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Fischer v Body Corporate for Centrepoint Community Title Scheme 7779

 

[2004] QCA 214

Reported at [2004] 2 Qd R 638

 

SUPREME COURT OF QUEENSLAND

 

CITATION:

Fischer & Ors v Body Corporate for Centrepoint Community Title Scheme 7779 [2004] QCA 214

PARTIES:

WARREN FISCHER
(first applicant/first applicant)
MARK STEGMAN
(second applicant)
MARGARET SHERIDAN
(third applicant/second applicant)
GERARD AND MAREE TIERNEY
(fourth applicant/third applicant)
RICHARD AND ELAINE MIDGLEY
(fifth applicant/fourth applicant)
BRUCE WATSON
(sixth applicant)
PATRICK AND DIANNE WILKINS
(seventh applicant)
DONALD AND ANGELA HAYES
(eighth applicant)
PHILLIP AND MARIE WOOLSTON
(ninth applicant/fifth applicant)

WOOLSTON HOLDINGS PTY LTD
(ACN 100 890 757)
(tenth applicant/sixth applicant)

v

BODY CORPORATE FOR CENTREPOINT COMMUNITY TITLE SCHEME 7779
(respondent/respondent)

FILE NO:

Appeal No 2294 of 2004

DC No 391 of 2003

DIVISION:

Court of Appeal

PROCEEDING:

Application for Leave s 118 DCA (Civil)

ORIGINATING COURT:

District Court at Brisbane

DELIVERED ON:

25 June 2004

DELIVERED AT:

Brisbane

HEARING DATE:

1 June 2004

JUDGES:

McPherson JA and Chesterman and Atkinson JJ

Separate reasons for judgment of each member of the Court, each concurring as to the orders made

ORDERS:

1.Application for leave to appeal granted

2.Appeal allowed

3.Order of District Court set aside

4.Order that the lot entitlement contribution scheme for Centrepoint CTS 7779 be adjusted so that the respective contribution lot entitlements recorded in the community management scheme are those set out in paragraph [36] of these reasons

5.Respondent to pay the applicants’ costs of the application for leave to appeal and of the appeal

CATCHWORDS:

STRATA AND RELATED TITLES AND OCCUPANCY – BODY CORPORATE – POWERS, DUTIES AND LIABILITIES – where applicants appealing from a decision of the District Court made under s 48(1) of the Body Corporate and Community Management Act 1997 (Qld) concerning adjustments to contribution schedule lot entitlements – whether leave to appeal should be granted – whether contributions should be adjusted to make them ‘just and equitable’

Building Units and Group Titles Act 1980 (Qld)

Body Corporate and Community Management Act 1997 (Qld), s  47, s 48, s 49

Body Corporate and Community Management and Other Legislation Amendment Act 2003 (Qld), s 10

COUNSEL:

Mr R G Bain QC, with Mr D L K Atkinson, for the applicants

Mr R A Perry for the respondent

SOLICITORS:

Kinneally Miley for the applicants

Quinn & Scattini for the respondent

  1. McPHERSON JA:  I agree with the reasons of Chesterman J, which I have had the advantage of reading.
  1. The appeal should be allowed with costs; the order of the District Court should be set aside; instead, the lot entitlement contribution schedule should be ordered to be adjusted as set out in the reasons of Chesterman J.
  1. CHESTERMAN J: The applicants for leave to appeal are owners of lots in an apartment building known as Centrepoint which is located at 69 Leichhardt Street, Spring Hill.  Centrepoint consists of two towers, all the lots in which are residential.  One tower contains 20 apartments and the other 31.  As well there are three levels of underground car parks.  Of the 51 apartments, six have one bedroom, 28 have two and 17 are three bedroomed.  They vary in size.  The smallest is 81 square metres in extent, and the largest, 241 square metres.  The common area contains a number of amenities for lot owners and their guests.  These include a sauna, a swimming pool and a games room.  The respondent, the body corporate for Centrepoint, was originally incorporated pursuant to the Building Units and Group Titles Act 1980 (Qld) and titles to the lots in the buildings were granted pursuant to that Act.  It provided that the owners of the realty comprising the residential lot had an entitlement to ‘lots’ which determined the proportionate share of the lot owner to the common property and to the contributions to be paid for the costs of maintaining and providing services to the building.
  1. To avoid confusion in use of the word ‘lot’ – which means both the real property represented by the residential unit and the designated number representing the obligation to contribute to body corporate expenses – I will use the word ‘apartment’ to refer to the former use and the word ‘lot’ to refer to numbers in the contribution schedule, which will be described shortly.
  1. The Building Units and Group Titles Act was repealed in 1997 and replaced by the Body Corporate and Community Management Act 1997 (Qld) (‘the Act’), which provides that there should be two sets of ‘lot entitlements’ for each apartment in a community titles scheme, formerly a building units plan.  The two sets were ‘contribution schedule lots’ and ‘interest schedule lots’.  The former is the means by which the respective contributions of the apartment owners to the maintenance cost of the building are determined.  The interest schedule is the means by which the respective owners’ interests in the common property are determined.  In each case there is a schedule of lot entitlements which consists of a whole number allocated to each apartment. 
  1. To determine the amount of an apartment owner’s contribution to expenses the total of body corporate expenses is divided by the total number of contribution lots. The quotient is then multiplied by the number of contribution lots in respect of each apartment to arrive at the respective amounts to be paid.
  1. The respondent, having been incorporated under the Building Units and Group Titles Act, has only one schedule of lot entitlements.  That schedule is taken to be both the contribution schedule lot entitlement and the interest schedule lot entitlement for the purposes of the Act. 
  1. Section 48 of the Act provides that the owner of a lot may apply to the District Court for an order for the adjustment of a lot entitlement schedule.
  1. By an application dated 10 February 2003 the applicants applied for an order varying the contribution entitlement schedule of the respondent. The application was heard on 28 and 29 January 2004 and dismissed on 13 February 2004. The applicants seek leave to appeal against the dismissal of their application.
  1. The Act was amended by the Body Corporate and Community Management and Other Legislation Amendment Act 2003 (Qld) (‘the 2003 Act’), which came into effect on 4 March 2003.  It was thus the Act as amended which contained the relevant law when the District Court came to decide the application.  This is not controversial but some of the amendments made are referred to as assisting in the proper construction of the Act.
  1. Section 47 of the Act provides:

‘(1)This section states the general principles for the application of lot entitlements to a community titles scheme, but has effect subject to provisions of this Act providing more specifically for the application of lot entitlements.

(2)The contribution schedule lot entitlement … is the basis for calculating –

(a)the lot owner’s share of amounts levied by the body corporate, unless the extent of the lot owner’s obligation to contribute to a levy for a particular purpose is specifically otherwise provided for in this Act;  and

(b)the value of the lot owner’s vote for voting on an ordinary resolution if a poll is conducted for voting on the resolution.

(3)The interest schedule lot entitlement … is the basis for calculating –

(a)the lot owner’s share of common property;  and

(b)the lot owner’s interest on termination of the scheme, including … body corporate assets …; and

(c)the unimproved value … for the purpose of a … rate or [land] tax ...

(4)Neither the contribution schedule lot entitlement nor the interest schedule lot entitlement … is used for the calculation of the liability of the owner … of the lot for the supply of a utility service … if the amount of the … service supplied … is capable of separate measurement, and the owner … is billed directly.’

  1. Section 48 provides:

‘(1)The owner of a lot … may apply –

(a)to the District Court for an order for the adjustment of a lot entitlement schedule; or

(b)

(4)The order of the court … must be consistent with –

(a)if the order is about the contribution schedule – the principle stated in subsection (5); or

(b)

(5)For the contribution schedule, the respective lot entitlements should be equal, except to the extent to which it is just and equitable in the circumstances for them not to be equal.’

  1. Section 49 provides relevantly:

‘(1)This section applies if an application is made for an order … for the adjustment of a lot entitlement schedule. 

(2)This section sets out matters to which the court … may, and may not, have regard for deciding –

(a)for a contribution schedule – if it is just and equitable in the circumstances for the respective lot entitlements not to be equal; and

(b)

(3)However, the matters the court … may have regard to … are not limited to the matters stated in this section.

(4)The court … may have regard to –

(a)how the community titles scheme is structured;  and

(b)the nature, features and characteristics of the lots included in the scheme;  and

(c)the purposes for which the lots are used.

(5)The court … may not have regard to any knowledge or understanding the applicant had, or any lack of knowledge or misunderstanding on the part of the applicant, at the relevant time, about –

(a)the lot entitlement for the subject lot or other lots included in the … scheme;  or

(b)the purposes for which a lot entitlement is used.’

The ‘relevant time’ is that at which an applicant contracted to buy his lot which is designated the ‘subject lot’.

  1. The applicants and the respondent respectively called a witness who was knowledgeable about the types of costs incurred by building owners and bodies corporate in maintaining and providing services to those who inhabit the buildings and the means by which those costs might be allocated between apartment owners. There was little difference in the evidence given by the respective experts. To a large extent they performed a mechanical exercise: identifying the relevant costs, categorising them and then allocating them among the lot owners at Centrepoint.
  1. It was common ground that the existing lot entitlements, deriving as they do from the Building Units and Group Titles Act, are not equal.  There is a degree of arbitrariness between the allocation of lot entitlements to the various apartments.  Both experts agreed that the present allocation of lots, and therefore the percentage of burden of contributing to maintenance, is not ‘just and equitable’.  The approach taken by both experts was identical in methodology and varied in result in only one particular. 
  1. The approach taken to the allocation of lot entitlements appears from the report of Mr Sheehan who gave evidence on behalf of the applicants. At pages 8 and 9 of his report he wrote:

‘Certain administrative and sinking fund items should not be shared on an equal basis amongst all lots …  Certain lots within the scheme place a greater demand for the underlying service then [sic] other lots …

8.1  Method 1 – Costs shared equally

There are certain administrative and sinking fund items that should be shared amongst all lots on an equal basis.  These items of expense either are directly proportional to the number of lots in the scheme (eg body corporate administration contract) or are fixed without reference to the number of lots (eg fee for preparation of a tax return).  No particular lot places any greater or lesser demand on the underlying services.

8.2  Method 2 – Support and shelter costs

The purpose of the structure of the building is to provide support and shelter to the lots. … The nature of the construction makes it appropriate to share the support and shelter costs based on the area of the lot in proportion to the total area of all lots.  Intuitively, if lot A is twice as big as lot B then it requires twice the support and shelter.

8.3  Method 3 – Potential accommodation factor (bedrooms)

Some costs are directly related to the use of the common property.  The use of the common property depends on – … the number of people who are resident …  The most logical determinant of the number of residents … is the number of bedrooms, …

8.4  Method 4 – Lift Costs

The lift costs deserve unique treatment as the 2 towers benefit in different ways from the existence of the lifts.  The costs associated with the provision of a working lift should be shared equally between the 2 towers and then equally between the lots in those towers. 

8.5  Method 5 – Lattice Costs

… only [some] lots have lattice.  …  I have allocated the costs of the lattice only to these lots.’

  1. The result of Mr Sheehan’s examination of the expenditure of the respondent body corporate, and his categorisation of that expenditure in accordance with the quoted description, produced a table which showed what percentage of the total costs should be allocated to each category. From this analysis Mr Sheehan was able to arrive at a table of appropriate lot entitlements for each lot. The precise mechanism by which this was done was not explained and was not necessary.
  1. Mr Linkhorn, who gave expert evidence for the respondent, adopted the same methodology. He differed only in that he allocated the costs of operating and maintaining the lifts separately between the apartments in each tower, though equally between the apartments in each. This produced a different set of lot entitlements but the difference is quite small.
  1. In reaching their conclusion that the existing contribution lot entitlement schedule is not ‘just and equitable,’ and that it would not be ‘just and equitable’ to make the lot entitlements in respect of all apartments equal, both Mr Sheehan and Mr Linkhorn had regard only to the expenses incurred by the respondent in operating and maintaining its buildings and the extent to which the apartments ‘consume’ those expenses differentially. The exercise undertaken, and the basis for the opinions as to the proper allocation of lot entitlements, did not go beyond identifying and classifying the extent to which different apartments placed greater financial burden on the body corporate than other apartments.
  1. The learned District Court judge thought that this approach was too narrow. His Honour considered that a determination of lot entitlements among apartment owners could take other factors into account. Having considered other factors his Honour concluded that it was just and equitable to depart from the principle that all apartment owners should contribute equally to the expenses. He rejected the proposition, advanced by the experts, that any departure from the principle of equality should be determined only by ascertaining the extent to which the apartments differed in the consumption, and therefore cost of services, or the extent to which they gave rise to differing levels of expenditure by the body corporate.
  1. His Honour said [at 25-26]:

‘[48]Even though there was no evidence how the original lot entitlements were established, I am satisfied that the existing lot entitlements reflect a differentiation between the lots based on the size of the lot, number of bedrooms … and location of the lot in the building.  Further, this differentiation has been in existence since the Scheme’s inception. … 

[50][E]ven though Mr Sheehan and Mr Linkhorn used the size of a lot and the number of bedrooms in the lot, no weight appears to have been given … to the location of a particular lot.  In my opinion the nature, features and characteristics of a lot which is one of the matters the Court may have regard to when deciding just and equitable circumstances is wide enough to include the location of a lot. …  [T]here are two aspects …  These two aspects are the position of the lot in the building as in what level the lot is on and secondly the aspect that might be enjoyed by that particular lot.  …  [B]y definition Mr Sheehan and Mr Linkhorn have approached their task by considering the money required to fund the Body corporate’s expenses and have sought to determine the costs incurred because of a particular lot. …  I do not accept the Act demands the application of the user pays approach particularly when the application of size of the lot and number of bedrooms in the lot produces little by way of differentiation between the lots.  That is I do not accept the approach taken by Mr Sheehan or Mr Linkhorn gives any weight to the location of a particular lot … having regard to both aspects of location …’

  1. The first observation is not entirely accurate. The evidence showed that there was a degree of arbitrariness in the original allocation of lot entitlements. There was no distinct pattern though it could be said that, generally speaking, the higher an apartment was in the buildings the greater its entitlement. This probably reflects a connection between the value of the units and their lot entitlements.
  1. The learned judge also pointed out that an adjustment to the schedule of lot entitlements would probably have an effect on the value of apartments. No valuation had in fact been conducted, but an indicative approach to valuation put before his Honour showed that if apartments were valued by reference to rental income only, an increase in contributions to body corporate expenses would result in a loss of value, assuming that the required rate of return on investment remained the same.
  1. The point in issue is a narrow one. It is whether in determining an application for the adjustment of a contribution lot entitlement schedule and, in particular, in determining the extent to which it is just and equitable that respective lot entitlements not be equal, the enquiry is at large (save for the matter described in s 49(5)) or whether it is limited to matters which show how apartments differently affect the cost of running and maintaining a community titles scheme. The learned trial judge took the first view and thought it appropriate to consider the application by reference to the affect of the change on the value of apartments, and the amenity of the apartments. His Honour did so because of the terms of s 49(4), which provides that the court may have regard to the structure of the community titles scheme and the nature, features and characteristics of the apartments in the scheme. His Honour took the view, not unnaturally, that amenity and location were features or characteristics of apartments.
  1. The submission for the applicants is that this part of the Act is concerned with the just and equitable distribution of body corporate expenses among apartment owners and that in making an adjustment of a lot entitlement schedule the court must pay regard only to the origin and allocation of body corporate expenditure.
  1. Although the Act gives no clear indication one way or the other, the preferable view is that a contribution schedule should provide for equal contributions by apartment owners, except insofar as some apartments can be shown to give rise to particular costs to the body corporate which other apartments do not. That question, whether a schedule should be adjusted, is to be answered with regard to the demand made on the services and amenities provided by a body corporate to the respective apartments, or their contribution to the costs incurred by the body corporate. More general considerations of amenity, value or history are to be disregarded. What is at issue is the ‘equitable’ distribution of the costs.
  1. There are a number of reasons for this conclusion. The first is to be found in the terms of the Explanatory Notes which accompanied the 2003 Act and the content of the Second Reading Speech when the Bill for it was debated.  Because the meaning of the Act is unclear it is permissible to consult these materials.
  1. Section 10 of the 2003 Act inserted s 46(7) which is in these terms:

‘(7) For the contribution schedule for a scheme for which development approval is given after the commencement of this subsection, the respective lot entitlements must be equal, except to the extent to which it is just and equitable in the circumstances for them not to be equal.’

This replaced an earlier provision, which was repealed by the 2003 Act, to the effect that upon registration a community titles scheme did not have to provide for equal contribution lot entitlements.  Explaining the change the Note said:

‘The change is intended to reinforce the concept that usually all lot owners are equally responsible for the cost of upkeep of common property and for the running costs of the community titles scheme.  However, it is recognised that there are many valid instances where the contribution schedules do not have to be equal.  The amendment provides that usually the numbers in this schedule are equal, unless it can be demonstrated that it is just and equitable for there to be inequality.

The need for difference is best shown by examples.

Example 3  In a basic scheme, if all the lots are residential lots ranging in size from a small lot to a penthouse, the contribution schedule lot entitlements generally would be equal.  However, the contribution schedule may be different if the penthouse has its own swimming pool and private lift.  The contribution schedule should recognise this type of difference.  The other lots in the scheme despite being of differing size or aspect would be expected to have equal contribution schedule lot entitlements.’

  1. In the Second Reading Speech it was said:

‘The issue of the nature of the contributions schedule for a body corporate scheme has created some discussion.  The guiding principle for both setting and adjusting the contributions schedule is that it involves the equitable sharing of the costs of operating and maintaining the common property.  These costs should be borne in proportion to the benefit, not in proportion to the unit’s value.  It is not a contribution linked to an ability to pay, but as a payment for services. …  There is not an argument … against the fact that, in terms of costs related to a property’s value – costs such as rates and insurance – owners whose properties are worth more should pay more.  But when we are talking about those parts of a property where the benefits are shared more or less equally, we cannot apply the same formula.’

  1. These materials make it tolerably plain that the Act is intended to produce a contribution lot entitlement schedule which divides body corporate expenses equally except to the extent that the apartments disproportionately give rise to those expenses, or disproportionately consume services. That determination can only be made by reference to factors which have a financial impact or consequence on the body corporate. It cannot be affected by factors which go to an apartment’s value or amenity.
  1. Secondly, the nature of a contribution lot entitlement schedule itself suggests that the allocation of lot entitlements is to be made on the basis of the impact that individual apartments make upon the costs of operating and running a community titles scheme. Contribution lot entitlements determine the apartment’s share of the outgoings. The starting point is that the entitlements should be equal. A departure from that principle is allowable only where it is just, or fair, to recognise inequality. The departure must take as its reference point the proposition, from which it departs, that apartment owners should contribute equally to the costs of the building. The focus of the inquiry is the extent to which an apartment unequally causes costs to the body corporate.
  1. The third consideration is that if this principle not be the applicable one then there is no basis on which applications for adjustment of contribution lot entitlement schedules can consistently be made. As the evidence in this application shows, if the inquiry is limited to the extent to which an apartment creates costs, or consumes services, above or below the average, one can readily determine what the contribution lot entitlement should be. The high degree of similarity in the reports of Mr Sheehan and Mr Linkhorn demonstrates this. If the inquiry be wider and include such nebulous criteria as the structure of the scheme, or the nature, features and characteristics of the apartments in the scheme, and the purposes for which they are used, there is no intelligible basis on which there could be a consistent and coherent determination of applications for adjustment of lot entitlements. Each case would be determined idiosyncratically and a vast variety of circumstances might be relied upon to depart from, and therefore erode, the principle said to be paramount, that there should be an equality of entitlements.
  1. Accordingly I would construe s 49 of the Act, and in particular subsection (4), as meaning that those identified matters to which a court may have regard are to be regarded only to the extent, if any, that they affect the cost of operating a community titles scheme.
  1. The evidence adduced by both parties proceeded on this basis. It established that:
  • The present lot entitlement schedule is not equal.
  • The present lot entitlement schedule is not just and equitable.
  • An equal contribution lot entitlement schedule would not be just and equitable.
  • A contribution lot entitlement schedule in the terms compiled by Mr Sheehan or Mr Linkhorn would be just and equitable.
  1. The applicants indicated that they would accept an adjustment to the schedule to be in the terms appearing in the reports of either Mr Sheehan or Mr Linkhorn, or so that the lot entitlements were equal. I think it appropriate to order the adjustment to be in accordance with Mr Linkhorn’s schedule. The differences are small but his approach adjusted for the cost of the lifts with greater precision than did Mr Sheehan’s. As well the order will affect existing rights so that it is appropriate to make the least adjustment necessary to give effect to the principles required by the Act. By adopting the proposal advanced by the respondent’s witness this principle is respected.
  1. I would propose that the application for leave to appeal be granted and that the appeal be allowed. I would set aside the order of the District Court and instead order that the lot entitlement contribution schedule for Centrepoint CTS 7779 be adjusted so that the respective contribution lot entitlements recorded in the community management scheme be as follows:

Lot Number

Contribution Lot Entitlements

  Levy Per Entitlement

$19.18

1

189

2

198

3

192

4

194

5

192

6

194

7

190

8

197

9

192

10

192

11

193

12

189

13

190

14

191

15

191

16

193

17

189

18

198

19

192

20

191

21

198

22

204

23

192

24

191

25

195

26

202

27

192

28

191

29

193

30

201

31

192

32

196

33

185

34

185

35

207

36

198

37

185

38

185

39

206

40

197

41

185

42

185

43

206

44

219

45

209

46

211

47

207

48

211

49

207

50

211

51

207

TOTAL

       10000

  1. The respondent should pay the applicants’ costs of the application for leave to appeal and of the appeal.
  1. ATKINSON J:  I agree with the reasons for judgment of Chesterman J and the orders proposed.
Close

Editorial Notes

  • Published Case Name:

    Fischer & Ors v Body Corporate for Centrepoint Community Title Scheme 7779

  • Shortened Case Name:

    Fischer v Body Corporate for Centrepoint Community Title Scheme 7779

  • Reported Citation:

    [2004] 2 Qd R 638

  • MNC:

    [2004] QCA 214

  • Court:

    QCA

  • Judge(s):

    McPherson JA, Chesterman J, Atkinson J

  • Date:

    25 Jun 2004

Litigation History

Event Citation or File Date Notes
Primary Judgment NA - -
Appeal Determined [2004] 2 Qd R 638 25 Jun 2004 -

Appeal Status

{solid} Appeal Determined (QCA)