judge held that it was not, and the Court of Appeal agreed.  In the course of argument it was contended that s 87 of the Act (later amended, and now s 94) compelled the body corporate to act “reasonably”, and that the adjudicator should have dealt with the appellant’s complaints on that basis.  As Davies JA pointed out[25], however, the section is concerned with a body corporate’s general management functions and is not directed towards regulating decisions made at meetings of the body corporate. 

[25] At pars [24 ] and [25]

[35]      The respondents’ Outline here argues this conclusion is incorrect – or, perhaps, that it was per incuriam because the court does not seem to have been referred to s 276[26] - but the s 94 is clearly intended to apply to the performance of functions, and not the carriage of resolutions made at meetings; and s 276 does not take the matter further, or impinge on that conclusion.

[26] Respondents’ outline Appeal Book Vol 2, p 344, pars [44-47]

[36]      In Hablethwaite the applicants were, it appears, seeking something in the nature of an advisory opinion from the Court of Appeal[27].  The matter had a complex history: in short, the original decision of the adjudicator had overridden the applicants’ exercise of their controlling vote in respect of a number of motions proposed at an annual general meeting, a decision which was upheld on appeal by a District Court Judge. 

[27] Judgment of Keane JA, pars [23] and [24].

[37]      The applicant’s complaint was that, contrary to s 276, the adjudicator made an order which was not “just and equitable in the circumstances”.  Keane JA said, at paras [33] – [34]:

[33]The effect of the adjudicator’s conclusion, which was upheld on appeal to the District Court, was that the applicants did not demonstrate that they would be adversely affected in the use and enjoyment of their rights as lot owners (other than their voting rights) either nullification of their voting rights on the motions in question.  The adjudicator’s statutory powers extend to making orders resolving disputes about the exercise of voting rights by lot owners.  The statutory conferral of power upon the adjudicator to make an order which is “just and equitable in the circumstances” necessarily contemplates a decision by the adjudicator which may be “just and equitable in the circumstances” even though it overrides the exercise of voting rights by a scheme member.

[34]Accordingly, the mere circumstance that voting rights of the owner of a lot in a scheme are overridden by a decision cannot, of itself, render the decision something other than “just and equitable”.  Insofar as the rights of a lot owner, other than voting rights, are not affected by the adjudicator’s decision, it is impossible to see how the lot owner can be prejudiced in a way which could not be “just and equitable” simply by a decision to nullify his or her voting rights.  As I have already noted, the applicants did not seek to demonstrate to the adjudicator that the enjoyment of their rights as lot owners would be adversely affected by the nullification of their voting rights.  As a result, there is no basis on which the applicants could seek to demonstrate that the adjudicator had erred in reaching his decision so as to entitle him to succeed on appeal to the District Court on a question of law”.

[38]      I do not think, with respect, that the statement in Hablethwaite appearing at the end of paragraph [33] was intended to extend to the notion that the discretion arising under s 276 empowers an adjudicator to ignore the voting rights associated with lot entitlements under the Act.  The second and third sentences in paragraph [34] make it clear, I think, that the reference to overriding the exercise of voting rights is limited to the voting process itself, and was not intended to go further.  That conclusion may be gleaned from the reference, in paragraph [34], to rights “…other than voting rights”, and the implied acceptance that those further, extensive rights could not readily be destroyed by an adjudicator’s decision.  Here, the appellants have vigorously sought to demonstrate that the enjoyment of their other rights as lot owners would be adversely affected by the nullification of their voting rights.

[39]      Neither decision is, then, authority for the proposition that the adjudicator’s powers under s 276 to make a just and equitable order to resolve a dispute necessarily connotes the power to override other rights which lie behind, and form the basis of, voting rights.  The legislation plainly contemplates and permits a majority (determined by reference to voting rights granted by the Act) to assert its will by the legitimate exercise of that voting power.  The principle adumbrated in Hablethwaite is confined to circumstances surrounding the actual exercise of voting rights; it does not support the much broader proposition which the respondents propound.

The Appellants’ Appeal

[40]      These conclusions mean the adjudicator has, with respect, fallen into error in determining that various decisions were “unreasonable” if, in fact, they were not discordant with the appellants’ rights under the BCCMA.  In particular the power arising under s 276 may only, as follows from the discussion set out above, be exercised if the orders which are made do not unacceptably trample the appellants’ rights as lot owners.  For reasons which follow, I am of the view the adjudicator’s orders failed to meet those criteria, save in respect of the first part of Order no 3 which revoked the appointment of Edith Dindas Pty Ltd as building manager.  That is a matter which, again for reasons which follow, involved a dispute referrable to s 276(1)(c)(i) and, in the face of the evidence placed before the adjudicator, warranted interference.

[41]      A particular, additional difficulty concerns Order no 7 which directs that the nomination and election of committee members at the annual general meeting is to be performed (as nearly as practicable) in accordance with the procedures for nomination and election of committee members under the Standard Module; and, that the first and second appellants and their associates are only entitled to nominate one individual for committee membership.  An immediate and surprising aspect of this order is the reference to the Standard Module when, as the adjudicator recognised, this is a CTS to which the commercial module properly applies.  More importantly, however, it is clear that none of the applications sought the orders made in no. 7 and, as I also accept, the appellants who were directly affected by it were afforded no opportunity to be heard on the question whether it should be made.  If for no other reason, that order ought to be set aside on grounds relating to principles of natural justice.

[42]      Order 1 concerned the resolution of an extraordinary general meeting which limited the committee’s decision making power to those involving expenditure of no more than $500, a resolution which was held by the adjudicator to be unreasonable and to deprive the committee of a substantial part of its function.  The adjudicator found that the limit was “absurdly low”[28] and the “…type of decision by a majority that the courts recognise as a fraud on the minority”.  For the reasons already given, the latter is incorrect.  The adjudicator’s reasons show why the monetary limit is lower than might be expected for a scheme of this type, but the Commercial Module clearly granted the appellants the right to vote in favour of a motion to restrict the committee’s decisions. That statutory acknowledgment makes it very difficult to see how a decision which permits actual, albeit limited, expenditure can be categorised as “unreasonable”.

[28] Appeal book Vol 2, p 202

[43]      Order 2 invalidated a resolution of an extraordinary general meeting which gave the majority owners the opportunity to veto committee decisions, on the grounds that the body corporate in general meeting had no power to alter its procedures in that manner.  The respondents’ submissions did not directly address this order but it is plain from the adjudicator’s reasons[29] that he considered the matter in some detail.  In particular, he noted that the resolution was almost identical to one appearing in the Standard Module which allowed the owners of at least half the lots in a scheme governed by that module to veto committee decisions; but, also, that under s 95 of the BCCMA the body corporate is to have “…all the powers necessary for carrying out its functions”. 

[29] Appeal book Vol 2, p 203

[44]      As the Reasons note, the legislation does not contain anything from which it might be implied that the body corporate has unlimited power to alter the procedures under which it is to carry out its functions; and, indeed, those occasions in which the power does arise are specifically described: they include specifying the conduct of committee elections, calling committee meetings, and the power to alter, by special resolution, the procedures for voting at general meetings (Commercial Module, cl 13, 17 and 41). 

[45]      It was said for the appellants that the resolution was simply a reiteration of the right of the majority to review a committee decision and to call an extraordinary general meeting; and, that it avoided the expense and difficulty of that procedure[30].  This order does not rest on s 276 and, indeed, the adjudicator found that there was nothing “…inherently unreasonable in this type of restriction”.  Nor was there any attack by the appellants upon the reasons insofar as they touched upon the procedures regulating the body corporate’s performance of its functions.  The mere fact that the original resolution avoided the need to call extraordinary general meetings is not overwhelming and the adjudicator’s reasons – based, as they were on their face, on an analysis of the legislative provisions touching procedural matters - should stand.

[30] T69.10 - 36

[46]      Order 3, setting aside the appointment of the second appellant as building manager, has already been remarked.  It appears to have been within the adjudicator’s powers under s 276(1)(c)(i) and to have attracted justifiable interference on the ‘just and equitable’ ground because there was evidence suggesting lower tenders from independent managers.  The second part of the order, however, limiting both Edith Dindas Pty Ltd from voting for itself or an associate as building manager, or any other owner doing so, is rejected by both parties.  The appellants contend that it is beyond power and the respondents that “…the owners of the body corporate should be able to make such an appointment on the merits from an open field of candidates”[31].

[31] Appeal book Vol 2, p 352, par 14

[47]      The dispute resolution provisions do not empower an adjudicator to make orders about how a lot owner may vote in relation to a future matter, and limit the adjudicator’s powers to circumstances where a power has been exercised contrary to the legislation.  The adjudicator has assumed (without any factual foundation for the assumption) that all future proposals for the appointment of a building manager by either the appellants, or the respondents will be “unreasonable” and, therefore, invalid when there is no proper basis for that presumption.  Further, there is nothing in the Act or modules that prevent a lot owner from voting at a general meeting in favour of the appointment of themselves as a service contractor, even though they might derive a direct or indirect benefit.  For these reasons, the second part of order no.3 should be removed.

[48]      Order 4 concerns car parking.  Findings about it were coloured by some submissions concerning the previous intervention of Edith Dindas Pty Ltd as building manager and an apparent attempt to regulate car parking in that role.  The respondents’ complaint was that the resolution of the general meeting of 6 September 2004 was the product of “unreasonable” conduct because it was made “…without an opportunity for discussion between committee members as representatives of all owners”.  For the reasons already explored at length, the mere exercise, by the appellants, of their voting rights at a general meeting would not ordinarily constitute conduct attracting the operation of s 276.  In the absence of any legislative basis to go behind the resolution of the general meeting, and in particular any basis for a finding that the resolution was unreasonable, this order should not stand.

[49]      Orders nos. 5 and 6 were not, again, specifically addressed by the parties in their Outlines or oral submissions, and the former seems to be directed to nothing more than a repair of the current circumstance in which the office of secretary is vacant, and the holding of a meeting.  The latter, however, purports to direct the committee to pass resolutions concerning car parking in circumstances where that has already been dealt with at a general meeting, and the decision of that meeting has not been shown to be unreasonable.  The other parts deal with matters which have now been overtaken by the passage of time.  Although I was told that an administrator with limited powers was appointed in late 2005 there was no evidence about the extent of those powers.  The second and third paragraphs in the sixth order may, for all I know, remain appropriate and the fourth is not insensible in light of the removal of Edith Dindas Pty Ltd as building manager.

[50]      Order 7 has, for reasons already discussed, been shown to have been made in a way which breaches the rules of natural justice and, for that reason alone, should be set aside.  The appellants have also advanced other persuasive reasons why it was improper to limit the first and second appellants or their associates to only one nomination of one individual for committee membership: clause 11 of the Commercial Module imposes no restriction on a member’s right to nominate persons to the committee and the adjudicator has, it appears, incorrectly relied upon amendments to the Standard Module which do, in fact, impose a limitation of that kind.  The absence of any similar change to the applicable module reflects, fairly clearly, a legislative intent which is inimical to the order made.

[51]      Orders 8, 9 and 10, while reflecting an understandable desire on the adjudicator’s part to re-establish some order in this scheme, suffer from the embarrassment that the appellants’ voting rights have been limited in the manner just discussed and, for that reason, fall with order 7.

[52]      With respect to the appeal, then, it succeeds in respect of order no. 1, the second part of order no. 3, order 4, order 5, the first sub-clause in order 6, and orders 7, 8, 9 and 10.

The Respondents’ Cross Appeal

[53]      There was no compelling basis for a finding, by the adjudicator, that the circumstances warranted the appointment of an administrator.  His reasons make it clear that, mistakenly but understandably, he strove to fashion procedures and directions which would militate against the continuance of the long history of disputes which has beset this CTS but also, as may readily be inferred, that he considered more drastic remedies.  It is not correct to say, as the respondents do in their most recent submission that stopping short of appointing an administrator was a “timid” response which should now be corrected. 

[54]      The appointment of an administrator would involve very substantial costs to the body corporate (and, in particular, the appellants) and deprive all owners of any say in its affairs.  While, as I have found, the adjudicator’s purported remedies lacked a sound basis in the legislation, it would be a mistake to usurp the Commissioner’s right to consider each case on its merits as it arises and determine whether or not an administrator, with either absolute or limited powers, should be imposed.  The fact administration, subject to some unknown limitations has now been put in place strengthens this conclusion.

[55]      For these reasons, the cross appeal is dismissed.

[56]      I will hear submissions about any further orders the parties seek.