End of Year Update from QLD

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During our discussions with many Body Corporate Managers all over Queensland this year, there were many interesting matters raised which probably wouldn’t grab the headlines in most industry publications. However, this goes to show what a diverse, technical and changing environment the Body Corporate industry is. We take a look at some of these issues below.

The Personal Property Securities Act 2009 (Cth) (“the PPSA”) and Bodies Corporate

One of the effects of the implementation of the PPSA was the centralisation of the registration of “Security Interests” in personal property (including shares in companies) into one register, the Personal Properties Securities Register (“the PPSR”). The implication of the establishment of the PPSR is that only security interest which are recorded on the register will be enforceable in respect of competing claims over the personal property in question. In this sense, the concept of “title” to personal property can be rendered irrelevant, particularly in circumstances where the party in possession of the items suffers an insolvency event.

This has potential consequences for Bodies Corporate that have items of personal property, such as gardening or cleaning equipment, which are used by the Resident Caretaker to maintain the Common Property and such Body Corporate assets are within the Caretaker’s possession or stored in a location that is under the Caretaker’s occupation authority. If the Caretaker should become insolvent, the Liquidator or Trustee may deem this equipment as property of the Caretaker that is available for sale to repay the Caretaker’s creditors, unless the Body Corporate’s security interest over the goods is registered. Bodies Corporate should seek legal advice in relation to the agreements required between the Body Corporate and the Caretaker in respect of the use of Body Corporate assets as well as the necessary registration of the Body Corporate’s security interest in these assets.

Another area where Bodies Corporate may be affected by the PPSA is where the lot owners in the Body Corporate are also shareholders in a related Company. We all deal with a variety of structures in Bodies Corporate, some of which involve related Corporations which the lot owners are shareholders in. 

Prior to the PPSA, the sale of lots in schemes which have associated companies which also involved a transfer of shares would require (assuming that there are outgoing and incoming mortgagees) the registration of a release of the company charge from the outgoing mortgagee and a company charge for the incoming mortgagee on the ASIC register.

Since the PPSA, Body Corporate Managers are likely to start seeing Notices of a Security Interest under the PPSA. The Notice requires the Company’s Officers to:

  • Deliver to the incoming mortgagee the Share Certificates, which will be issued to the purchasers upon settlement;
  • Acknowledge receipt of the Notice; and 
  • Certify that the Company has not received any prior notice of any dealings affecting the purchasers’ interest in the shares.

The Company’s records should be reviewed before the Officers certify that the Company has had no prior notice of dealings affecting the shares. While the actual shares have not been issued yet, Security Interest Agreements can provide for security interests to be granted in property that is acquired after the date of the agreement. Therefore, the Company’s Officers should not simply rely on the fact that the shares haven’t been issued as guaranteeing that the Company has not received any prior notice of dealings affecting the shares. Body Corporate Managers should recommend in writing that Company Officers obtain their own independent legal advice if they have any issues surrounding PPSA matters including Notices of a Security Interest.

The Act is quite technical and can be confusing as well as problematic in practical matters like effecting settlements of purchases involving personal property.

BUGTA and levies

For Schemes which are still goverend by the Building Units and Group Titles Act, there are a few subtle but important differences in the way in which levies are recovered, discounts are applied and penalties are imposed.

Under Section 32 of BUGTA, the discount of not more than 20% of the amount of the levies must be applied if the levies are paid within 30 days of the due date. Therefore, unlike the situation under the BCCMA, where the discounts are applicable to early payments of levies, under BUGTA, the levies may be overdue for up to 30 days and still be amenable to a discount. Additionally, unlike the statutory right to recover penalty interest and reasonable recovery costs under the BCCMA, BUGTA is silent on these matters (which are usually provided for in the scheme’s by-laws).

The dispute resolution procedures provided under BUGTA are also different to those under the BCCMA, so care should always be taken to ensure that any dispute resolution or debt recovery proceedings are commenced in the proper judisdiction. For example, debt recovery proceedings may only be commenced in a court of competant jurisdiction.

A failure to commence proceedings in the correct jurisdiction is not only likely to render that proceeding to be summarily dismissed, it may even entitle the other paty to claim its costs of defending the matter in the wrong jurisdiction. The Body Corporate will then be required to commence proceedings all over again in the correct jurisdiction. The Body Corporate’s costs thrown away in commencing proceedings in the incorrect jurisdiction will not be “reasonably incurred recovery costs” and will therefore not be recoverable by the Body Corporate.

Potential personal liability for committee members acting outside of their authority

The recent Queensland Cout of Appeal case of Famestock Pty Ltd v The Body Corporate for No 9 Port Douglas Road [2013] QCA 354 serves as a timely reminder of the potential personal liability of committee members, despite the fact that the committee members were not a party to the action and there was no mention of a separate action against the committee members in this case.

Key facts

  • Resident Caretaker and Letting Agent allowed its conditional real estate agent’s licence to expire, thus breaching the Caretaking and Letting Agreements
  • The Committee became aware of the breach and purported to terminate the Management Rights without obtaining the authorty of the Body Corprate at General Meeting as required under Section 127 of the Accomodation Regulation Module
  • Resident Caretaker applied for a new conditional real estate agent’s licence
  • The Office Of Fair Trading refused the Resident Caretaker’s application on the grounds that the Resident Caretaker’s Management Rights had been terminated 

Main issues

  • Whether there was a breach by the Body Corporate of the implied contractual duty to act in good faith by the committee chairperson informing the Office of Fair Trading of the Body Corporate’s intention to terminate the Management Rights, which contributed to the failure of the Resident Caretaker’s application for a new licence 
  • Whether the Body Corporate could be held responsible for the unauthorised actions of the Committee in purporting to terminate the Management Rights and therefore be liable to the Resident Caretaker for its losses resulting from the unlawful termination of the Management Rights

Decision

  • Whilst there is an implied duty of good faith, this does not apply in circumstances where the other party has breached the agreement
  • The Body Corporate was not responsible for the unauthorised actions of the committee and therefore was also not responsible for the Resident Caretaker’s damages. This was because the Resident Caretaker was in a position to know that the requisite motion had not been passed at a general meeting to terminate the agreement and therefore knew that the committee had no actual or apparent authority to bind the Body Corporate by the committee’s decision.

Potential implications for committee members 

Where there is a clear case that a committee has acted without the appropriate authority and another party suffers damage as a result of such breach, there is the possibility that the other party will seek damages against the committee members personally (particularly in cases such as the above where the Body Corporate is held not to be liable for the committee’s actions). The limited “immunity” of committee members from civil proceedings does not extend to circumstances where the committee has acted in bad faith or negligently. Committee members should be extremely careful when making decisions that they ensure such decisions are within the committee’s power and should seek legal advice where neceessary.  Committee members should also check:

  • That they have office bearer’s insurance in place; and 
  • That they are individually aware of the terms of the policy such as the types of claims for which they are covered as well as the policy exclusions, for which they will not be covered. 

If committee members do not take the above precautions, they may be facing the possibility of stressful, costly litigation arising out of their voluntary, unpaid service on behalf of the Body Corporate.