WHEN A WIN’S NOT QUITE A WIN

The adjudication decision of Hatlowe Heights [2024] QBCCMCmr 6 (Hatlowe Heights) gives rise to an interesting conundrum in the context of body corporate decision-making.

Facts

At the annual general meeting held on 1 December 2022 (AGM), the Body Corporate committee submitted a motion to enter into a new caretaking and letting agreement (Management Agreement) with the caretaking service contractor for the scheme (Caretaker).

The Management Agreement was prepared by the Body Corporate’s solicitors, and negotiated between the Caretaker and committee following the expiration of prior caretaking and letting agreements due to the Caretaker’s apparent failure to take up the next option period in the agreements.

As circumstances had it, an owner who stepped in to chair the AGM made a ruling to determine the motion to enter into the Management Agreement (Motion) out of order. The ruling was made on a couple of grounds, the main one being that the services under the Management Agreement exceeded the limit for major spending, and a second quote was not obtained and presented to owners at the AGM (Ruling).

The Ruling prevented a formal vote being taken on the Motion, though an examination of the secret votes revealed that, had the Motion been put to a vote at the AGM, it would have carried with the narrowest of margins, with 31 votes in favour, and 30 votes against.

Determination

The legal basis for the Ruling was swiftly rejected by the adjudicator, given section 163 of the Body Corporate and Community Management (Accommodation Module) 2020, relevantly provides (in part):

163 Quotes for major spending decided at general meeting

1. This section applies if—

1. a motion to be moved at a general meeting of the body corporate proposes the carrying out of work or the acquisition of personal property or services, including the engagement of a body corporate manager or service contractor, but not including the engagement of a service contractor who is also, or is to be, a letting agent; and
2. the cost of giving effect to the proposal is more than the relevant limit for major spending for the community titles scheme.

2. The owner of each lot must be given copies of at least 2 quotations for carrying out the work or supplying the personal property or services. (Emphasis added)

Clearly, it is not a requirement two obtain two quotations for the engagement of a ‘caretaking service contractor’ (i.e. a service contractor that also has letting rights). That part of the decision is relatively straightforward.

There were also a number of other grounds upon which the Body Corporate sought to justify the failure of the Motion to pass, including alleged voting irregularities. All such grounds were rejected by the adjudicator, who made orders declaring the Ruling void, and the Motion carried by ordinary resolution (Orders).

The Orders were made on 8 January 2024 – some 13 months after the AGM.

Outcome

A clear victory for the Caretaker? Well, yes, and no.

Despite the Orders, the adjudicator refused to make a third order requested by the Caretaker, which required the Body Corporate to execute the Management Agreement within seven (7) days.

Instead, the adjudicator noted the requirement under section 101(2) of the Body Corporate and Community Management Act 1997 for the committee to put into effect the lawful decisions of the Body Corporate, thereby considering such an order unnecessary. However, the adjudicator went a step further, stating in the final paragraph of the decision:

[130] If [the committee] is confident of its assertion that most owners are not in favour of engaging [the Caretaker] for a further 25-year term, not making that order also gives the body corporate the option of promptly convening an extraordinary general meeting to consider a motion to revoke the resolution deemed passed pursuant to motion 10 of the 1 December 2022 AGM, before implementing it. The effect of section 106 of the Accommodation Module is that once it has been passed, an ordinary resolution may be amended or revoked only by a resolution of the same type.

Such commentary was not the first occasion an adjudicator has expressed such a view. In the matter of Greenwich on Cordelia [2021] QBCCMCmr 412 (Greenwich on Cordelia), the adjudicator concluded in similar circumstances:

[89] It is, of course, open to the body corporate to call a further general meeting and pass a resolution to rescind AGM Motion 10 if a majority of owners have genuinely changed their minds since the 2020 AGM. However, unless that is done promptly, the committee has a statutory obligation to give effect to AGM Motion 10.

The committees in Hatlowe Heights and Greenwich on Cordelia did not execute the respective management agreement and deed of variation pursuant to the deemed resolutions and, instead, in one instance, called an extraordinary general meeting to rescind the earlier decision and, in the other, negotiated a different agreement with the caretaker (to put back up for consideration at a further general meeting).

Summary

Taken to their natural limits, the decisions in Greenwich on Cordelia and Hatlowe Heights suggest that any decision made at a general meeting need not be implemented provided the committee ‘promptly’ call another general meeting to consider a motion to rescind the earlier decision.

Whilst the cases support the authority for that proposition, any committee considering doing so should tread very cautiously. The actions of the committees in Greenwich on Cordelia and Hatlowe Heights were not subsequently challenged, as it appears the caretakers in those matters did not have the appetite for further litigation and, instead, sought to resolve the matters on a commercial basis.

In circumstances where the subsequent general meeting overturns the earlier decision of the body corporate, issues arise in relation to the reasonableness of that subsequent decision, as well as potential breaches of statutory duty. In such circumstances, it seems open for an aggrieved caretaker, or other proponent of the earlier decision, to seek redress through legal proceedings. Depending on the nature of the motion in question, such proceedings might also include a claim for damages. Whilst the prospects of any such legal action would be novel, and no successful outcome would be guaranteed, protracted and costly litigation is obviously best avoided where possible.

Conclusion

There was an opportunity for the adjudicators in Greenwich on Cordelia and Hatlowe Heights to provide a greater degree of finality in the proceedings. Instead, it seems flexibility in body corporate decision-making, and the ability for owners to change their collective mind, were given priority.

From the caretakers’ perspectives, and those owners that supported the original motions, sometimes a win is not quite a win.

Article contributed by Jarad Maher, Partner, Grace Lawyers