STRATA CORPORATION 4168 INC No. SCCIV-03-1336

STRATA CORPORATION 4168 INC
[2004] SASC 24
Civil

PERRY J. (ex tempore) The applicant is a strata corporation within the meaning of the Strata Titles Act 1988 (“Act”). It is responsible for the administration of a group of 84 units situated at Anzac Highway, Kurralta Park known as “City Beach”.
On 26 September 2003, it filed an application seeking the appointment of an administrator pursuant to a resolution of the management committee of the corporation.
Pursuant to s 37 of the Act, an administrator may be appointed either on an application by a strata corporation, a creditor, or a person with a registered interest in the unit. Pursuant to the same section, an administrator, when appointed, has “full and exclusive” power to administer the affairs of the strata corporation, including the power to do anything for which a special or unanimous resolution of the strata corporation is required.
The present application was brought in light of longstanding disputes between the unit holders as to a number of management issues. They include questions as to the propriety of the conduct of Alfonso Petito who, until 14 January 2004, occupied the position of property manager, more particularly in connection with his management of certain building works, but not limited to that issue.
A considerable volume of affidavit evidence has been put forward, for and in opposition to the application. No useful purpose would be served by canvassing the detail of the matters deposed to in the affidavits.
It is sufficient to say that the management committee appointed at an annual general meeting on 19 September 2002, of which the presiding officer is Mr Trevor Douglas, developed serious concerns as to a number of issues and was eventually prompted to give instructions for the present application to be brought. For convenience, I will refer to that committee as the “Douglas Committee”.
In the meantime, after the proceedings were instituted, at an Extraordinary General Meeting, a resolution was passed which purported to replace the Douglas Committee by another committee which, for convenience, I will refer to as the “Petito Committee”. The legitimacy of the appointment of that committee is challenged by the Douglas Committee.
It is fair to say that the allegiance of the unit holders has polarised into two groups, one in support of the Douglas Committee and the other in support of the Petito Committee. It seems likely that the Petito group is numerically larger, but the Douglas group represents a sizeable minority.
On the hearing of the application, I gave leave for Mr Petito to appear by counsel. I gave leave for two unit holders, Ms Hurley and Ms Petito, to appear in person, and I heard submissions from them. In addition, I have heard submissions from Ms Jill Stevenson, another unit holder.
I gave leave for any unit holder to file affidavits to be considered on the hearing of the application and a number of affidavits have come forward from unit holders in response to that order.
The majority, if not all, of those affidavits oppose the appointment of an administrator.
However, on the hearing of the application today, counsel for Mr Petito indicated that he did not offer an argument or adopt a position one way or another with respect to the application. His position, then, is essentially neutral.
One thing is plain; it would be impossible to adjudicate upon the legitimacy of the appointment of the Petito Committee without a lengthy court hearing.
I suppose, of course, a further general meeting could be called, and indeed that course has been urged upon me, which could consider a motion to appoint yet another committee. However, it seems to me that such a course is unlikely to resolve the underlying differences, which would remain.
I have carefully considered the possibility of referring the matter to mediation, which is another course which has been urged upon me, but I do not believe that this course would be appropriate at this stage.
It seems to me that a fairly urgent situation has arisen in which it is necessary to put in place a more clearly defined temporary management mechanism and also to allow for an investigation into the affairs of the corporation to determine the best direction in which to proceed in order to establish a more permanent management structure.
I would stress that in moving in that direction and in making the order which I will come to in a moment, I in no way at all have made any decision, judgment or opinion as to the various allegations which have been made, targeting in particular Mr Petito.
The making of the order which I propose to make for the appointment of an administrator, is in no way a product of any view which I might have reached as to the proprietary of his conduct or as to the manner in which he has administered the affairs of the corporation. The appointment which I propose to make is predicated upon the basis that it seems to me the best course to follow given the unusual situation which has arisen, more particularly given the fact that there are two purported management committees each claiming the right to control the affairs of the corporation.
The appointment of an administrator pursuant to s 37 of the Act would mean that neither of the committees claiming to have the right to manage the corporation would have any further powers of management; they would not be able to act further in that respect. Rather, as I have pointed out, pursuant to s 37(2) of the Act the exclusive power to administer the affairs of the strata corporation would then vest in the administrator.
I have been concerned at the likely expense of the appointment of an administrator, but I think that in all the circumstances this is an expense which will simply have to be borne in order to enable a clearer reading to be made as to the appropriate course to follow in creating a more permanent management structure.
I stress that it is important that the administrator who is appointed is given full co-operation by all unit holders, even those who have opposed the appointment.
Any attempt to obstruct the activity of the administrator or impede an open and prompt investigation by him of the matters which need to be addressed will simply serve to prolong the administration and cause further expense ultimately to the unit holders.
So that I call on the parties to put aside their differences for the moment, to co-operate fully with the administrator so that a prompt and clear reading can be made which can be reported on to the Court, and in light of which I can make such further orders as might seem appropriate in order to stabilise the management of the corporation in the interests of the unit holders as a whole.
I am mindful of the fact that in taking this course it may well be that I am not acting in accordance with the wishes of the numerical majority of the unit holders. However, it seems to me that the power to appoint an administrator may be invoked and properly exercised in favour of appointment, even against the wishes of the majority, where there is a serious suggestion of mismanagement put forward by a sizeable minority of the unit holders.
It is not a matter which can be determined simply by reference to the majority vote of the unit holders. If that was to be so, a majority of unit holders could prevent the appointment of an administrator in circumstances where it was unarguable that the appointment should be made. A majority of unit holders cannot circumscribe the unfettered discretion of the Court to make orders in the interest of the corporation as a whole.
The precise terms of the application are misconceived. The precise terms are:
“That pursuant to a resolution passed by the Management Committee of Strata Corporation 4618 Inc that an order be given appointing an administrator of Strata Corporation 4618 Inc.”
The appointment is not pursuant to a resolution passed by the management committee, but the appointment must be made by the Court in the exercise of the authority conferred on the Court and pursuant to the discretion vested in it under s 37(1) of the Act.
So that the appointment I make - and this should clearly be understood - is not an appointment pursuant to any resolution of either management committee or a purported management committee. Rather, it is an appointment made in the discretion of the Court pursuant to its powers under s 37(1) of the Act.
I should say also that I do not countenance that any administrator should act for any lengthy period of time. Rather, my hope is that the administrator who is appointed will, within a period of about a month, conduct a preliminary investigation and then furnish a report for further consideration by the Court which will guide the Court in considering whether or not the appointment should be extended, and if so, for what period of time.
I would like to think also that during the period of the appointment the parties may be able to resolve some issues with the assistance of the administrator, rather than to maintain a position of dispute about those matters. Preferably, the administrator will make recommendations which can proceed on the basis of support of most of not all of the unit holders. If not, hard decisions may have to be taken with which everyone may not agree.
I will hear counsel on the terms of the order.
So far as the identity of the administrator is concerned, I am satisfied on the material which has been given to me, including the affidavit of Amanda Lucy Warley, which includes a letter from Mr Russell dated 27 November 2003, that he has the qualifications necessary to embark on the administration. On the other hand, I recognise that it may well be that he might need the assistance of an accountant or an auditor, in particular with reference to the state of the books of the corporation and perhaps also some legal advice.
In saying that, however, I would like to make it clear that it is not intended by me that the administrator will conduct any sort of witch-hunt. Neither is it intended that he will dwell on the course of events which has led to the present application except to the extent necessary to obtain an accurate reading of the present status of the affairs of the corporation.
Rather, the emphasis in the administrator’s investigation should be on identifying problems and offering solutions which will enable, in an ongoing fashion, looking to the future, a more stable management situation to be established.
[DISCUSSION ENSUED AS TO THE TERMS OF THE ORDER]
I must say that I am heartened a little in that we have been able to get this far with a degree of co-operation which has resulted in what I think is a reasonably practicable order.
So that I would encourage the parties to co-operate with the administrator. As I said earlier, the more co-operation you give and the more help, the quicker the administration will be, the less the expense, and hopefully the more helpful the result.

[2004] SASC 24

22 January 2004