Property & Planning Law

How to waste a body corporate’s money

If you have even a passing interest in federal politics, you will have seen the furore over Bronwyn Bishop’s recent taxpayer funded chopper flight to a Liberal fundraiser which was only an hour or so away by car.

No doubt it was the easiest $5,000 she ever spent at the time.

When it came to light there was quite legitimate outrage about the spending, and the sole defence seems to be that it was ‘within guidelines’. Some guidelines they must be.

It has since been paid back.

And so no one thinks we are singling out the Liberals, if you want to see what happens on the ‘other’ side of politics you have to look no further than the Health Services Union, firstly through Craig Thompson, and then Kathy Jackson (the allegations for which are still winding through the system).

The common theme?

Other people’s money. Yours and ours with respect to Bronwyn’s as Australian taxpayers and the members of the Health Services Union for Kathy and Craig.

From our end, we think body corporate committee members need to understand they are in the same boat. There is absolutely a difference in the context that most committee spending will not be pursuing personal entertainment like the examples above, but when a committee is spending money their mind set should be to treat it like their own.

The Rocks Resort is a resort at Currumbin on the Gold Coast. No doubt it does a booming trade every ANZAC Day when the Sunrise team rolls into town for the ANZAC service (let alone other holiday periods). 

It is in a very beautiful part of the world.

What is not so beautiful is what has been going on inside the body corporate for many years. 

The body corporate issued eight Remedial Action Notices to the resident manager between 18 June 2010 and 7 October 2010. A Remedial Action Notice is also commonly called a breach notice. They mean the same thing – the resident manager must rectify the issue complained of or the body corporate may have a right to terminate the management rights agreements.

These styles of matter generally then descend into:

· characterising in detail the conduct complained of; and

· arguing whether that conduct was actually required under the management rights agreements. 

For the purposes of this article, that was in dispute, but was not considered in the Queensland Civil and Administrative Tribunals’s decision.

As a resident manager must do in the circumstances, the validity of the Remedial Action Notices was contested. To do otherwise is to render the management rights agreements liable to termination.

After ten hearing days (spread amongst June, August and October 2014) the decision about the validity of the Remedial Action Notices was handed down last month.

The body corporate lost, and lost badly.  It would almost be amusing if it wasn’t so serious.

The relevant provisions of the Module require that for a Remedial Action Notice to be valid the person upon whom it is served must be given a chance to remedy the default within a statutory timeframe. 

The legislative minimum was ‘not less than 14 days’ after the remedial action notice was given.

Each Remedial Action Notice required remedy ‘within’ 14 days. 

In effect, that cut the resident manager one day short in their compliance time.  Calling for the issue to be remedied within 14 days was requiring it to be addressed in less than 14 days.  That did not comply with the Module and all of the Remedial Action Notices were therefore declared invalid.

So to the extent that the Body Corporate wants to seek to terminate the management rights agreements, it needs to start again from scratch.

Now - back to where this article started.

The body corporate has reportedly spent more than $300,000 in legal fees getting to where it has got to. That figure is despite the committee seemingly being self-represented at the hearing.  Who knows what the resident manager has spent, but you can be sure it would be close to that amount, if not more.

Costs in the Queensland Civil and Administrative Tribunal are only awarded against the losing party where the interests of justice require it, so that will be an interesting post script to this matter. 

We have written previously about the commerciality of body corporate litigation here and here in relation to levy recovery. This is yet another example of spending that almost certainly should not have taken place before every other avenue to resolution was exhausted.

The immediate questions that come to mind for us are:

  • · Would owners have supported the proceeding if they had known this was the potential outcome?
  • · What could the $300,000 otherwise have been spent on?
  • ·  Did the committee act in the interests of the body corporate, and reasonably, in pursuing the termination agenda and guiding the body corporate in that direction? 
  • ·  Was there another way that the issues could have been resolved that didn’t cost the body corporate hundreds of thousands of dollars?

I suspect you know what we think.

Engaging in litigation remains something that should be a very last resort. The body corporate opened itself to litigation when it pressed ahead with the issuing of the Remedial Action Notices.  In a management rights sense, issuing a Remedial Action Notice is an incredibly hostile act and when issuing one a body corporate needs to be prepared to have proceedings filed against it. 

We think the ultimate test when you are representing the interests of others is to look at the spending as if it were your own money. If you were spending it from your own pocket, would you contemplate the action?  Can you put your hand on your heart and say it was necessary and there was no other choice?

All very interesting questions. 

For those that are interested, you can read the judgement here.