Sitting Bear Pty Ltd (receivers and managers appointed) v Body Corporate for Sphere Southport Living CTS 37951
[2014] QCATA 360
•24 September 2014
| CITATION: | Sitting Bear Pty Ltd (receivers and managers appointed) v Body Corporate for Sphere Southport Living CTS 37951 [2014] QCATA 360 |
| PARTIES: | Sitting Bear Pty Ltd (receivers and managers appointed) (Appellant) |
| v | |
| Body Corporate for Sphere Southport Living CTS 37951 (Respondent) |
| APPLICATION NUMBER: | APL444-13 |
| MATTER TYPE: | Appeals |
| HEARING DATE: | Determined on the papers |
| HEARD AT: | Brisbane |
| DECISION OF: | Kenneth Barlow QC, Member |
| DELIVERED ON: | 24 September 2014 |
| DELIVERED AT: | Brisbane |
| ORDERS MADE: | 1. The adjudicator’s declaration be amended to declare that: a) Sitting Bear Pty Ltd (receivers and managers appointed) holds the gymnasium equipment presently located within lot 1 on SP220067 on a constructive trust for the Body Corporate for Sphere Southport Living CTS37951; b) the body corporate’s beneficial interest in that equipment is a body corporate asset. |
| 2. The adjudicator’s second order be amended to order that Sitting Bear do all things necessary, at its sole cost and expense, for the purpose of transferring legal ownership of, and delivering, the gymnasium equipment to Sphere within 14 days of the order and in good condition, to a location on the scheme land of the choice of Sphere. | |
| 3. The appeal otherwise be dismissed. |
| CATCHWORDS: | APPEAL AND NEW TRIAL – APPEAL – GENERAL PRINCIPLES – RIGHT OF APPEAL – WHEN APPEAL LIES – ERROR OF LAW – equitable relief – jurisdiction and powers of adjudicators – whether adjudicator has equitable jurisdiction – Body Corporate and Community Management Act 1997, s 276 EQUITY – GENERAL PRINCIPLES – FIDUCIARY OBLIGATIONS – fiduciary obligations – whether developer and original owner of scheme owes fiduciary duties to body corporate – nature and extent of duties – whether fiduciary breached its duties – consequences of breach |
APPEARANCES and REPRESENTATION (if any):
This matter was heard and determined on the papers pursuant to s 32 of the Queensland Civil and Administrative Tribunal Act 2009 (QCAT Act).
Contents
Introduction
The adjudicator’s decision and the appeal
Equitable jurisdiction
Does an adjudicator have equitable jurisdiction?
Does this dispute fall within s276?
Other grounds of appeal
Effect of invoice
“Extrinsic evidence”
Pre-sales disclosure
Shared facilities agreements
Original intention
Insurance
The multi-purpose room
Access to the equipment
Overall conclusion
Fiduciary duty
Was Sitting Bear a fiduciary of Sphere?
Did Sitting Bear breach its fiduciary duties?
CONCLUSIONS
Introduction
Sphere Southport Living (“Sphere”) is a large layered community titles scheme under the Body Corporate and Community Management Act 1997. As its name suggests, it is located in Southport.
Sitting Bear Pty Ltd and Howard Thompson Constructions Pty Ltd were the developers of the scheme and Sitting Bear was the original owner for the scheme.
Sphere Management Pty Ltd (receivers and managers appointed) is the service contractor and caretaker for the scheme. Mark Anthony Howard was and remains a director and the sole shareholder of both Sitting Bear and Sphere Management.
This dispute concerns the ownership of gymnasium equipment that is located within the scheme, in a lot that is owned by Sitting Bear. The equipment was purchased in December 2008 and has been in the premises since then. The gym equipment has been available for use by occupiers of lots within the scheme. However, from at least January 2011 and possibly earlier, Sitting Bear and Sphere Management have allowed access only to occupiers of those lots for which Sphere Management has been appointed by the owners as letting agent. Sitting Bear, now being in receivership, wishes to sell the equipment.
In an adjudication application, Sphere successfully sought a declaration that the gym equipment is a body corporate asset of Sphere and an order that Sitting Bear do all things necessary to deliver that equipment to Sphere. Sitting Bear now appeals from that decision.
The adjudicator’s decision and the appeal
Sitting Bear produced to the adjudicator a copy of an invoice for the equipment, addressed to Howard Thompson Constructions, and contended that it was conclusive proof that the equipment was bought by that company. It went on to contend that that company had transferred ownership of the equipment to Sitting Bear.
The adjudicator first noted that, during the “original owner period”, Sitting Bear did not create an asset register, no general meeting of the scheme was held between 14 March 2008 and 13 July 2011, and there were no body corporate records that clearly demonstrated the ownership of the equipment. He then embarked on the task of reviewing “other extrinsic materials to ascertain the intention of the parties.” Having reviewed a number of documents (to which I shall refer below), he concluded that there was a common intention of Sphere and Sitting Bear that the gym equipment would be a body corporate asset, held by Sphere on behalf of lot owners. He held that Sitting Bear, as the original owner, owed a fiduciary duty to Sphere and its members and that Sitting Bear breached its duty and holds the equipment on a constructive trust for Sphere. Although not immediately apparent, it seems that the adjudicator formed that view as a result of his finding that there had been a common intention of the parties that Sphere own the equipment. Inferentially, he appears to have found that Sitting Bear obtained legal ownership of the equipment in breach of its fiduciary duty to Sphere and therefore Sitting Bear holds the equipment on constructive trust for Sphere.
In its appeal, Sitting Bear contends that the adjudicator did not have equitable jurisdiction and therefore could not determine equitable rights as between the parties, but only legal rights. Sitting Bear also challenges the adjudicator’s findings that it owed and breached fiduciary duties to Sphere, that there was a common intention for the gym equipment to be owned by Sphere and that Sitting Bear held the equipment on constructive trust for Sphere. It contends that the adjudicator gave too much weight to irrelevant factors and insufficient weight to relevant factors and therefore erred in law. In particular, it contends that the clear evidence was that Sitting Bear is the legal owner of the equipment and the “extrinsic materials” to which the adjudicator referred and on which he relied in reaching his conclusions were irrelevant or of insufficient weight to lead properly to the findings made by the adjudicator.
I propose first to deal with the question of the adjudicator’s jurisdiction to consider and make findings (including a declaration) as to the equitable rights of the parties. As will be seen, my conclusion is that the adjudicator had jurisdiction to consider these issues.
I then propose to consider the other grounds of appeal. For clarity, I note now that my conclusions are that:
a)Sitting Bear did owe fiduciary duties to Sphere as original owner at the time that Sitting Bear apparently acquired legal ownership of the gym equipment;
b)Sitting Bear acquired the legal ownership, and the benefits deriving from it, in breach of its fiduciary duties to Sphere;
c)Sitting Bear therefore holds legal ownership of the gym equipment on constructive trust for Sphere and, as Sphere has demanded the transfer of that legal ownership to it, Sitting Bear is obliged to transfer the equipment to Sphere;
d)therefore, the adjudicator’s decision was correct, subject to some minor amendments to his orders.
Equitable jurisdiction
Does an adjudicator have equitable jurisdiction?
The jurisdiction of adjudicators under the Act is provided by s 276. Relevantly, that section 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 titles 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 a body corporate manager or service contractor for a community titles scheme; or
(ii)the authorisation of a person as a letting agent for a community titles scheme.
(2) An order may require a person to act, or prohibit a person from acting, in a way stated in the order.
Sitting Bear contends that the dispute in this case does not involve matters described under paragraphs (1)(a) and (b), and therefore can only concern a contractual matter under paragraph (c). It submits that the adjudicator has not identified any contractual basis for the fiduciary duty which he found Sitting Bear owed to Sphere and therefore he had no jurisdiction to find the presence and breach of that fiduciary relationship and a consequential constructive trust.
Sphere contends that the adjudicator had jurisdiction to make equitable findings. It contends that the dispute falls within paragraph 276(1)(a), namely a claimed or anticipated contravention of the Act or the community management statement; and under paragraph (b), namely about the exercise of rights or powers, or the performance of duties, under the Act or the community management statement. As the dispute falls within those paragraphs, Sphere contends that the adjudicator may make any order that is just and equitable in the circumstances, including by determining the parties’ equitable rights and thereby exercising equitable jurisdiction.
The parties did not refer to, and I have been unable to find, any case determining whether s 276 confers equitable jurisdiction upon adjudicators. Two cases have considered whether equitable jurisdiction is conferred on this Tribunal or its predecessor, the Commercial and Consumer Tribunal.
In Sandmoon Pty Ltd v Body Corporate for South Pacific Noosa Apartments CTS 26117 [2008] QCCTBCCM 27, Mr Thomas AM QC considered whether the Commercial and Consumer Tribunal had equitable jurisdiction. He concluded that it did not. In the course of his consideration, he noted that:
a) (at [34]) even when broad powers are conferred on a dispute resolution body (such as an arbitrator), the statutory provisions concerning equitable remedies have retained them in a special and separate category reposed primarily in the Supreme Court, and only available to other Courts and Tribunals by special conferral;
b) (at [36]) it is clearly arguable that s 276 of the BCCM Act has given adjudicators equitable powers in at least certain circumstances.
In Batwing Resorts Pty Ltd v Body Corporate for Liberty on Tedder CTS 27241 [2011] QCAT 277, the President of QCAT at the time, Justice Alan Wilson, had to determine whether QCAT has an equitable jurisdiction which complements what it can do under the BCCM Act and the QCAT Act. His Honour concluded that QCAT was not intended to have all of the same broad equitable powers as a superior Court, but it does have power to determine equitable issues that might arise from time to time in the course of its consideration of matters in respect of which it is clearly given jurisdiction under the QCAT Act or the BCCM Act. In reaching that conclusion, his Honour noted:
a) (at [14]) the QCAT Act does not expressly bestow equitable jurisdiction upon the Tribunal but, under s 9(4), it is given jurisdiction to do all things necessary or convenient for exercising its jurisdiction;
b) (at [18]) a subordinate Court or Tribunal must find its powers in the express language of the statute which gives it existence and in the implications which derive from that language; even in the absence of an express power, an inferior Court or Tribunal may have an implied power to grant certain kinds of relief;
c) (at [36]), the BCCM Act makes it clear that the legislature intended, in the Act, to confine and simplify dispute resolution processes: in s 228 it is said that Chapter 6, relating to dispute resolution, is intended to resolve, in the context of community titles schemes, disputes about the matters referred to in subsection (1) – that is, that provision is couched in broad terms, which might be said to include the disputes anticipated by the Act itself.
Neither of these cases directly addresses or reaches a conclusion as to any equitable jurisdiction of adjudicators. While Mr Thomas considered it arguable that they had such jurisdiction, it was not necessary for him to determine that question. Justice Wilson, of course, was considering only the jurisdiction of this Tribunal.
The question of an adjudicator’s jurisdiction obviously arises directly in this case. In determining that question, I am assisted by the points made by Mr Thomas and Wilson J that I have set out above.
In Batwing, Wilson J referred to the decision of Cavanough J in Tucci v Victorian Civil and Administrative Tribunal [2010] VSC 425. As Wilson J recorded, the question in that case was whether VCAT had jurisdiction to hear a claim by a landlord against a guarantor of the tenant’s obligations under the lease. At [46]-[47], Cavanough J held that, because VCAT had power to entertain a consumer and trader dispute, and even though it was not a Court, it was obviously intended to have power to recognise and give effect to equitable defences in cases of that kind.
Cavanough J’s consideration of VCAT’s jurisdiction is of some assistance to me in this case. Relevantly, his Honour said:
[41] … VCAT, being a creature of statute and not being an ordinary Court (much less a superior Court), does not have a general equitable jurisdiction. However, it is open to Parliament to clothe VCAT, to such extent as Parliament sees fit, with the power, or indeed the duty, to recognise and apply equitable doctrines, defences and remedies or to proceed in accordance with, or by analogy with, equitable principles. Parliament might do this expressly or by implication. …
His Honour went on to consider a number of equitable-type jurisdictions that had been expressly conferred upon VCAT, including rectification, relief against forfeiture, restitution, making declarations, making orders in the nature of specific performance of a contract and rescission of a contract. His Honour went on to say (at [41]), “more generally, it would be a remarkable thing if VCAT could not have regard to trusts (trusts being entirely creatures of equity) or to equitable estates in land”.
His Honour then went on to record that VCAT was given express power to grant an injunction, along with the implied power to apply equitable principles when exercising the express power, and power to order a party to do or refrain from doing something. His Honour concluded:
[45] Given the breadth of the powers conferred by … the Act together with the conditional exclusion … of the jurisdiction of the Courts (including the Supreme Court) to entertain a consumer and trader dispute, I consider that, notwithstanding that for most purposes VCAT is not a Court, VCAT was intended to have, and would have, the power to recognise and give effect to any equitable defence that the Plaintiff might conceivably wish to rely upon …
[46] … VCAT has jurisdiction … to hear and determine all consumer and trader disputes, as defined. Equitable principles and defences would potentially be relevant in many kinds (perhaps all kinds) of consumer and trader disputes, not only in disputes relating to guarantees. The posited inability of VCAT to have regard to equitable principles or defences surely could not have the effect that contracts of guarantee, alone amongst other contracts, are taken outside the notion of “services” and outside the definition of “consumer and trader dispute.
In the context of the jurisdiction of an adjudicator under the BCCM Act, and having regard to the types of matters taken into account by Cavanough J, it seems to me that the following express powers of adjudicators under s 276 are highly material to the determination of the question whether they have powers to determine equitable questions:
a) subsection (1) provides that an adjudicator may make an order that is just and equitable in the circumstances (including a declaratory order) to resolve a dispute about the types of matters listed in that subsection;
b) subsection (2) provides expressly that an adjudicator may require a person to act or prohibit a person from acting, in a way stated in the order – in effect, a mandatory or prohibitory injunction;
c) without limiting subsections (1) and (2), subsection (3) provides that the adjudicator may make an order mentioned in schedule 5, and schedule 5 describes a large number of orders, of both a mandatory and prohibitory nature, as well as declaratory orders in relation to specific subject matters, which may be made, in effect, against a body corporate or other persons with an interest in a community titles scheme and having dealings with the body corporate.
Furthermore, s 229 relevantly provides that the only remedy for a dispute that is not a complex dispute (such as this matter) is the resolution of the dispute by a dispute resolution process under the Act or an order of an appeal tribunal on appeal from an adjudicator on a question of law. The application for adjudication made in this case by Sphere was a dispute resolution process under the Act.
Thus, apart from appeals or references of questions of law to the Court of Appeal, the Act excludes the Courts from having jurisdiction to resolve this type of dispute.
These factors make Cavanough J’s statements set out above directly relevant to the question that I have to resolve. Clearly, in resolving some disputes under the Act, equitable principles and remedies would potentially be relevant in many disputes.
In my opinion, s 276 vests in adjudicators all necessary powers to resolve a dispute in a manner that is just and equitable in the circumstances. In order to do so, an adjudicator must have power, in my view, to consider equitable claims and defences arising from or relating to disputes of the nature described in that section. Therefore, the Act impliedly, if not expressly, has vested the necessary equitable jurisdiction in adjudicators. That jurisdiction is expressly (by s 276(3)) not limited to the matters described in schedule 5.
Does this dispute fall within s 276?
The next question is whether the disputes raised by Sphere in its application to the adjudicator fell within any of the paragraphs of subsection 276(1).
As will become clear in my discussion of the merits of Sphere’s claims, whether or not they had merit the claims involved allegations that Sitting Bear and Sphere Management had taken steps which were, at least in part, in breach of the BCCM Act, in that:
a) at the first annual general meeting of Sphere, Sitting Bear as original owner had failed to give Sphere a register of assets containing an inventory of all body corporate assets, contrary to s 77(1)(a) of the Accommodation Module;
b) while it controlled Sphere, Sitting Bear had caused Sphere to fail to keep its asset register, in breach of its duty under s195 of the Accommodation Module;
c) by refusing to allow Sphere to control the gym equipment, and particularly refusing to allow all occupiers of lots within the scheme to have access to the equipment, Sitting Bear was obstructing and preventing Sphere’s ability to discharge its obligations under s 94(1)(a) and (b) of the BCCM Act, to administer the body corporate assets for the benefit of the owners of the lots included in the scheme, and to enforce the community management statement; and
d) Sitting Bear was also obstructing and preventing Sphere’s ability to discharge its obligations under clause 36 of its community management statements from time to time, under which it was obliged to grant all lot owners and members of subsidiary schemes the right to access and use, among other things, the gymnasium facilities, not to do any acts which would unreasonably restrict access to or the use of those facilities by any lot owner or occupier or subsidiary body corporate, and related obligations.
It is therefore clear that, whether or not they had substance, Sphere’s claims concerned allegations, and therefore raised disputes, in the context of Sphere’s community titles scheme, about claimed contraventions of the Act and the community management statement and about the performance of duties under the Act and the community management statement. Therefore, the adjudicator had the powers necessary to resolve those disputes by an order that was just and equitable in the circumstances.
In my opinion, in order to resolve those disputes in that manner, it was necessary, and within the adjudicator’s power, for him to consider and determine equitable issues relating to or arising out of those disputes.
Accordingly, I consider that the disputes before the adjudicator and his decision were within his jurisdiction.
Other grounds of appeal
Effect of invoice
Sitting Bear contends that the adjudicator gave insufficient weight to direct evidence of ownership of the gym equipment comprised by an invoice for that equipment.
The invoice, dated 12 December 2008, listed each item of the equipment and its price. After accounting for a deposit of $34,520.80 said to have been paid on 3 October 2008, it showed a balance due of $151,891.52. The total price for the equipment was therefore $186,412.32. Two notations were made on the invoice, recording that $100,000 was paid on 30 January 2009 and $51,891.52 was paid on 16 February 2009. The invoice had two names and addresses on it. The billing address was said to be Howard Thompson Constructions Pty Ltd at a post office box in Surfers Paradise. The delivery address was said to be Sphere Central at Sphere’s address in Southport.
Sitting Bear contends that the invoice was direct proof that the purchaser of the equipment was Howard Thompson Constructions Pty Ltd. In its submissions to the adjudicator, it contended that Howard Thompson Constructions had subsequently transferred ownership of the equipment to Sitting Bear. I note, however, that there was no evidence, let alone any direct evidence, of such a transfer of ownership, nor how it came about. It was simply an assertion in submissions by Sitting Bear.
Sitting Bear contended, both before the adjudicator and before the Tribunal, that the invoice is direct and incontrovertible evidence that the owner of the equipment was originally Howard Thompson Constructions. Sitting Bear says that that evidence is of overwhelming weight and should have been accepted on its face by the adjudicator, leading to him making no further enquiries as to the ownership of the equipment.
The first mention of the invoice by the adjudicator was at [20] of his reasons, after he had examined the “extrinsic evidence” (which I shall consider in detail below). He simply mentioned it as a document produced by Sitting Bear in the context of its submission that Howard Thompson Constructions bought the equipment and then transferred it to Sitting Bear. The only other mention was in his concluding paragraph ([30]), in which he said that, apart from producing it, Sitting Bear had not provided further evidence to rebut the argument that it holds the equipment as a constructive trustee for Sphere.
The adjudicator did not analyse what effect the invoice had as evidence going toward the ownership of the equipment, nor did he give any reasons for rejecting Sitting Bear’s submission that it was effectively conclusive. In the circumstances, I do not consider that he gave it sufficient weight. It is therefore necessary for me to consider its weight and effect as evidence, and in particular whether it should have affected the result.
I do not understand Sphere to dispute that the invoice has some relevance to the issue of ownership. However, it is not as incontrovertible or as obvious as Sitting Bear contends. While the billing address is said to be Howard Thompson Constructions, there is no evidence of who in fact paid for the equipment, and it is notable that it was to be delivered to “Sphere Central”, which appears to mean Sphere. It is, even less, evidence that Sitting Bear owns the equipment. Apart from assertion by Sitting Bear in its submissions, as I have noted there was no evidence at all of the alleged transfer of ownership of the equipment from Howard Thompson Constructions to Sitting Bear.
In the circumstances, while of some relevance, the invoice certainly did not have the overwhelming weight for which Sitting Bear contends. It was one piece of the jigsaw which the adjudicator needed to put together to determine the question of ownership. It does indicate that Howard Thompson Constructions may well have been the original purchaser and therefore the original owner of the equipment. But in the absence of evidence of who paid for the equipment, or of the transfer of that equipment to Sitting Bear, it was not definitive. Indeed, the latter two absent items of evidence are missing pieces of the jigsaw that meant the question of legal ownership could not be definitively determined, apart perhaps from inference.
Apart from the invoice, Sitting Bear contends that the adjudicator failed to give sufficient weight to the fact that the equipment, once delivered, was at all times located, not on the common property of Sphere, but in a lot owned privately by Sitting Bear, which controlled access to the equipment by limiting it to occupiers of lots within the Sphere Management letting pool. Those facts support the evidence of the invoice (incorrectly referred to by Sitting Bear as a “receipt of purchase”). Combined, those items of evidence proved that the owner of the gym equipment was at all relevant times Sitting Bear.
The adjudicator appears to have taken these facts into consideration in reaching his conclusions. In fact, he appears to have accepted as a fact (which I therefore consider to be a finding of fact made by him) that legal ownership of the equipment ultimately reposed in Sitting Bear. (It seems that that must be the case, as he found that Sitting Bear held the equipment on a constructive trust for Sphere – that must mean that Sitting Bear held the legal interest, but Sphere had the beneficial interest in the equipment.) He appears to have done so on the basis of the invoice, Sitting Bear’s submission about transfer to it, and possibly the location of the equipment in Sitting Bear’s lot. At the very least, he found that Sitting Bear had effective control of the equipment from the time that it was installed in its lot in late December 2008. That appears now not to be disputed by Sphere. I shall therefore assume, for the purposes of the balance of my reasons, that Sitting Bear has legal ownership of the equipment.
“Extrinsic evidence”
Sitting Bear contends that the evidence that was referred to by the adjudicator as “extrinsic evidence” was either irrelevant, and therefore should not have been taken into account at all, or was of little weight, and was given so much weight by the adjudicator that he has erred in law in relying upon it.
Sitting Bear notes in its submissions that, although a decision maker (that is, the fact finder) is entitled to allocate weight to particular evidence and to prefer certain evidence over other evidence, that “discretion” may miscarry where the decision maker has “failed to give adequate weight to a relevant factor of great importance, or has given excessive weight to a relevant factor of no great importance”[1].
[1]Minister for Aboriginal Affairs v Peko-Wallsend Limited (1986) 162 CLR 24, at [41]; Minister for Immigration v SZJSS (2010) 243 CLR 164 at [35].
However, Sitting Bear contends that the adjudicator wrongly relied on other evidence, and gave it too much weight in support of the contention that the equipment was always intended to be, and therefore was, owned by Sphere. I shall address each of those items of evidence in the order in which they are addressed by Sitting Bear in its submissions to the Tribunal.
Pre-sales disclosure
In at least June 2007, and probably for some time thereafter, Sitting Bear apparently entered into contracts for the sale of lots in the proposed Sphere community titles scheme. In accordance with its obligations under the BCCM Act and the Land Sales Act, Sitting Bear provided each potential purchaser with a pre-sale disclosure statement. In those statements, it said under the heading “Body corporate assets” that body corporate assets proposed to be acquired by the principal body corporate (that is, Sphere) after the establishment of the principal scheme and the subsidiary schemes included gym equipment. It also attached a depreciation schedule for the principal body corporate which included reference to “Gym equipment (cardio vascular and resistance)” valued at $193,000.
Similarly, in material advertising lots for sale at least as late as 2009, Sitting Bear recorded that recreation facilities of Sphere Central would include a fully equipped state of the art gymnasium.
The adjudicator took these documents into account, as well as other documents to which I shall refer shortly, in forming his conclusion that there was always a common intention between Sitting Bear and Sphere that Sphere would own the gym equipment. Sitting Bear contends that the disclosure statements were issued well before the scheme came into existence and Sphere was created, and therefore there was no possibility of a common intention before the creation of Sphere, and the documents contained representations to potential purchasers (and therefore potential lot owners) and not to Sphere itself. The advertising material said nothing about who owned the equipment, nor about any conditions of access to use it. Therefore, these documents were of little or no relevance or weight.
To my mind, the documents are relevant. I accept that the advertising material in particular has little weight, as it does say nothing about the ownership, the location within the scheme, or the conditions of access to the equipment. Nevertheless, the fact that it was advertised, without mention of any conditions, as one of the benefits of lot ownership within the scheme is of relevance and could appropriately be taken into account by the adjudicator, among other things, in making his findings of fact. It does not seem to me that the adjudicator placed undue weight on them.
The disclosure statements have a greater weight, in my view, as they specifically stated that the gym equipment would be owned by the principal body corporate, namely Sphere, and they were representations made to potential lot owners who would, by acquiring lots, become members of Sphere or its subsidiary bodies corporate. I accept, as Sitting Bear contends, that the disclosure statements were evidence of the intention of the developers at the date they were issued, and not of any common intention as to ownership of the equipment at the time that it was purchased in late 2008. That does not, however, mean that the documents are irrelevant, as there was no evidence that the statements were ever corrected before the sales were completed (after the scheme commenced). Again, they form part of the matrix of facts which the adjudicator was entitled to consider in coming to his conclusions. I do not consider that he placed undue weight on them.
Shared facilities agreements
The adjudicator gave some weight to, and certainly took into account in forming his final conclusions of fact, a number of documents concerning what is called a shared facilities agreement that was entered into between Sphere and three subsidiary bodies corporate in October 2008. The history of that agreement, as evidenced by documents before the adjudicator and dealt with by him, is as follows.
At the first general meeting of the scheme on 7 February 2008 (at which the only person present and voting was a Mr Norman Yorston, as company nominee of Sitting Bear), one of the resolutions made was that Sphere enter into and execute a shared facilities agreement with each subsidiary body corporate for the use of and contribution to shared facilities. The agreements, referred to in the minutes as having been tabled at that meeting, were not in evidence.
The first community management statement for Sphere, recorded on 18 January 2008, included by-law 36 which provided, in essence, that Sphere granted to all lot owners and members of any subsidiary scheme the right to access and use the “Facilities”, Sphere must give all lot owners all access codes required for access to and use of the facilities and could not make any changes to the facilities and recreation areas which would permanently and adversely affect the rights of a lot owner to access and use the facilities. Notably, “Facilities” was defined in the by-laws to mean, among other things, a gym and any other miscellaneous facilities on the Common Property. “Common Property” was defined to mean the common property in the scheme and any subsidiary scheme. The plans annexed to that community management statement showed that stage 8 was to comprise four buildings, containing 72 units and common property, within which central facilities for the scheme, including a multi-purpose room, were to be constructed. The adjudicator considered that the multi-purpose room was apparently suitable to operate as, among other things, a gymnasium.
Subsequent community management schemes were recorded on later dates that also contained by-law 36 referring to shared facilities agreements, although the definition of “Facilities” was later altered in a way that Sitting Bear contends was relevant.
On 8 October 2008, the Kingfisher and Lorikeet subsidiary schemes were established, when the first community management statements for those schemes were recorded. The statement for Kingfisher included by-law 2(d), which provided:
This by-law and all other by-laws in this Community Management Statement shall be read and construed on the basis that lot 1 shall be leased to the Principal Body Corporate for the purposes set out in by-law 52 hereof and to that extent the owner, occupier or lessee of lot 1 is not required to comply with the within by-laws which are incompatible to that use. …
By-law 52 relevantly provided:
Any facilities and recreation areas within the Kingfisher Curlew subsidiary scheme under the control of the Principal Body Corporate (by lease, licence or otherwise) are a shared facility for the benefit of each and every lot owner and occupier in all subsidiary schemes and the body corporate shall, in respect of such facilities and recreation areas, enter into a shared facility agreement with [Sphere and other subsidiary bodies corporate] for the purposes of allowing all such lot owners, occupiers and invitees access to and use of the facilities and recreation areas.
Lot 1 is of significance because that is the lot, owned by Sitting Bear, where the gym equipment has been kept since it was delivered to the scheme land.
A shared facilities agreement was entered into, as I have said, on 15 October 2008. Under that agreement, recital B provided that the Kingfisher scheme body corporate had agreed to allow all Sphere lot owners and occupiers to access and use facilities constructed within its community titles scheme and/or under its control. The agreement was said to allow for owners and occupiers of lots and subsidiary schemes to use the facilities in the principal community titles scheme and facilities wherever they might exist within a subsidiary scheme. “Facilities” was defined as meaning, among other things, a gym which existed on Sphere common property or on property owned, leased or controlled by Sphere. In essence, the agreement provided that Sphere and each subsidiary body corporate would take such steps as to allow right of access to and use of facilities on Sphere’s common property or under its control. Of course the problem was that none of the equipment was in property of that description. Rather, it was in a lot owned by Sitting Bear. However, the agreement clearly anticipated that the facilities, however defined, may be situated anywhere within the schemes (potentially including areas that were not common property, such as Lot 1). It appears that, at about this time, there was a proposal that Sitting Bear would grant a lease or licence to Sphere to have access to and use of the gym equipment in Sitting Bear’s lot, but no such lease or licence was ever entered into. That proposal was clearly reflected in the by-law to which I have referred that refers to lot 1 being leased to Sphere.
Sitting Bear contended before the adjudicator and the Tribunal that these documents have little or no weight in determining ownership of the gym equipment. Rather, they simply indicate various and changing propositions about ownership and control of the gym equipment. Even the shared facilities agreement refers to facilities under the ownership or control of Sphere and the gym equipment was never under Sphere’s ownership or control. Therefore the documents are of little relevance or weight.
In my view, the documents are certainly relevant and, together with the other matters considered by the adjudicator, are sufficient to enable him to infer that, in October 2008 at least, the controllers of Sphere, of the subsidiary bodies corporate, and of Sitting Bear, had in mind that:
a)the gym equipment would be placed in lot 1 in the Kingfisher subsidiary scheme (which was owned by Sitting Bear);
b)Sitting Bear would take steps to grant Sphere a lease or licence to use Lot 1, and to grant all lot owners access to Lot 1, for the purpose of its use as the Sphere scheme gymnasium;
c)Sitting Bear would also place the equipment at least under the control, if not in the ownership, of Sphere, in order that Sphere could fulfil its obligations under the shared facilities agreement and its community management statement, of giving access to the gym equipment to all lot owners and occupiers within the Sphere scheme;
d)having regard also to the disclosure statements and the later advertising material, the documentation together continued to point to an intention that control of the equipment, if not ownership, would be within the power of Sphere.
To my mind, the adjudicator appropriately took these documents into account and did not give them excessive weight.
Original intention
This leads on to the next contention of Sitting Bear. It submits that the adjudicator applied inordinate weight to the “original intention” of Sitting Bear, which was indicated by the disclosure statements - namely, that the gym equipment would be owned by Sphere and would be kept on common property of Sphere’s scheme.
Sitting Bear contends that, whatever that original intention, it was clear it had subsequently decided, to paraphrase its submissions to the tribunal, that the gym equipment would be better used as an asset available to owners who participate in the on-site letting business undertaken by Sphere Management, as an incentive for owners to place their lots in the hands of Sphere Management as the on-site manager.
Sphere submits that the various documents demonstrate that there was an intention that it be the owner, or at least the controller, of the gym equipment and the premises in which it was kept.
It seems to me that the original intention as to the ownership or control of, and access to, the gym equipment is relevant to question of ownership, particularly beneficial ownership, of that equipment in the context of the questions whether, if Sitting Bear owed any fiduciary duty to Sphere, that duty was breached and whether a constructive trust over the equipment arose as a result of any such breach.
Therefore, the evidence indicating a common intention in the early stages of the development (including on creation of the schemes in late 2008 and at about the time the equipment was purchased in December 2008) is relevant and I do not consider that the adjudicator has given it undue weight.
Insurance
In January 2008, Sphere took out an insurance policy for the building and common contents of the scheme, for a total of $8,000,000. In October 2008, as noted in an invoice dated 14 October 2008 from the insurance broker, that policy was endorsed to note an increase under the material damage section to include contents of a gymnasium for $190,000. In January 2009 and January 2010 that policy was renewed and then, in January 2011, a policy was taken out with a different insurer. The latter policy noted, among other things, under the heading “Legal Liability”, “number of gyms: 1”. That policy was renewed on 29 January 2012 and, apparently, in January 2013. In the latter month, Sphere’s insurance broker noted the following in respect of the renewal policy:
Gymnasiums
All cover under this policy is issued subject to the gymnasium and its associated equipment being services [scil., serviced] and maintained in accordance with the manufacturers’ specifications.
Appropriate signage relating to health and safety and user instructions should clearly be displayed in a prominent position within the gym area.
It is clear from this evidence that, at all times from the acquisition of the gym equipment, it was insured by Sphere under its building and contents insurance policy. There is no evidence that it was insured by any other person, such as Sitting Bear, nor was Sitting Bear noted on the policy as a person with an interest in the equipment. If it were the owner of the equipment, one might normally expect that its interest would be noted.
Also of relevance is that the policy was taken out and was endorsed for the equipment at a time when Sphere was solely under the control of Sitting Bear and its director, Mr Howard. In other words, Mr Howard and Sitting Bear organised for insurance to be taken out by Sphere as the purported owner (vis a vis the insurer) of the equipment.
The adjudicator took this into account, along with the other evidence to which I have referred above and will refer below, in forming his conclusion that Sphere is the beneficial owner of the equipment. In my view, he was entitled to do so and he did not give any undue weight to the insurance of the equipment.
The multi-purpose room
Sitting Bear notes that the adjudicator recorded that the multi-purpose room on the common property of Sphere would be suitable to accommodate gym equipment. Sitting Bear contends that this could have no possible relevance to the ownership of the equipment.
I see nothing wrong with the comment by the adjudicator. It was simply an aside to compare the fact that there were premises available in the common property in which the equipment could have been situated, but Sitting Bear decided instead to situate it in its own lot. It is unclear if the adjudicator gave any weight to that fact, but there is no indication that he gave it undue weight.
Access to the equipment
Sitting Bear notes in its submission to the Tribunal that the adjudicator had referred to the fact that Sitting Bear has adopted a policy of preventing persons who have not been a part of the letting pool from accessing the gym equipment. Sitting Bear contends that, for the purposes of the adjudication, it was common ground that Sitting Bear had excluded non letting pool persons from accessing the gym equipment. It is true that it was common ground that exclusion from access occurred from at least January 2011. The tribunal member found, however (at [26]), that lot owners have accessed the equipment without charge for a number of years, although (at [18]) he appears to have accepted that access was limited to those who opted into the letting pool.
In my view, it is probably unimportant whether Sitting Bear and Sphere Management gave access to the equipment to all lot owners or only to those who were part of the letting pool. That does not really affect the ownership of the equipment, although it does seem to be somewhat inconsistent with the advertising that occurred in 2009. Sitting Bear seems to be complaining that the adjudicator gave too much weight to the fact that access was limited. One might have thought that in fact Sitting Bear would contend that inadequate weight was given to the fact, if it was the case, that access was limited in that manner from the inception of the scheme.
It seems to me that the evidence was ambiguous as to whether access was limited at all times or only from 2011 and there does seem to be some inconsistency between paragraphs [18] and [26] of the adjudicator’s reasons. However, at most, what it does demonstrate is that Sitting Bear and Sphere Management had control of the gym equipment from the moment it was taken on-site. That may be said to be indicative that Sitting Bear owned the equipment. However, it is not conclusive as to the beneficial ownership, even though it may indicate legal ownership.
I cannot see that the adjudicator gave excessive weight to the question of limited access.
Overall conclusion
Sitting Bear submits, in essence, that the adjudicator took into account all of the above matters and gave them too much weight, in that the weight that could be given to them was overwhelmed by the supposed direct evidence of ownership indicated by the invoice.
In my opinion, the adjudicator was entitled to take into account all of these factors and did not apparently give any one excessive weight.
Fiduciary duty
Was Sitting Bear a fiduciary of Sphere?
The adjudicator found that Sitting Bear, as the original owner, owed a fiduciary duty to Sphere and the members of the body corporate. He reached that conclusion in reliance upon the decision of McDougal J in Community Association DP Number 270180 v Arrow Asset Management Pty Ltd [2007] NSWSC 527, in which his Honour referred to and relied upon the decision of Else-Mitchell J in Re Steel and the Conveyancing (Strata Titles) Act 1961 (1968) 88 WN (Pt 1) (NSW) 467.
Else-Mitchell J considered, and McDougal J agreed, that the developer of a community scheme similar to a scheme under the BCCM Act is in a position analogous to that of the promoter of a company and therefore the relationship between the developer and the body corporate (to use the term in the BCCM Act) is a fiduciary relationship. In other words, the developer owes fiduciary duties to the body corporate.
Sitting Bear contends that those decisions are distinguishable and the adjudicator’s reliance on them is misplaced, because the decisions concerned steps taken by the developer to cause the body corporate to enter into management agreements providing for excessive remuneration to the manager. In this case, that is not the situation and, according to Sitting Bear, Sphere was not a party to the acquisition of the gym equipment nor to the disclosure documentation which is said to have given rise to a fiduciary duty, nor did Sitting Bear have a fiduciary duty to acquire specific assets for the body corporate or to transfer existing assets to the body corporate at any stage.
Alternatively, Sitting Bear contends that, even if it owed Sphere fiduciary duties, there is no evidence that it breached them, nor that it obtained any benefit as a result of a breach. It says that the equipment was always its own and there is no evidence of any transfer of, nor of any irrevocable undertaking to transfer, it to the body corporate, and therefore it cannot be said to have gained any benefit. Nor has it breached any duty to avoid a conflict of interest, as none arose.
I do not consider that Arrow Asset Management and Re Steel are distinguishable in any material respect concerning the proposition that the developer of a community titles scheme stands, in relation to the principal body corporate, in a position analogous to the promoter of the company. By a long course of authority it is well accepted that a fiduciary relationship exists between a promoter and a company and in my view, the adjudicator was correct in finding that a similar relationship exists between a developer and original owner and the body corporate.
I do not find persuasive Sitting Bear’s attempt to distinguish Arrow on the basis that it concerned different legislation. In its submissions in reply in the Tribunal, Sitting Bear contended that the BCCM Act spells out specific duties of developers and bodies corporate that are designed to avoid potential conflicts of interest. It points to obligations for the establishment of service contracts and letting authorisations and the limited entitlement of a body corporate to receive benefits from the grant of those contracts and authorisations. But those are only specific instances of obligations imposed by the legislature concerning specific dealings of bodies corporate. They do not, in my view, purport to cover the field of the relationship between a developer and a body corporate. Specifically, they do not exclude the proposition that, having regard to the usual factors that give rise to fiduciary relationships, such a relationship can or must exist between those parties.
I consider that the adjudicator in this case made no error in finding that Sitting Bear, as developer and original owner, was a fiduciary of Sphere. I would add that Howard Thompson Constructions, as a co-developer, stood in the same position. Accordingly, I reject Sitting Bear’s contention that it did not owe fiduciary duties to Sphere.
In my view, therefore, as co-developer and original owner, Sitting Bear owed fiduciary duties to Sphere.
Did Sitting Bear breach its fiduciary duties?
The next questions are whether the adjudicator was correct in his finding that Sitting Bear breached its fiduciary duties and, if so, whether he correctly identified the consequences of that breach.
Sitting Bear accepts that its original intention was that the gym equipment would be owned and controlled by Sphere. It then openly accepts that it changed its mind and decided that it would be better if it held the equipment and allowed Sphere Management to profit from controlling access to it by allowing access only to members of Sphere Management’s letting pool. As it said in its submissions to the Tribunal, to restrict access to the gymnasium in that manner would act as an incentive for owners to place their lots in the hands of the on-site manager. Of course, Sphere Management, the on-site manager, was also owned and controlled by Mr Howard.
So Mr Howard and his companies, Sitting Bear, Howard Thompson Constructions and Sphere Management, made that decision at some time in 2008, at least at or about the time that the gym equipment was purchased. Notably, the equipment was purchased by Howard Thompson Constructions, not by Sitting Bear. Sitting Bear asserts that Howard Thompson Constructions then transferred ownership of the equipment to it. But, before it made the decision that it would acquire and control the equipment, it had been intended that Sphere would acquire and control the equipment. It appears that Sitting Bear acquired the equipment for no consideration (certainly there is no evidence of any consideration having been paid by it to Howard Thompson Constructions). So Sitting Bear acquired the equipment, free of charge, instead of Sphere.
This occurred despite the resolutions of Sphere, under the control of Mr Howard and Sitting Bear (although by Sitting Bear’s nominee), that a shared facilities agreement be entered into for the use of and contribution to shared facilities, despite the fact that Mr Howard caused Sphere to pay for the insurance of the equipment and despite that fact that, in a sinking fund calculation apparently undertaken at Mr Howard’s direction, Sphere included as a forecast expense the cost of replacing the gym equipment every 12 years - lot owners would presumably be charged sinking fund contributions on that basis since the commencement of the scheme.[2]
[2]The sinking fund was taken into account by the adjudicator in reaching his final conclusions: at [30]. It is not one of the matters about which Sitting Bear complains and, in my view, it was clearly relevant in considering who owns the equipment.
McDougal J’s discussion, in Arrow, of the contents of fiduciary duties (at [216] to [223]) contains a useful summary of the principles and their application to the developer of a community titles scheme. As his Honour said, to say that one person stands in a fiduciary position vis a vis another, is to begin, not to end, the enquiry.
The first point to note, as his Honour did and Sitting Bear points out, is that the obligations of a fiduciary duty are proscriptive- “not to obtain any unauthorised benefit from the relationship and not to be in a position of conflict”- and not positive (or prescriptive) – “positive legal duties on the fiduciary to act in the interests of the person to whom the duty is owed.”
His Honour considered (at [218]) that nothing in the legislative scheme before him excluded the principle that a fiduciary should not benefit from its position and his Honour then went on to consider that principle in the context of the rule that a fiduciary must not put himself or herself in a situation where duty and interest conflict.
This rule has been described by Deane J (with whom Brennan and Dawson JJ agreed) as the “fundamental rule” for a fiduciary that embodies two themes[3]. McDougal J set out the following passage from Deane J’s reasons for decision, which I respectfully adopt:
The first [theme] is that which appropriates for the benefit of the person to whom the fiduciary duty is owed any benefit or gain obtained or received by the fiduciary in circumstances where there existed a conflict of personal interest and fiduciary duty or a significant possibility of such conflict: the objective is to preclude the fiduciary from being swayed by considerations of personal interest. The second [theme] is that which requires the fiduciary to account for any benefit or gain obtained or received by reason of or by use of his fiduciary position or of opportunity or knowledge relating from it: the objective is to preclude the fiduciary from actually misusing his position for personal advantage. … Stated comprehensively in terms of the liability to account, the principle of equity is that a person who is under a fiduciary obligation must account to the person to whom the obligation is owed for any benefit or gain (1) which has been obtained or received in circumstances where a conflict or significant possibility of conflict existed between his fiduciary duty and his personal interest in the pursuit or possible receipt of such a benefit or gain or (2) which was obtained or received by use or by reason of his fiduciary position or of opportunity or knowledge resulting from it. … It is immaterial that there was no absence of good faith or damage to the person to whom the fiduciary obligation was owed.
[3]Chan v Zacharia (1984) 154 CLR 178, at 198-199.
McDougal J then went on at [223] to cite the following principles from the judgment of the High Court in Warman International v Dwyer (1995) 182 CLR 544 at 557- 558:
(1) The liability of a fiduciary to account does not depend on detriment of the plaintiff or dishonesty or lack of good faith on the part of the fiduciary.
(2) A fiduciary must account for any profit or benefit obtained either when there was actual or possible conflict between duty and interest or by reason of the fiduciary position, or the use of opportunity or knowledge derived from it.
(3) It matters not that the plaintiff was unwilling, unlikely or unable to make the profit taken by their fiduciary, nor that the fiduciary acted honestly and reasonably.
In its submissions in reply in this appeal, Sitting Bear referred to a recent article by Professor Sarah Worthington of the University of Cambridge, England.[4] In that comprehensive article, the author set out the following relevant propositions:
Fiduciaries are required to act in the best interests of their principals. Within the scope of their appointment, they must exercise their manifold discretions in their principals’ interests, and not in their own.[5] … the requirement to act loyally is the concern of fiduciary law. It requires the fiduciary to act selflessly, to exercise self-denial; it proscribes rather than prescribes, and in doing so it denies to the fiduciary any benefits that might be obtained disloyally, and in particular it requires disgorgement of gains which involve conflicts of duty and interest or misuse of position. … it matters not that the fiduciary acted honestly, or in good faith, nor that the principal could not have derived the benefit itself, or was not harmed and may indeed have benefited. All such gains, derived from any self-serving use of the principal’s property, any conflicts, or any misuse of position (which indeed turns out to mean any use of position) must be disgorged.
… there are only three doctrinally distinguishable categories of disloyal gain which a fiduciary might be required to disgorge:
(1)gains derived from use of the principal’s property (regardless of the nature of the use);
(2)gains derived from opportunities which are within the scope of the fiduciary’s endeavour (i.e. gains involving “conflicts of duty and interest”, judged with very careful regard to issues of scope, but with it then being irrelevant that none of the principal’s property was used in acquiring the gain);
(3)gains derived from opportunities which arise solely because of the fiduciary’s role (often termed gains from “misuse of position”, but restricted here to gains from opportunities presented to the fiduciary as fiduciary, acquired “by reason of and in the course of” the fiduciary role, but with it then being irrelevant that the gain was not within the scope of the fiduciary endeavour and did not involve use of the principal’s property).
These categories provide a simple analytical hierarchy. If a gain falls within category (1) or, failing that, within category (2), then the resulting disgorgement remedy is proprietary. If the gain falls into neither of those categories, but falls into category (3), then the disgorgement remedy is personal.
[4]Fiduciary Duties and Proprietary Remedies: Addressing the Failure of Equitable Formulae (2013) 72 Cambridge Law Journal, 720. The passages cited are from pp 731 and 751 respectively.
[5]As I have discussed, this statement is not correct, in that it infers a prescriptive duty to act in the other person’s interests. But it should be read in the context of what follows.
In Arrow, McDougal J found that, as the relationship between the developer and the community association was a fiduciary relationship, the developer owed the association (that is, the equivalent of the principal body corporate under the BCCM Act) a duty not to place itself in a position of conflict or to profit from contracts entered into between itself and the body corporate without proper disclosure.
In my view, there was a clear conflict between the interest of Sitting Bear in acquiring (for no consideration) approximately $190,000 worth of equipment and thereafter controlling its use for the benefit of a company associated with it and controlled and effectively owned by its own director and sole shareholder, on the one hand, and its duty as developer, original owner and fiduciary of Sphere, not to profit from its position as fiduciary, nor from an opportunity or knowledge derived from that position, without proper disclosure and fully informed consent of Sphere, and not to place itself in a position of conflict.
To what extent must “disclosure” of a potential benefit be made? The following statement of principle from the 6th edition of Gower, Principles of Modern Company Law, was accepted as correct by Austin J in Aequitas v AEFC (2001) 19 ACLC 1006 at [293], which was in turn adopted by McDougal J in Arrow (at [238]), and which I respectfully adopt:
The position therefore seems to be that disclosure must be made to the company by making it to an entirely independent board or to the existing or potential members as a whole. If the first method is employed the promoter will be under no further liability to the company, although the directors will be liable to the subscribers if the information has not been passed on. … If the second method is adopted disclosure must be made in the prospectus, or otherwise, so that those who are all or become members, as a result of the transaction in which the promoter was acting as such, have full information regarding it. Partial or incomplete disclosure will not do; the disclosure must be explicit.
[100]Justice McDougal went on (at [241]-[243]) to note that it is necessary to bear in mind the role of informed consent in this context. A fiduciary has no duty as such to obtain an informed consent. Rather, the existence of an informed consent would negate what otherwise was a breach of duty. Informed consent would require, as a minimum, the disclosure of all relevant information. The word “relevant” in this context imports an objective standard. Disclosure of a fact would be material if, viewed objectively, that information would bear in a rational way on a relevant person’s consideration or determination of the terms of a contract or other arrangement.
[101]In the context of the Sphere community titles scheme, it seems to me that, if Mr Howard and Sitting Bear were to obtain a benefit from the change in arrangement for the ownership or control of the gym equipment, then they would do so in breach of their fiduciary duty unless they disclosed to appropriate persons the full details of their proposed arrangement and it was approved.
[102]Who are appropriate persons? If there were an independent committee of Sphere at the time, then obviously it would be necessary to disclose that to the committee. However, there was no committee at the time, but simply one person, comprising a nominee of Sitting Bear. In the absence of such an independent committee, disclosure would have to be made, in my view, to all actual or prospective members of the scheme, including the subsidiary schemes.
[103]No such disclosure was made.
[104]Sitting Bear contended that it acquired no benefit, because the equipment was paid for by Howard Thompson Constructions and, before it was bought, the developers had decided that it would no longer be given to Sphere but would instead be given to Sitting Bear for its benefit and for the benefit of Sphere Management. Therefore, it was never Sphere’s equipment to lose, nor Sitting Bear’s to gain at the expense of Sphere.
[105]But that argument itself discloses the benefits that were acquired by Sitting Bear and Sphere Management instead of by Sphere. Instead of Sphere obtaining legal ownership and control of the equipment, ownership was given by Howard Thompson Constructions to Sitting Bear. The equipment was placed under Sphere Management’s control in Sitting Bear’s lot, pursuant to which they both (by Mr Howard) determined that they would not allow access to anyone other than members of the scheme and their invitees who placed their lots under the letting management of Sphere Management. So both Sitting Bear and Sphere Management obtained a benefit, whereas it was in the interests of Sphere that it both acquire the equipment (particularly for no consideration) and thereafter control it and be able, as promoted, to allow access to it to all members of the principal and subsidiary schemes.
[106]Although the adjudicator did not undertake an analysis of the parties’ duties and relationship and of the transactions to the extent that I have done, in my view he correctly concluded that Sitting Bear owed Sphere fiduciary duties and that it breached those duties and thereby derived a substantial benefit.
[107]Having derived such a benefit, it behoves Sitting Bear to account to Sphere for that benefit. The benefit acquired was at least within the 2nd of the categories identified by Professor Worthington and probably also within the 3rd. The result is that equity may impose a proprietary remedy. This may be by, for example, imposing an equitable charge or lien over the equipment for its value, or finding that the fiduciary holds the benefit on constructive trust for Sphere. In the latter case, the principal may demand that the fiduciary transfer legal ownership to the principal.
[108]It was therefore open to the adjudicator to find, as he did, that Sitting Bear held the equipment on a constructive trust for Sphere and that, as Sphere had demanded that the equipment be delivered to it, Sphere was obliged, in effect, to transfer legal ownership and possession of the equipment to Sphere.
CONCLUSIONS
[109]The result is that the interest which Sphere has in the gym equipment is a body corporate asset of Sphere. The adjudicator declared that the equipment itself is a body corporate asset. That suggests that the declaration means that the equipment was legally owned by Sphere. To that extent, I consider that the adjudicator erred, because it is inconsistent with his finding that Sitting Bear held the equipment on a constructive trust for Sphere. The effect of such a trust was that the legal ownership was in Sitting Bear but the beneficial ownership was in Sphere. As the sole beneficial owner, Sphere was entitled to demand the transfer to it of the legal ownership, which it had done. Up to the date of the adjudication decision Sitting Bear had refused to transfer that interest.
[110]This appeal is an appeal on a question of law only: BCCM Act s289. Pursuant to section 146 of the QCAT Act, as the appeal tribunal I may amend the decision. Accordingly, I propose to make appropriate amendments to the orders made by the adjudicator, but otherwise to dismiss the appeal.
[111]In my view the appropriate declarations are that:
a)Sitting Bear Pty Ltd (receivers and managers appointed) holds the gymnasium equipment presently located within lot 1 on SP220067 on a constructive trust for the Body Corporate for Sphere Southport Living CTS37951;
b)the body corporate’s beneficial interest in that equipment is a body corporate asset.
[112]As a consequence of those declarations, the further order made by the adjudicator was appropriate with one small amendment. I consider that order 2 should provide that Sitting Bear do all things necessary, at its sole cost and expense, for the purpose of transferring legal ownership of, and delivering, the gymnasium equipment to Sphere within 14 days of the order and in good condition, to a location on the scheme land of the choice of Sphere.
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