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 4Unit Titles Act 1970 (ACT) s 92Construction Occupations (Licensing) Act 2004 (ACT) ss 38, 46, 118Corporations Act 2001(Cth) s 191, 232

Cases cited: Filaria Pty Ltd v Proprietors of Unit Plan 932 [2000] ACTSC 8Lubransky v Owners Corporation No 1 PS519798G (Owners Corporations) [2014] VCAT 1301McKinnon v Adams [2003] VSC 116Owners 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 457Re Steele and the Conveyancing (Strata Titles) Act 1961 [1968] 2 NSWR 796

List of Texts/Papers cited: ARITA Code of Professional Practice (3rd edition)

Concise Australian Law Dictionary (4th 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 2016Date of Reasons for Decision: 19 January 2016

ACT CIVIL & ADMINISTRATIVE TRIBUNAL UT 15/29

MARGARET GRACIEApplicant

THE OWNERS UNITS PLAN 3411Respondent

STATEHAY PTY LTDParty Joined 1

BENJAMIN HALLParty Joined 2

PAUL WILSONParty Joined 3

ANN SULLIVANParty Joined 4

EMMA GREENWOODParty Joined 5

PETER STRASCHKO Party Joined 6

THET H. NAINGParty Joined 7

BI ZHILONGParty Joined 8

KATY GHASSEMIParty Joined 9

LIAM MURPHYParty Joined 10

CHRISTINE YOUNGParty Joined 11

CAITLIN O’CONNORParty Joined 12

SARA WEDGWOOD Party Joined 13

SYLVIA SAMPSONParty Joined 14

RUPSA NEOGY KUMARParty Joined 15

KEVIN CHOWParty Joined 16

CHUNG-LINH CHAUParty Joined 17

TRIBUNAL: Senior Member R Orr, QC

DATE: 19 January 2016

ORDER

The Tribunal orders:

1. 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’.

2. 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.

3. 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.

4. 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.

5. 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.

6. 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,

2

negotiating, entering into or implementing maintenance and service contracts to the extent that they relate to services provided to stage 1 of UP 4311.

7. 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.

8. The application for the appointment of an administrator is dismissed.

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

for and on behalf of the Tribunal

3

REASONS FOR DECISION

1. 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

2. 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. 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. 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

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 below3 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

4 Exhibit R1, statement of Julie Domazet, paragraphs 4-75 Application, paragraph 66 Exhibit PJ5-2, response of Emma Greenwood, paragraph 11(c) and

attachment C

4

5. 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.

6. 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

7. 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; 7 Application, attachment E, minutes of the annual general meeting8 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)

5

(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.

8. The Tribunal does not think it appropriate to appoint an administrator at this

time.

Hearing

9. 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.

10. 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

11. 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

12. Section 129 of the UTM Act relevantly provides as follows:

129 Kinds 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;

9 Benjamin Hall, Liam Murphy, Caitlin O’Connor, Sylvia Sampson and Chung-Linh Chau

10 Email to the Tribunal of 1 October 2015

6

…(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.

13. 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 administrator13

and make other orders.14

14. 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.

11 Section 129(1)(f) of the UTM Act12 Section 129(1)(g) of the UTM Act 13 Section 129(1)(k) and Part 10 of the UTM Act14 Section 129(2) of the UTM Act

7

15. 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

16. As noted this matter centred on the annual general meeting of the owners

corporation for UP 3411 which was held on 20 May 2015.

1. Insurance

17. 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

18. 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

19. 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.

15 See paragraph 68 below16 See paragraph 72 below17 Application, attachment E, minutes of the annual general meeting,

paragraph 618 Application, paragraph 17

8

2. Special purpose fund

20. 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.

21. 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

22. 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

19 Application, attachment E, minutes of the annual general meeting, paragraph 7d

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

9

the owners corporation is unable to pursue advice regarding building quality and

defects issues.22

23. 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.

24. 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.

25. 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 22 Application, paragraph 2023 Exhibit R1, statement of Ms Domazet, paragraphs 39-4024 Concise Australian Law Dictionary (4th 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

10

must comply with the code of conduct set out in schedule 1, part 1.1 of the

UTM Act29, 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.

26. 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.

27. 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.

28. 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

29 Section 46 of the UTM Act30 Peters’ American Delicacy Co Ltd v Heath (1939) 61 CLR 457 at 504,

Dixon J 31 Austin, R P and I M Ramsay, Ford, Austin and Ramsay’s Principles of

Corporations Law (16th edition, 2015) at [10.430] and following32 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)

11

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.

29. 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 order34 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.

30. 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.

31. 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.

32. To resolve the issue Statehay proposed an undertaking or order that it:

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

12

(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

33. 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.

34. 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.

3. Executive committee

35. 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

36 Exhibit R2, statement of facts and contentions of Statehay, paragraph 55

13

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

36. 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

37. 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.

38. 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).

39. 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

37 Application, attachment E, minutes of the annual general meeting, paragraph 8

38 Exhibit PJ5-1, statement of Ms Greenwood, paragraph 2

14

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.

4. Strata management contract

40. 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.

41. 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.

42. 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.

43. 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

39 Application, attachment E, minutes of the annual general meeting, paragraph 9

40 Application, attachment E, Minutes of the annual general meeting, paragraph 10.3

41 Application, paragraph 22

15

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

44. 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

45. 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

42 Application, paragraph 2343 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 345 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

46 Exhibit R1, statement of Ms Domazet, paragraph 4547 Exhibit R1, statement of Ms Domazet, paragraphs 46-4948 Exhibit R1, statement of Ms Domazet, paragraphs 50-55

16

situation. Even noting Ms Domazet’s concerns, City Strata Management and Mr

Maly appear to have done a good job.

46. 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.

47. 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.

5. Service contracts

48. 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. 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

49 Application, attachment E, minutes of the annual general meeting, paragraph 10.3

17

to stage 2, Central Park.50 PA&A apparently has common directors with

Statehay, namely Mr and Mrs Domazet.51

50. 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

51. 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.

6. Construction

52. 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

50 Application, paragraphs 25-2651 Exhibit R1, statement of Ms Domazet, paragraph 7052 Exhibit R1, statement of Ms Domazet, paragraph 7053 Exhibit R2, statement of facts and contentions of Statehay, paragraph

97; Exhibit R1, statement of Ms Domazet, paragraph 72

18

53. 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.

54. 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.

55. 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

56. 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).

57. 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

58. Section 140 deals with the functions of the administrator as follows:

(1) The administrator of an owners corporation has all the functions ofthe corporation to the exclusion of the corporation and its executivecommittee.

54 Application, attachment E, minutes of the annual general meeting, paragraph 10.3

55 Section 138(2)

19

59. 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.

60. 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.

61. 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 stated58:

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.

62. 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

56 [2002] ACTSC 8 (1 March 2002) 57 [2003] VSC 116 (16 April 2003)58 [2003] VSC 116 at [20-21]

20

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

63. 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.

64. 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.

65. 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

59 Application, paragraphs 31-3560 Exhibit R2, Statehay statement of facts and contentions, paragraphs

34-44 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

21

evidence, and he indicated that he had not been appointed such an administrator

before.

66. 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.

67. 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

68. 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 62 Murray, Michael and Jason Harris, Keay’s Insolvency: Personal and

Corporate Law and Practice (2011), [19.140]; ARITA Code of Professional Practice (3rd edition), at 6, Independence

63 Lubransky v Owners Corporation No 1 PS519798G (Owners Corporations) [2014] VCAT 1301 at [18]

22

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

69. 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.

70. There was no application made by Ms Gracie or any of the parties joined for

orders implementing such an administrative split.

71. 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

72. 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

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

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

23

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.

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

for and on behalf of the Tribunal

68 Exhibit R1, statement of Julie Domazet, paragraph 20

24

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

25