Gracie v The Owners Units Plan 3411 and Ors (Unit Titles) - [2016] ACAT 3

ACT CIVIL & ADMINISTRATIVE TRIBUNAL

GRACIE v THE OWNERS UNITS PLAN 3411 & ORS (Unit Titles) [2016] ACAT 3

UT 15/29
Catchwords: UNIT TITLES – annual general meeting – merits review – conflict of interest – whether an administrator should be appointed – whether there should be an administrative split between stage 1 and stage 2 of the development

Legislation cited: Unit Titles (Management) Act 2011 (ACT) ss 22, 46, 50, 129, 136, 138, 140, 141, sch 1, sch 4
Unit Titles Act 1970 (ACT) s 92
Construction Occupations (Licensing) Act 2004 (ACT) ss 38, 46, 118
Corporations Act 2001(Cth) s 191, 232

Cases cited:Filaria Pty Ltd v Proprietors of Unit Plan 932 [2000] ACTSC 8
Lubransky v Owners Corporation No 1 PS519798G (Owners Corporations) [2014] VCAT 1301

McKinnon v Adams [2003] VSC 116
Owners Corporation 1 Plan No. PS440878V & Ors v Dual Homes Victoria Pty Ltd (Owners Corporation) [2011] VCAT 211
Peters’ American Delicacy Co Ltd v Heath (1939) 61 CLR 457
Re Steele and the Conveyancing (Strata Titles) Act 1961 [1968] 2 NSWR 796

List of

Texts/Papers cited: ARITA Code of Professional Practice (3^rd edition)
Concise Australian Law Dictionary (4^th edition, 2011)
Austin, R P and I M Ramsay Ford, Austin and Ramsay’s Principles of Corporations Law (16th edition, 2015)
Murray, Michael and Jason Harris, Keay’s Insolvency: Personal and Corporate Law and Practice (2011)

Tribunal: Senior Member R Orr, QC

Date of Orders: 19 January 2016
Date of Reasons for Decision: 19 January 2016

ACT CIVIL & ADMINISTRATIVE TRIBUNAL UT 15/29

MARGARET GRACIE Applicant	THE OWNERS UNITS PLAN 3411 Respondent
STATEHAY PTY LTD Party Joined 1	BENJAMIN HALL Party Joined 2
PAUL WILSON Party Joined 3	ANN SULLIVAN Party Joined 4
EMMA GREENWOOD Party Joined 5	PETER STRASCHKO Party Joined 6
THET H. NAING Party Joined 7	BI ZHILONG Party Joined 8
KATY GHASSEMI Party Joined 9	LIAM MURPHY Party Joined 10
CHRISTINE YOUNG Party Joined 11	CAITLIN O’CONNOR Party Joined 12
SARA WEDGWOOD Party Joined 13	SYLVIA SAMPSON Party Joined 14
RUPSA NEOGY KUMAR Party Joined 15	KEVIN CHOW Party Joined 16
CHUNG-LINH CHAU Party Joined 17

TRIBUNAL: Senior Member R Orr, QC

DATE: 19 January 2016

ORDER

The Tribunal orders:

Under section 129(1)(g) of the Unit Titles (Management) Act 2011 (ACT) (the UTM Act), that motion 3 at the annual general meeting of the owners corporation for Units Plan 3411 (UP 3411) on 20 May 2015 be given effect so that ‘the level of insurance be increased upon renewal to the figure as suggested by the insurer’.
Under section 129(1)(a) of the UTM Act, that Statehay Pty Ltd (Statehay), and its representatives, including Ms J Domazet:
(a)abstain from voting at any meeting of the owners corporation or executive committee for UP 3411 on any matter concerning the alleged building defects relating to stage 1 of UP 3411 (known as Lakeside); and
(b)not take part in and be quarantined from any involvement in the owners corporation or executive committee deliberations concerning the identification or rectification of the alleged building defects relating to stage 1;
except to the extent that Statehay as an owner of units in stage 2 of UP 3411 (known as Central Park) is sought to be required to contribute to any fund to be raised by the owners corporation in relation to the identification or rectification of alleged building defects in stage 1.
Under section 129(1)(g) of the UTM Act, that the resolutions for the election of members of the executive committee for UP 3411 at the annual general meeting of the owners corporation on 20 May 2015 be given effect so that Ms E Greenwood, Ms M Gracie and Ms R Neogy-Kumar are also elected to the executive committee.
Under section 129(1)(a) of the UTM Act, that Statehay and its representatives including Ms J Domazet are not to prevent the election of up to seven members of the executive committee at any general meeting of UP 3411.
Under section 129(1)(f) and (g) of the UTM Act, that:
(a)in relation to motion 8 at the annual general meeting of the owners corporation for UP 3411 on 20 May 2015, City Strata Management Pty Ltd be appointed as strata manager of UP 3411 for 2015 and 2016, in accordance with the same terms and conditions as were set out in the original short term contract, or as otherwise agreed; and
(b)in relation to motion 11 concerning quotes for a strata manager, this resolution is repealed.
Under section 129(1)(a), (f) and (2) of the UTM Act, that in relation to motion 12 at the annual general meeting of the owners corporation for UP 3411 on 20 May 2015 concerning the review of contracts:
(a)this motion is amended to provide that Ms J Domazet, on behalf of the executive committee, may review maintenance and service contracts to the extent that they relate to services provided to stage 2 of UP 3411 (known as Central Park), which contracts could be put to a vote at a general meeting; and
(b)Statehay and its representatives, including Ms J Domazet, abstain from voting on any motion at a general meeting that relates to reviewing, negotiating, entering into or implementing maintenance and service contracts to the extent that they relate to services provided to stage 1 of UP 4311.
Under section 129(1)(e)(ii) of the UTM Act, that motion 13 at the annual general meeting of the owners corporation of UP 3411 on 20 May 2015 (which was that the executive committee is directed to approve an application by Statehay for the use of common property, being for the construction of a storage room within the rubbish area) is void for irregularity.
The application for the appointment of an administrator is dismissed.

………………………………..
General President L. Crebbin
for and on behalf of the Tribunal

REASONS FOR DECISION

The applicant in this proceeding is Margaret Gracie who is the owner of one of the units at Lakeside, which was stage 1 of a two stage development at Block 22 Section 86 Belconnen. Lakeside comprises 112 units and was completed in about 2009.[1] A number of other owners of units in Lakeside were joined as parties to these proceedings and generally supported the application by Ms Gracie.[2]
[1] Application, paragraphs 2-4, which refer to completion in early 2010, but nothing turns on this; Exhibit R1, statement of Julie Domazet, paragraphs 4-6
[2] See paragraph 10 below
Stage 2 of the development was Central Park which was completed in April 2014. The 128 units in Central Park are all owned by Statehay Pty Ltd (Statehay). Drago Domazet and Janja Domazet are the directors and shareholders of Statehay. Statehay owned the block of land on which the development took place. Mr Domazet was the licensed builder who constructed both stage 1 and stage 2. Statehay was also joined as a party to the proceedings and in effect was the active respondent in the proceedings. Julie Domazet is the authorised representative of Statehay, and the daughter of Mr Domazet.[3]
[3] Application, paragraphs 2-4; Exhibit R1, statement of Julie Domazet, paragraphs 2-7; application for interim or other orders dated 6 July 2015, attachment B, application UT 14/18, attachment A, company search for Statehay
The two stages together form Units Plan 3411 (UP 3411).[4] The owners corporation for UP 3411 is the formal respondent in these proceedings but did not take a substantive role in them and did not attend the hearing.
[4] Exhibit R1, statement of Julie Domazet, paragraphs 4-7
Ms Gracie alleges that there are extensive defects in the Lakeside apartments.[5] A notice of intention to make a rectification order in relation to construction services on Block 22 Section 86 Belconnen has been issued to Mr Domazet by the Environment and Planning Directorate of the ACT Government dated 27 August 2014.[6]
[5] Application, paragraph 6
[6] Exhibit PJ5-2, response of Emma Greenwood, paragraph 11(c) and attachment C
The issues in these proceedings centred on the annual general meeting of the owners corporation for UP 3411 which was held on 20 May 2015. Statehay exercised its power as majority unit holder to oppose some motions moved at the meeting which were supported by other unit holders, and supported other motions moved by it but opposed by other unit holders.[7] Ms Gracie claims that Statehay used its majority of votes at the annual general meeting inappropriately, in particular to frustrate the action being taken against Mr Domazet to rectify the alleged building defects in stage 1, and also in relation to insurance, elections to the executive committee, the appointment of a strata manager, the review of service contracts and the construction of a storage room.
[7] Application, attachment E, minutes of the annual general meeting
Ms Gracie sought orders in relation to various motions which passed or were defeated at the annual general meeting under section 129(1)(f) and (g) of the Unit Titles (Management) Act 2011 (ACT) (UTM Act), and also sought an order seeking the appointment of an administrator under sections 136 and 138.[8] At the hearing Ms Gracie indicated her preference for the appointment of an administrator rather than the other orders. Statehay indicated its preference for an administrative split between stage 1 and stage 2 of UP 3411.

Summary of Tribunal decision

[8] The application was amended at the hearing to add references to section 129(1)(g) and 138. The orders sought, and considered in the proceedings, extended to other paragraphs of section 129(1) and to section 129(2)

The Tribunal agrees that the decisions made at the annual general meeting should be revised, and that other relevant orders should be made, so that:
(a)the level of insurance is increased;
(b)Statehay will not participate in deliberations or decisions in relation to the alleged building defects relating to stage 1;
(c)Ms E Greenwood, Ms M Gracie and Ms R Neogy-Kumar are members of the executive committee;
(d)Statehay is not to prevent the election of up to seven members of the executive committee;
(e)City Strata Management Pty Ltd (City Strata Management) is appointed as manager of UP 3411 for 2015 and 2016;
(f)Ms Domazet, on behalf of the executive committee, may review service contracts for stage 2, but that she and Statehay will not be involved in decisions on service contracts for stage 1; and
(g)the motion concerning the storage room is void for irregularity.
The Tribunal does not think it appropriate to appoint an administrator at this time.

Hearing

The hearing before the Tribunal took place on 29 September 2015. The applicant Ms Gracie attended and appeared, gave evidence and was cross-examined. Statehay (PJ 1) was represented by Mr Bird of Clayton Utz. Ms Domazet gave evidence for Statehay and was cross-examined.
There were 16 other parties joined, namely Benjamin Hall (PJ 2), Paul Wilson (PJ 3), Ann Sullivan (PJ 4), Emma Greenwood (PJ 5), Peter Straschko (PJ 6) Thet Naing (PJ 7), Bi Zhilong (PJ 8), Katy Ghassemi (PJ 9), Liam Murphy (PJ 10), Christine Young (PJ 11), Caitlin O’Connor (PJ 12), Sara Wedgwood (PJ 13), Sylvia Sampson (PJ 14), Rupsa Neogy Kumar (PJ 15), Kevin Chow (PJ 16) and Chung-Linh Chau (PJ 17). All these parties generally supported the applicant. Ms Greenwood, Ms Ghassemi, Ms Wedgwood and Ms Young provided statements, attended the hearing, gave evidence and were available for cross-examination. Some of the other parties joined provided statements, and these were accepted into evidence.[9]
[9] Benjamin Hall, Liam Murphy, Caitlin O’Connor, Sylvia Sampson and Chung-Linh Chau
Towards the end of the hearing, Tim Maly of City Strata Management gave evidence for Ms Gracie and was cross-examined. Further documents were provided to the Tribunal by Ms Greenwood after the conclusion of the hearing.[10]

Application

[10] Email to the Tribunal of 1 October 2015

Section 129 of the UTM Act relevantly provides as follows:
129Kinds of ACAT orders
(1)The ACAT may make the following orders:
(a)an order requiring a party to do, or refrain from doing, a stated thing;
…
(e)a declaration—
…
(ii)that a resolution of a general meeting or executive committee meeting is void for irregularity; or
…
(f)an order repealing or amending a resolution of a general meeting or executive committee based on a merits review of the resolution by the ACAT;
(g)an order giving effect to an unsuccessful motion for a resolution of a general meeting (either as originally proposed or as amended by the ACAT) if the ACAT is satisfied after a merits review of the motion that opposition to the motion was unreasonable;
…
(k)an order appointing an administrator to exercise all or stated functions of the owners corporation, the executive committee or an office-holder in the committee;
…
(2)The ACAT may make any other order it considers reasonably necessary or convenient to resolve a dispute under this part.
(3)This section does not limit the orders the ACAT may make in relation to a dispute under this part.
The Tribunal is therefore able to repeal or amend a resolution of a general meeting based on a merits review of that resolution.[11] The Tribunal is also able to give effect to an unsuccessful motion if satisfied on a merits review of the motion that opposition was unreasonable.[12] It can also appoint an administrator[13] and make other orders.[14]
[11] Section 129(1)(f) of the UTM Act
[12] Section 129(1)(g) of the UTM Act
[13] Section 129(1)(k) and Part 10 of the UTM Act
[14] Section 129(2) of the UTM Act
The application seeks orders in relation to motions at the annual general meeting of the owners corporation for UP 3411 held on 20 May 2015, some of which were not passed, and some of which were passed, and then seeks the appointment of Tim Maly as administrator. At the hearing it emerged that the preference of Ms Gracie and those who supported her was for the appointment of an administrator. It is however convenient to consider the application in relation to the motions first, since these provide background to the application for appointment of an administrator.
The preference of Statehay is for an administrative split between stage 1 and state 2 of UP 3411. Such an administrative split had previously been rejected by the unit holders in stage 1.[15] However at the hearing there was some suggestion that they may now see this as an acceptable option. Further, there has been in the past some investigation of a formal legal split between the two stages.[16] At the hearing there was some suggestion that the unit holders may see this as a suitable option. For the reasons given at paragraphs 68-71 below the Tribunal is of the view that it is not possible or appropriate at this time for it to make orders in relation to an administrative split between stages 1 and 2; a legal split will require other processes.

Motions at the annual general meeting

[15] See paragraph 68 below
[16] See paragraph 72 below

As noted this matter centred on the annual general meeting of the owners corporation for UP 3411 which was held on 20 May 2015.
Insurance
Motion 3 at the meeting was that ‘the level of insurance be increased upon renewal to the figure as suggested by the insurer’. This motion failed, with 128 votes against and 28 votes in favour.[17]
[17] Application, attachment E, minutes of the annual general meeting, paragraph 6
Ms Gracie seeks to have that motion passed. The motion refers to the level of insurance suggested by the insurer. The application states that the failure of this motion has placed the owners corporation at risk of being under-insured.[18]
[18] Application, paragraph 17
Ms Domazet indicated that in her view the level of insurance proposed was too high, but Statehay indicated to the Tribunal that it was agreeable to this resolution being passed. The Tribunal accepts that rejecting the recommendation of the insurer, without significant independent advice to do so, was unreasonable. The Tribunal will therefore order under section 129(1)(g) of the UTM Act that the motion be given effect.
Special purpose fund
Motion 7, as amended, was that ‘the Corporation determine a levy equal to the proposed Special Purpose Fund of $60,000 plus GST for the 2015 financial year, to cover legal advice on building issues and to be contributed per unit entitlements’. This motion also failed, with 128 votes against and 28 votes in favour.[19] Ms Gracie seeks to have the motion passed.
[19] Application, attachment E, minutes of the annual general meeting, paragraph 7d
This motion is central to the alleged conflict of interest raised in these proceedings. Attachment C to the response of Emma Greenwood is a notice of intention to make a rectification order issued by the Environment and Planning Directorate of the ACT Government to Mr Domazet in relation to construction services on Block 22 Section 86 Belconnen.[20] This indicates that the Directorate has received a complaint made under section 118 of the Construction Occupations (Licensing) Act 2004 (ACT) (COLA) on behalf of UP 3411 regarding the construction services provided on that site, that the complaint is being investigated, that it is believed on reasonable grounds that Mr Domazet may have provided a construction service not in accordance with the Building Act 2004 (ACT), and that it may be appropriate to make a rectification order under section 38 of the COLA. The letter indicates that a range of issues were raised by the complaint, and that these were supported by a number of expert reports and other evidence. Statehay suggested that this notice was at this stage simply part of the process of investigating the complaint, but even if this is so, this does not detract from the seriousness of, and detailed evidence for, the complaint. Parties to the proceedings gave a range of evidence of alleged defects in stage 1.[21]
[20] Exhibit PJ5-2, response of Emma Greenwood, paragraph 11(c) and attachment C
[21] Exhibit PJ2-1, statement of Benjamin Hall, paragraph 1; Exhibit PJ12-1, statement of Caitlin O’Connor, paragraphs 4-5; Exhibit PJ13-1, statement of Sara Wedgwood, paragraphs 5-6; Exhibit PJ17-1, statement of Chung-Linh Chau, paragraph 7; Exhibit PJ10-1, statement of Liam Murphy, paragraphs 3-8; Exhibit PJ14-1, statement of Sylvia Sampson
The application states that on previous occasions the owners of UP 3411 had supported a similar levy. But by blocking the motion, Statehay had ensured that the owners corporation is unable to pursue advice regarding building quality and defects issues.[22]
[22] Application, paragraph 20
As noted earlier, Statehay is a company of which Mr Domazet is one of the two directors and shareholders. Ms Domazet is a representative of Statehay, and the daughter of Mr Domazet. The complaint under the COLA is against Mr Domazet.
Ms Domazet stated that she opposed the motion because no specific information was provided as to why the fund was required and why the amount proposed was reasonable or necessary; especially pending the outcome of the complaint and possible rectification order process.[23] She gave evidence that there was some money still available for these purposes.
[23] Exhibit R1, statement of Ms Domazet, paragraphs 39-40
A conflict of interest involves a situation where ‘a person has a personal interest in a matter which is the subject of a duty or decision of that person’.[24] Such a conflict needs to be addressed and managed. For example, ‘company directors must not, in any matter falling within the scope of their service, have a personal interest or inconsistent engagement with a third party, except with the company's fully informed consent (the conflict rule)’.[25] Also, company directors ‘must not misuse their position to their own or a third party’s possible advantage, except with the company’s fully informed consent … (the profit rule)’, and must not ‘misappropriate the company’s property for their own or a third party’s benefit (the misappropriation rule)’.[26] The Corporations Act 2001 (Cth) (the Corporations Act) makes provision for disclosure of a ‘material personal interest’ in a matter that relates to the affairs of the company and related matters.[27] Members of an executive committee under the UTM Act are in a similar position to company directors.[28] An executive committee member must comply with the code of conduct set out in schedule 1, part 1.1 of the UTM Act[29], and this provides in section 8 that ‘an executive member must disclose to the executive committee any conflict of interest the member may have in a matter before the committee’. Any such conflict needs to be then addressed and managed.
[24]    Concise Australian Law Dictionary (4^th edition, 2011), ‘conflict of interest’
[25]    Austin, R P and I M Ramsay, Ford, Austin and Ramsay’s Principles of Corporations Law (16th edition, 2015) at [9.020]
[26]    Austin, R P and I M Ramsay, Ford, Austin and Ramsay’s Principles of Corporations Law (16th edition, 2015) at [9.020]
[27]    Corporations Act 2001 (Cth), section 191(1) and generally Austin, R P and I M Ramsay, Ford, Austin and Ramsay’s Principles of Corporations Law (16th edition, 2015) at [9.125] and following
[28]    Re Steele and the Conveyancing (Strata Titles) Act 1961 [1968] 2 NSWR 796 at 799
[29] Section 46 of the UTM Act

Certainly in relation to her membership of the executive committee for UP 3411, Ms Domazet appears to have a conflict of interest in considering issues concerning the alleged building defects, that is between her personal interest arising from her relationship with her father, the builder, and her position as a representative of Statehay, of which her father is a shareholder and director, on the one hand, and her duty and responsibility as a member of the executive committee of UP 3411 in making decisions concerning the legitimate complaints against her father, the builder, on the other. This conflict of interest needs to be disclosed, addressed and managed.
In relation to the role of Statehay, and Ms Domazet as its representative, as a unit owner at the annual general meeting there is less room for the operation of conflict of interest principles. There is no equivalent of conflict of interest principles for shareholders in a company,[30] and no equivalent principles for unit owners, including in section 46 and schedule 1 of the UTM Act.
[30] Peters’ American Delicacy Co Ltd v Heath (1939) 61 CLR 457 at 504, Dixon J
However, in relation to corporations, courts have traditionally made, and section 232 of the Corporations Act now specifically provides for, orders if certain conduct or action is contrary to the interests of the members as a whole; or oppressive to, unfairly prejudicial to, or unfairly discriminatory against, a member or members whether in that capacity or in any other capacity.[31] A decision taken by a company for the benefit of a related company, or failure to prosecute an action,[32] can be examples of such conduct. It is clear such conduct can include the actions of majority shareholders at a general meeting.[33] As noted above, the Tribunal may under section 129(1)(f) of the UTM Act review the merits of resolutions at a general meeting, and under section 129(1)(g) may give effect to an unsuccessful motion if satisfied after merits review that opposition was unreasonable. One basis for doing so is if the action of the majority at the meeting was oppressive or unfairly prejudicial to some members.
[31] Austin, R P and I M Ramsay, Ford, Austin and Ramsay’s Principles of Corporations Law (16th edition, 2015) at [10.430] and following
[32] Austin, R P and I M Ramsay, Ford, Austin and Ramsay’s Principles of Corporations Law (16th edition, 2015), at [10.460]; and see also [10.130]
[33] Corporations Act, section 232(c)
In this case, Statehay exercised its voting power to prevent a levy to cover legal advice on building issues in relation to stage 1. Given the evidence of the notice of intention to make a rectification order[34] and of the parties to these proceedings,[35] it is clear that there is a serious issue in relation to defects in the building. It is reasonable that these issues be pursued. It is unreasonable that Statehay, a company of which the builder is one of two shareholders and directors, prevent this; such conduct is oppressive to, and unfairly prejudicial to, the unit owners in stage 1.
[34] Exhibit PJ5-2, Response of Emma Greenwood, paragraph 11(c) and attachment C
[35] Exhibit PJ2-1, statement of Benjamin Hall, paragraph 1; Exhibit PJ12-1, statement of Caitlin O’Connor, paragraphs 4-5; Exhibit PJ13-1, statement of Sara Wedgwood, paragraphs 5-6; Exhibit PJ17-1, statement of Chung-Linh Chau, paragraph 7; Exhibit PJ10-1, statement of Liam Murphy, paragraphs 3-8; Exhibit PJ14-1, statement of Sylvia Sampson
This situation has arisen because of the unusual circumstances of this case in which Statehay has retained ownership of the units in stage 2; but it is none-the-less inappropriate that Statehay use this power to limit legitimate and reasonable actions in relation to the alleged building defects in stage 1.
Counsel for Statehay and Ms Domazet noted that one of their concerns was that they did not think it appropriate that Statehay be required to contribute to the fund for consideration of the building defects. This only emphasised the strong relationship between Statehay, Mr Domazet and Ms Domazet, the conflict of interest which Ms Domazet has as a member of the executive committee in relation to building defects issues, and the oppressive or unfairly prejudicial conduct of Statehay in using its voting power at the annual general meeting to prevent any further funding for consideration of the building defects issue.
To resolve the issue Statehay proposed an undertaking or order that it:
(a)abstain from voting at any meeting of the owners corporation on building defect issues relating to stage 1; and
(b)be quarantined from any involvement in executive committee deliberations relating to [privileged material connected with] the identification or resolution of alleged building defects in stage 1;
(c)except to the extent that Statehay is sought to be required to contribute to any fund sought to be raised by the owners corporation in relation to the identification or rectification of alleged building defects in Stage 1.[36]
[36] Exhibit R2, statement of facts and contentions of Statehay, paragraph 55
At the hearing, counsel for Statehay agreed to remove the reference in square brackets to privileged material. It was clear that the proposed undertaking or order extended to Statehay and its representatives, including Ms Domazet, and that it extended to executive committee meetings and general meetings. The undertaking or order should be clarified in this regard. Further, it should be made clear that the limited exception applies to both para (a) and (b), that is that Statehay can vote on and participate in consideration of a proposal that it as an owner of units in stage 2 contribute to a fund in relation to alleged building defects in stage 1.
The Tribunal accepts that such an undertaking or order will go some way to resolving the conflict of interest, and oppressive and unfairly prejudicial conduct, issue in relation to the building dispute. It proposes therefore to make such an order. The issue arises from the defeat of motion 7 at the annual general meeting, but the order in the form proposed by Statehay is more appropriately made under section 129(1)(a) of the UTM Act. This will enable the owners of stage 1 to continue deal with these issues, including by continuing to raise moneys for the special purpose fund, and using this to pursue the building defects issues in relation to stage 1.
Executive committee
The annual general meeting considered the election of executive committee members. Six persons were nominated, though only Mr Wainwright, Mr Hall and Ms Domazet were elected. Ms Greenwood, Ms Gracie and Ms Neogy-Kumar were nominated but not elected. The minutes of the meeting record that Statehay required that ‘nominations were put to the vote as an ordinary resolution’ and ‘Statehay Pty Ltd would not allow more than 3 owners to be elected to the Executive Committee’.[37]
[37] Application, attachment E, minutes of the annual general meeting, paragraph 8
Ms Gracie seeks to have membership of the executive committee extended to enable up to seven members and to postpone Statehay’s membership until the building quality and defects issues are resolved. The application states that by restricting the membership, Statehay disadvantaged the corporation, in particular by the failure to elect Ms Greenwood who has significant and long-term knowledge of both the strata management and building quality and defects issues, and that the restriction to three members raised serious concerns that Ms Domazet will be privy to information about the building issues. Ms Greenwood gave evidence that the building quality issues had required a significant amount of time for members of the executive committee.[38]
[38] Exhibit PJ5-1, statement of Ms Greenwood, paragraph 2
At the hearing, Statehay indicated that it no longer opposed the election of up to seven members of the executive committee. The Tribunal accepts that limiting to three the number of members on the executive committee is unreasonable in light of the size of UP 3411, the range of interests involved, the disputes which are apparent in relation to the development, and the benefit of having on the committee persons with relevant knowledge of the issues involved.
The application seeks that membership of the executive committee be extended to up to seven members; however there was no motion proposed at the meeting in general terms about the number; rather each nomination was put to the vote. The Tribunal will therefore order under section 129(1)(g) of the UTM Act that Ms Greenwood, Ms Gracie and Ms Neogy-Kumar are also elected to the committee. The Tribunal will also order that Statehay is not to prevent the election of up to seven members of the Executive Committee under section 129(1)(a).
The order proposed in relation to the building defects issue addresses the concern about the access of Ms Domazet and Statehay to information concerning the defects complaint, and addresses more generally the conflict of interest, or oppressive or unfairly prejudicial conduct, of Ms Domazet and Statehay. In light of this, the Tribunal does not see any basis for restricting Ms Domazet’s membership of the executive committee.
Strata management contract
Motion 8 at the annual general meeting was that the owners corporation agrees to reappoint City Strata Management as the owners corporation manager for the next three years, in accordance with the same terms as were set out in the original short term contract. This motion failed, with 128 votes against and 28 votes in favour.[39] Ms Gracie seeks to have City Strata Management appointed as the strata manager under section 50 of the UTM Act for the period until the building quality and defects issues are resolved.
[39] Application, attachment E, minutes of the annual general meeting, paragraph 9
Motion 11 at the annual general meeting was that the executive committee are directed to appoint Ms Domazet to seek quotes for a strata manager to be appointed. The appointment was to be decided at a general meeting to be held no later than 120 days from 20 May 2015. In the interim City Strata Management was appointed as strata manager. The minutes record that this motion was carried. The minutes then state that ‘128 votes cast against and 28 votes cast in favour’; it appears that this comment is a mistake and does not apply to motion 11.[40] Ms Gracie seeks to have this motion repealed.
[40] Application, attachment E, Minutes of the annual general meeting, paragraph 10.3
One reason for Ms Gracie’s position is that Ms Domazet is not an ‘impartial’ member of the owners corporation in relation to the building issues.[41] The role of Statehay and Ms Domazet as its representative in relation to building issues has been addressed above. On the basis that Statehay and Ms Domazet are not involved in any consideration of the building issues, the Tribunal does not see that this provides a basis for Ms Domazet not being involved in issues in relation to the strata manager.
[41] Application, paragraph 22
Another reason for Ms Gracie’s position is that City Strata Management and Mr Tim Maly have done a good job at managing the units and should continue to be allowed to do so.[42] Mr Hall, who has been chair of the executive committee, indicated that City Strata Management and Mr Maly had been extremely effective as strata manager.[43] Ms Greenwood stated that City Strata Management and Mr Maly had significant independent expertise and skill in strata management and were familiar with the building defects issue and the importance of independent management while these are resolved.[44] Further, some witnesses raised concerns about previous strata managers.[45]
[42]    Application, paragraph 23
[43]    Exhibit PJ2-2, response of Benjamin Hall, paragraph 6; Exhibit PJ2-1, statement of Benjamin Hall, paragraph 4
[44]    Exhibit PJ5-1, statement of Emma Greenwood, paragraph 3
[45]    Exhibit PJ9-1, response by Katy Ghassemi, paragraph 6; Exhibit PJ5-2, response by Emma Greenwood, paragraph 23(d); Exhibit PJ12-1, statement of Caitlin O’Connor, paragraph 10; Exhibit PJ 2-1, statement of Benjamin Hall, paragraph 4
Ms Domazet stated that the motion to appoint City Strata Management was opposed by Statehay because there are ‘alternative, suitably qualified professionals available at a significantly lower cost’; as majority owner, it was important to Statehay that the strata manager be cost effective and provide value for money.[46] Further no written quotes or proposed contract terms for City Strata Management were provided; there was only an email from Mr Maly which suggests a charge of $300 per unit. In early June 2015 Ms Domazet obtained two alternative quotes at a lower rate. Ms Domazet also was uncomfortable appointing City Strata Management for three years.[47] Further, Ms Domazet stated she had been dissatisfied with the service provided by City Strata Management and Mr Maly, and she indicated a number of issues in this regard.[48]
[46]    Exhibit R1, statement of Ms Domazet, paragraph 45
[47]    Exhibit R1, statement of Ms Domazet, paragraphs 46-49
[48]    Exhibit R1, statement of Ms Domazet, paragraphs 50-55
The Tribunal does not think that the idea of investigating alternative strata managers is unreasonable. However, this is a turbulent time for the owners corporation of UP 3411, as these, and previous, proceedings demonstrate. The next year will clearly be a further difficult period. The significant orders which the Tribunal will make will require implementation. Seeking to change strata managers at this time could add further complications to an already difficult situation. Even noting Ms Domazet’s concerns, City Strata Management and Mr Maly appear to have done a good job.
Ms Gracie also sought the appointment of Mr Maly as an administrator; the Tribunal does not think this appropriate at this time for the reasons given below. But continued management by City Strata Management for the next period seems reasonable, and indeed changing strata managers at this time would seem unreasonable.
The Tribunal will therefore make an order that City Strata Management be appointed as the owners corporation strata manager for 2015 and 2016, in accordance with the same terms as were set out in the original short term contract to this effect. The order will make it clear that the executive committee can further negotiate the terms of this arrangement. This will enable the executive committee to consider the issue of the strata manager for the following year. This order is made in part under section 129(1)(g) in relation to the failed motion 8, and in part under section 129(1)(f) in relation to the successful motion 11.
Service contracts
Motion 12 at the meeting was that the executive committee are directed to appoint Ms Domazet to review all contracts of UP 3411 and where appropriate to renegotiate those contracts. Following the review, a general meeting will decide whether to enter into any of these new or renegotiated contracts, no later than 120 days from 20 May 2015. This motion was carried. The minutes then state that there were ‘128 votes cast in favour and 28 votes cast against.’[49]
[49] Application, attachment E, minutes of the annual general meeting, paragraph 10.3
Ms Gracie seeks to have this motion repealed and the contracts managed by City Strata Management. The application states a concern that Statehay will use their majority to pass whatever motions they wish at the general meeting in relation to the contracts. Further, it argues that contractors previously engaged by Statehay have been poor, in particular strata management and lift contractors. Further, the application states that Statehay has engaged a related company, PA&A Partnership Pty Ltd (PA&A) to provide cleaning and gardening services to stage 2, Central Park.[50] PA&A apparently has common directors with Statehay, namely Mr and Mrs Domazet.[51]
[50] Application, paragraphs 25-26
[51] Exhibit R1, statement of Ms Domazet, paragraph 70
Ms Domazet denies that Statehay ever engaged any lift contractors, and states that while PA&A is a related company to Statehay, it has in fact provided exemplary service at cost effective rates.[52]
[52] Exhibit R1, statement of Ms Domazet, paragraph 70
However, in the absence of an administrative split Statehay indicated its consent to an order that Ms Domazet, on behalf of the executive committee, is to review and renegotiate maintenance and service contracts to the extent that they relate to services provided to stage 2 (Ms Domazet will still need to comply with conflict of interest principles in this regard), which contracts could be put to a vote at a general meeting, and that Statehay and its representatives will abstain from voting on any motion at any general meeting that relates to reviewing, negotiating, or implementing maintenance or service contracts provided or proposed to be provided to stage 1.[53] Such an order would enable the executive committee to review and negotiate maintenance or service contracts for stage 1, and would allow a general meeting to determine these contractors where necessary, and without the involvement of Statehay or its representative. In the absence of any administrative split or formal legal split this appears to be an appropriate arrangement which addresses the relevant concerns of Ms Gracie and the parties joined who support her. The Tribunal will therefore make an appropriate order, under section 129(1)(f) concerning motion 12, and under section 129(1)(a) and (2) to restrict Statehay and its representative from involvement in the services for stage 1.
Construction
[53] Exhibit R2, statement of facts and contentions of Statehay, paragraph 97; Exhibit R1, statement of Ms Domazet, paragraph 72
Motion 13 at the meeting was that the executive committee is directed to approve an application by Statehay for the use of common property, being the construction of a storage room within the rubbish area. The minutes record that this motion was carried and then state that ‘128 votes were cast in favour and 28 votes cast against’.[54]
[54] Application, attachment E, minutes of the annual general meeting, paragraph 10.3
Ms Gracie seeks to have this motion repealed and the storage room that has been placed on the common property removed at the cost to Statehay.
Counsel for Statehay conceded that the motion was invalid. This is because section 22(1) of the UTM Act provides that an owners corporation may, if authorised by an unopposed resolution, grant a special privilege for the enjoyment of the common property, and section 106 and rule 4, schedule 4 to the Act provides for a default rule that a unit owner may erect or alter any structure in or on the common property only in accordance with the express permission of the owners corporation by unopposed resolution (emphasis added); it appears the default rules apply here. The relevant motion passed, but was opposed by 28 votes. Therefore, the resolution is invalid and of no substantive effect. The Tribunal will make an order confirming that motion 13 is void for irregularity under section 129(1)(e)(ii) of the UTM Act.
Counsel for Statehay argued that the storage unit was a useful facility and that if removed a range of alternative arrangements will need to be made. The Tribunal believes it is more appropriate for this issue to be now considered by the executive committee.

Appointment of administrator

In the application, Ms Gracie also sought the appointment of an administrator under sections 136 and 138 of the UTM Act. There is also a relevant power in section 129(1)(k).
Under section 136 a unit owner may apply to the Tribunal for the appointment of a person under section 138(1) to be administrator of the owners corporation on the terms about remuneration and anything else it considers appropriate. The Tribunal may make an order appointing an administrator only if satisfied that the administrator consents to the order.[55]
[55] Section 138(2)

Section 140 deals with the functions of the administrator as follows:
(1) The administrator of an owners corporation has all the functions of
the corporation to the exclusion of the corporation and its executive
committee.

Therefore, upon the appointment of an administrator, it is this person who exercises the functions of the owners corporation; the corporation itself, through a general meeting and the executive committee, cannot exercise those functions. Under section 141 the administrator of an owners corporation may delegate the administrator’s functions to anyone else.
There is little guidance as to the basis for appointment of an administrator. In Filaria Pty Ltd v Proprietors of Unit Plan 932,[56] Miles CJ of the ACT Supreme Court considered the then section 92 of the Unit Titles Act 1970 (ACT). The Chief Justice noted the lack of guidance as to the basis for appointment of an administrator but concluded that general equitable principles and those for the appointment of receivers and managers seemed appropriate.
[56] [2002] ACTSC 8 (1 March 2002)
In McKinnon v Adams,[57] a provision in the Victorian legislation which is similar to section 138 was considered by Bongiorno J, who referred to the comments of Miles CJ in Filaria and then stated[58]:
20. To justify the appointment of an administrator the body corporate concerned must be affected by some incapacity, or must be acting so dysfunctionally as to render the provision of appropriate services to unit holders and/or care of the common property either non-existent, or so beset by difficulties as to render the body corporate unable to function at what the Court considers to be a satisfactory level. There may or may not be financial difficulties or even financial impropriety affecting the body corporate's capacity to function but there must be some deficiency in its operational capacity sufficient to justify the Court's intervention in the interest of some or all of the unit holders.
21. Thus, the power to appoint an administrator pursuant to s 38 (6) of the Subdivision Act 1988 may be ordered, in the Court's discretion, where the evidence discloses that the body corporate is failing to operate properly in the interests of its members, is being inefficiently or incompetently managed, or the appointment is necessary to protect the interests of the members.
[57] [2003] VSC 116 (16 April 2003)
[58] [2003] VSC 116 at [20-21]
The application seeks appointment of an administrator because unit owners are ‘impeded from seeking to resolve the building quality and defects issues’, in particular by the actions of Statehay at the annual general meeting, and possibly at future meetings.[59] Statehay raises a number of objections to this course, in particular that it would be a disproportionately serious and significant action in light of the problem identified.[60]
[59]Application, paragraphs 31-35
[60]Exhibit R2, Statehay statement of facts and contentions, paragraphs 34-44
In this case it is difficult to say that the owners corporation is unable to function at an appropriate level. The hearing focussed on the annual general meeting at which Statehay exercised its majority voting in a manner which was of significant concern to unit owners in stage 1. In these proceedings Statehay has changed its position on a number of matters. The Tribunal has confirmed that Statehay did behave unreasonably and inappropriately and did not have proper regard to the interests of the unit owners in stage 1, and makes relevant orders to remedy this. In the Tribunal’s view an opportunity should be given to see if these orders resolve the issues, and whether Statehay will now act reasonably and appropriately, and whether the owners corporation and the executive committee will now be able to operate effectively and efficiently.
To appoint an administrator in effect denies the ability of the unit owners to manage the affairs, directly or indirectly, of the owners corporation. The unit owners have a right and a responsibility to do so. It should therefore not be done lightly. This is especially so when it is proposed to appoint an administrator for a long period of time, in this case for the currently unknown period of the duration of the building quality and rectification process. In other cases, the appointment of an administrator has been only for a short period, such as 28 days, to enable an impasse to be negotiated.[61] An appointment for a currently indefinite and likely long period requires significant justification.
[61]Lubransky v Owners Corporation No 1 PS519798G (Owners Corporations) [2014] VCAT 1301 at [14]; Owners Corporation 1 Plan No. PS440878V & Ors v Dual Homes Victoria Ltd (Owners Corporation) [2011] VCAT 211
Ms Gracie sought to have Mr Maly appointed as administrator. Mr Maly gave evidence that he was willing to be appointed. But the Tribunal would have concerns about appointing Mr Maly on the evidence before it. There was no indication of Mr Maly’s experience or expertise in this role, other than his own evidence, and he indicated that he had not been appointed such an administrator before.
Further, Mr Maly works for City Strata Management which is the current strata manager. This is a different role to an administrator under section 138, who takes on the functions of the executive committee and the owners corporation. Further, if the position of City Strata Management as strata manager continued, Mr Maly as administrator may need to manage and supervise his own work and that of his organisation. This may give rise to a conflict of interest; given that this case concerns such conflicts it would seem inappropriate to add another. Further again, Mr Maly has had significant involvement in, and done significant work for, UP 3411. As noted above, while Ms Gracie and those who supported her thought Mr Maly and City Strata Management did a good job, Ms Domazet did not. If an administrator is to be appointed, it would be preferable if they were independent of the current disputes and acceptable to all the parties. Independence is a feature of other types of administrator.[62] There may be a range of cases where it is more efficient for the role of administrator to be carried out by someone from the strata manager already familiar with the building and its problems,[63] but the facts in this case suggest that this is not one of them. Further, Mr Maly offered to fulfil this role without payment; this seems inappropriate for a professional role of this nature, and with a development of this size and with its current issues.
[62]Murray, Michael and Jason Harris, Keay’s Insolvency: Personal and Corporate Law and Practice (2011), [19.140]; ARITA Code of Professional Practice (3^rd edition), at 6, Independence
[63] Lubransky v Owners Corporation No 1 PS519798G (Owners Corporations) [2014] VCAT 1301 at [18]
Therefore the Tribunal orders that the application for appointment of an administrator is dismissed. Of course, if significant problems continue to arise and a longer term solution cannot be implemented, a further application can be made to the Tribunal for the appointment of an administrator.

Possible administrative split

Significant consideration has been given by the parties in the past to an administrative split between stage 1 and stage 2. Statehay described such an administrative split as an umbrella term for a suite of resolutions which would permit the owners corporation to manage stage 1 and stage 2 as if they were two separate unit title plans, but would not actually split the owners corporation in a legal sense.[64] On 10 April 2015 possible orders by the Tribunal were provided to the owners corporation lawyers by the lawyers for Statehay.[65] Meyer Vandenberg, the lawyers for the owners corporation, replied by letter dated 12 May 2015 and indicated that while considerable effort and expense had been incurred in attempting to achieve a workable arrangement to administer the unit plan with as minimal interaction between stage 1 and stage 2 as possible, the owners corporation did not wish to pursue the administrative split any further, since it did not consider that the arrangement proposed would be any less problematic to administer than dealing with disputes on an ad hoc basis via the Tribunal.[66]
[64]    Exhibit R2, Statehay statement of facts and contentions, paragraph 46
[65]    Exhibit R1, statement of Julie Domazet, paragraph 24 and annexure JD2
[66]    Exhibit R1, statement of Julie Domazet, paragraph 26 and annexure JD3
Statehay submitted that such an administrative split was its preferred position. It said that this would resolve all the issues giving rise to the dispute, and that the Tribunal has power to make the relevant orders under section 129(2). However no formal application was made by Statehay to make the orders. The draft orders provided as evidence were extensive and detailed. There was mention, but no consideration, of them in the hearing before the Tribunal.
There was no application made by Ms Gracie or any of the parties joined for orders implementing such an administrative split.
In these circumstances it does not seem possible for the Tribunal to consider ordering such a split at this time. It remains a possible option, and indeed it seems appropriate for the parties to discuss this further.

Possible legal separation

It appears that it was intended by Statehay to separate stages 1 and 2 into two separate unit plans once stage 2 was completed.[67] However, Ms Domazet gave evidence that there were significant difficulties in doing so, and that without the support of the unit owners in stage 1, Statehay cannot currently pursue this option as it would be a drawn out and expensive process.[68] There were comments made at the hearing which suggested that the unit holders may be interested in considering this option. Such a formal legal separation requires other processes. It remains a possible option, and indeed it seems appropriate for the parties also to discuss this further.
[67] Exhibit PJ5-1, statement of Emma Greenwood, paragraph 11 and attachment A, minutes of meeting of 20 February 2012, and paragraph 14 and attachment B, letter from Capital Strata Management Services, 7 March 2012
[68] Exhibit R1, statement of Julie Domazet, paragraph 20

………………………………..
General President L. Crebbin

for and on behalf of the Tribunal

HEARING DETAILS

FILE NUMBER:	UT 15/29
PARTIES, APPLICANT:	Ms M Gracie
PARTIES, RESPONDENT:	The Owners Unit Plan 3411
FIRST PARTY JOINED	Statehay Pty Ltd
OTHER PARTIES JOINED, WHO APPEARED AT HEARING	Ms E Greenwood, Ms K Ghassemi, Ms S Wedgwood, Ms S Sampson, Ms C Young
COUNSEL APPEARING, APPLICANT	N/A
COUNSEL APPEARING, STATEHAY PTY LTD	Mr J Bird
SOLICITORS FOR APPLICANT	N/A
SOLICITORS FOR STATEHAY PTY LTD	Clayton Utz
TRIBUNAL MEMBERS:	Mr R. Orr QC
DATES OF HEARING:	29 September 2015