Franklin v Body Corporate for La Porte D'Or
[2004] QDC 154
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- Unreported Judgment
- Franklin v Body Corporate for La Porte D'Or[2004] QDC 154
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Franklin v Body Corporate for La Porte D'Or[2004] QDC 154
Franklin v Body Corporate for La Porte D'Or[2004] QDC 154
DISTRICT COURT OF QUEENSLAND
CITATION: | Franklin & Ors v Body Corporate for La Porte D’Or [2004] QDC 154 |
PARTIES: | JUDITH FRANKLIN and CAROLINE FLEMING and PETER O'CONNOR Applicants and BODY CORPORATE FOR LA PORTE D’OR CTS 12681 Respondent |
FILE NO: | 556 of 2002 |
PROCEEDING: | Application for adjustment of contribution schedule lot entitlements |
ORIGINATING COURT: |
District Court Southport |
DELIVERED ON: | 17 March 2004 |
DELIVERED AT: | Southport |
HEARING DATE: | 3 & 4 February 2004 |
JUDGE: | Robin QC DCJ |
ORDER: | Contribution schedule lot entitlements of lots 179 and 180 reduced from 100 to 40 |
CATCHWORDS: | Body Corporate and Community Management Act 1997 ss 46, 47, 48, 49, 50 – evidence of consequences of adjustment of contribution schedule held relevant, likewise expectations of lot owners other than applicants for reduction of their schedule lot entitlements. Cases cited: AEFK Properties Pty Ltd v Fiona Lin, Southport 379 of 1999, 5 April 2000 Application by I J Banks and L J Banks in respect of “Noosa On The Beach” community title scheme 6417, Maroochydore application 96 of 1999 Burnitt Investments Pty Ltd v Body Corporate for St Andrews Community Titles Scheme 20508 [2002] QDC 006 Ciriello v Panitz Centre Building Units Plan 3894 (1999) 20 QLR 138 Deltaline Properties Pty Ltd v Body Corporate for Surfers Hawaiian Community Titles Scheme 5682 (0296/2003, 27 November 2003, G F Bugden) Lupton v Hodge, Southport 138/2003, 9 March 2004 Peter Rogers v The Body Corporate for Taree Lodge and Beryl Hogan, 20 November 2003, Warren D Fischer Sandhurst Trustees Ltd v Condah Bay Investments Pty Ltd [2003] QDC 438 |
COUNSEL: | Mr G.J Radcliff for the Applicants Mr R.A Perry for the Respondent |
SOLICITORS: | Czaus Lawyers for the Applicants Quinn & Scattini for the Defendant |
- [1]These are the Court’s reasons for the making of the following order at the conclusion of a hearing which took place on 3 and 4 February 2004:
“Pursuant to s 48 of the Body Corporate and Community Management Act 1997 the Court orders that the contribution schedule lot entitlement of each of Lot 179 and Lot 180 be adjusted from 100 to 40 in each case, the aggregate of such entitlements being reduced from 6881 to 6761 accordingly.
Otherwise the contribution schedule lot entitlements in respect of the Body Corporate for La Porte D’Or CTS 12681 remain unchanged.”
- [2]The body corporate governs the affairs of a well-known apartment block at the north of Surfers Paradise, better known by its English name of Golden Gate. It was constructed in the middle 1970s and contains more than 180 lots, a small number only of which are non-residential. The non-residential lots include a large ground-floor restaurant which has been unused for some years (one might hypothesise that the lack of dedicated parking facilities has something to do with the failure of the restaurant to thrive in recent times).
- [3]The 33rd floor of the building gives access to the lower level of four penthouses, Lots 179-182 inclusive. The applicant, Ms Franklin, is the owner of Lot 179; her fellow-applicants own Lot 180. The Court heard that the owners of Lots 181 and 182 (indeed, of any other lot) did not wish to make common cause with the applicants, who seek adjustment of the contribution schedule lot entitlements pursuant to s 48 of the Body Corporate and Community Management Act 1997 (the Act).
- [4]At one stage Mr Russell Eric Williams, who gave evidence by telephone, elected to become a respondent under s 48(2)(b) of the Act; he has since withdrawn from any role as a separate party, leaving it to the body corporate to respond under subsection (2)(a).
- [5]Under earlier legislation permitting the establishment of body corporates there was a single lot entitlement schedule which indicated the relative beneficial ownership of the aggregate development, voting rights and liability to contribute to body corporate expenses of the lot owners. The hypothetical lot owner would like to see the lot entitlement lower rather than higher from the point of view of its being the basis for contributions and levies, and higher, rather than lower, from the point of view of the share to be enjoyed if the whole community title arrangement came to an end on destruction of the building(s) or sale of all of the lots. My suspicion is that, except in some special instances, where voting power might really matter, experience has led individual lot owners to the view that there is no particular practical advantage flowing from an enhanced franchise.
- [6]Many developments occurred on the abovementioned basis. No doubt those involved became accustomed to them and regulated their affairs accordingly. A moment’s thought would suggest that changes to the established order of things might be unwelcome, even unsustainable for many. This might be for financial reasons.
- [7]Under the Body Corporate and Community Management Act 1997, a lot in a community titles scheme has both a contribution schedule lot entitlement and an interest schedule lot entitlement. Speaking generally, by s 47 the former indicates the relative extent of the lot owner’s obligation to contribute to levies and voting rights in respect of ordinary resolutions. S 46(7) indicates that for new schemes 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”. The interest schedule lot entitlements by s 47(3) are the basis for calculating the lot owner’s share of common property and the lot owner’s interest on termination of the scheme, also the unimproved value of the lot, for purposes of land tax and rates; s 48(6) indicates that the respective lot entitlements should reflect the respective market values of the lots included in the scheme.
- [8]Setting aside those special situations in which voting control within the body corporate is important, an example of which is Ciriello v Panitz Centre Building Units Plan 3894 (1999) 20 QLR 138, originating application 67 of 1997 (Southport), 12.11.99, Judge Brabazon QC, it will normally suit a lot owner to have a higher interest schedule lot entitlement and a lower contribution schedule lot entitlement. Now that the Court or a specialist adjudicator may order adjustment of lot entitlement schedules under s 48 of the Act, the typical application encountered appears to be one for reduction of contribution schedule lot entitlements designed to reduce the applicant’s proportionate responsibility for body corporate levies. (Ciriello was a special case, in which the applicants successfully sought increases against their lots in both schedules.)
- [9]As to the contribution schedule, by s 48(4) and (5), the order of the Court must be consistent with, “…the principle (that)… 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”. While there are instances of adjusting orders made that introduce equality (as in Ciriello) the typical outcome appears to be that some measure of differentiation among lots is considered ‘just and equitable’.
- [10]The Court was referred to two decisions of specialist adjudicators, Deltaline Properties Pty Ltd v Body Corporate for Surfers Hawaiian Community Titles Scheme 5682 (0296/2003, 27 November 2003, G F Bugden) and Peter Rogers v The Body Corporate for Taree Lodge and Beryl Hogan (20 November 2003, Warren D Fischer). In the latter, contribution schedule lot entitlements were adjusted so that one was 610, one 611, eight were 612, two 613, and one each were 617, 622, 623 and 795. In Deltaline, the outcome was that 63 lots were assigned a contribution schedule of entitlement of 10, the other lot being assigned an entitlement of 11; i.e. it was considered ‘just and equitable’ to depart from equality by a 10% loading in respect of one of 64 lots.
- [11]If Mr Bugden, who is an experienced writer in the field of body corporate law, is correct, Deltaline Properties establishes that it is permissible to apply again and again for adjustments of lot entitlements. The applicant before him was, I understand, a successor in title to the owner of the same penthouse unit which had previously successfully applied to this Court for an approximately 25% reduction in its contribution schedule lot entitlement in AEFK Properties Pty Ltd v Fiona Lin, Southport 379 of 1999, 5 April 2000. No opposition emerged to the applicant’s proposal, except from Ms Lin, who withdrew. The Court made an order in terms of a table of lot entitlements prepared by an ‘expert’ in the field, Mr Stewart, which he asserted was ‘just and equitable’, in line with his considerable experience; the relative liabilities of some units lower in the building were increased by up to 50%. The Court’s orders coming into effect was deferred for 28 days, to permit all lot owners to be notified of the order within seven days and within seven days from notification to apply for variation of the order. No such application was made.
- [12]In Burnitt Investments Pty Ltd v Body Corporate for St Andrews Community Titles Scheme 20508 [2002] QDC 006, the ‘just and equitable’ outcome was not equality, rather reduction of the applicant’s lot entitlement of 32 to 10, where each of the other 33 separate lots in the scheme had an entitlement of one, rather than equality – essentially, the applicant had been responsible for about half of the contributions required to the body corporate, but received no benefit.
- [13]A practice appears to have developed of applications such as the present becoming the occasion for a wholesale review of the relevant lot entitlement schedule, notwithstanding that the applicant’s real interest and concern relates only to the applicant’s own contribution (or interest) schedule lot entitlement, and that, for all that appears, other lot owners are content with the status quo. The application proposes a completely revised contribution schedule affecting all 186 lots.
- [14]In Sandhurst Trustees Ltd v Condah Bay Investments Pty Ltd [2003] QDC 438 the respondent lot owners took the stance that some adjustment was appropriate; they presented an expert report of Mr Linkhorn proposing new contribution schedule lot entitlements for the 183 lots which were different from those proposed by the applicant’s expert, Mr Sheahan. Neither recommended equality, but Mr Sheahan moved closer to equality than his opposite number, with the consequence that the applicant’s contributions, from being much higher than the average, were to become much lower. My view was that the approaches of both (like a wide range of approaches that might be taken) could be regarded as ‘just and equitable’. I considered it particularly significant that the respondents were agreed in supporting Mr Linkhorn’s proposals – absent which, “there might be difficult issues here about changing the status quo adversely to the interests of lot owners indicating satisfaction with it”. In the circumstances, I considered that notwithstanding the Act’s strong policy of equality, “with so many lot owners involved, having disparate interests, an outcome which changes the status quo less, rather than more, seems preferable”.
- [15]In Application by I J Banks and L J Banks in respect of “Noosa On The Beach” community title scheme 6417, Maroochydore application 96 of 1999, 14 December 1999, Judge Dodds, in respect of a scheme incorporating 31 lots, said in reference to a report obtained by the applicants (having refused to consider two other reports obtained by the body corporate for reasons which he gave) said:
“I propose to act on the Stewart report. I am satisfied that it is just and equitable the lot entitlements in the scheme be not equal. For the reasons in Stewart’s report the lot entitlements he suggests appear just and equitable. The present lot entitlements plainly are not.”
- [16]In the present application, the applicants relied on the views of Ms Arkcoll (who did not support equality), and she was cross-examined by Mr Perry, representing the body corporate (now identified by the Act as the proper respondent, the way being left open for individual lot owners to elect to participate directly). The body corporate obtained a report from Mr Linkhorn which, like Ms Arkcoll’s work, reallocated lot entitlements throughout the building, albeit not as favourably from the point of view of the applicants and proprietors of the other penthouses. Neither of them favoured equality. Mr Linkhorn was not cross-examined, but Mr Radcliff, for the applicants, made it clear that this was not because there was no challenge to his views. It was because the parties, with some encouragement from the Court, had arrived at a resolution of the application which both sides found acceptable.
- [17]The body corporate’s position was not that Mr Linkhorn’s views should be endorsed by the Court in an order: its position was that the contribution schedule lot entitlements should not be changed.
- [18]The resolution reached, which appears in paragraph [1], was one the Court was happy to endorse; it interfered with the status quo only minimally, representing success for the applicants, in that their lot entitlements are significantly reduced, but otherwise preservation of the long-standing status quo, which, for all that appears, suits the requirements of all lot owners, other than the applicants. There is no occasion to change lot entitlements of the other penthouse owners, invited to support the application, but not interested in doing so.
- [19]Only Mr Williams elected to be joined in the application as a respondent, and supporter of the existing contribution schedule lot entitlements. Although he withdrew as a respondent, he provided the Court with an affidavit whose contents, it seems to me, would be broadly typical of the views of many more lot owners. He works as a radio-technical officer employed in the Commonwealth Public Service; he and his wife purchased a one-bedroom unit in Golden Gate in November 2001, knowing what the lot entitlements were and what the liability for contributions in the form of annual fees would be or was likely to be, there being no suggestion at that time that there would be any increases, except of the kind attributable to inflation. The applicants’ proposal boded to increase the Williams’ contributions from $3,492 per annum by more than $833 per annum. They are in their fifties, expecting to move to the building some time next year “in semi-retirement”. Mr Williams says that “As a future retiree I am greatly concerned by the added financial burden that I will be required to bear whilst on a reduced income”, describing a situation that may apply for many years to come.
- [20]I rejected Mr Radcliff’s submissions that evidence of this kind was inadmissible. In my opinion, evidence as to the legitimate expectations of lot owners is most germane to an exercise in which the Court must determine what is ‘just and equitable’; that s 49(5) precludes reference to the understanding of the applicant tends to reinforce the propriety of having regard to the knowledge and understanding of other lot owners. There was before the Court material from other lot owners similar to that from Mr Williams. I accept that evidence.
- [21]Ms Arkcoll’s approach would result in some lot owners facing additional contribution liability in amounts that are multiples of the sum mentioned by Mr Williams. The interference with expectations is qualitatively more drastic in the case of those who bought in before the 1997 Act. They would have had no reason to anticipate adjustment of lot entitlement schedules. One lot owner whose contributions bode to fall by more than a dollar per week (Ms Murray) deposes to her belief that “the proposal is grossly unfair and inequitable”. I accept that for some lot owners, either the Arkcoll proposal or the Linkhorn proposal would produce real financial hardship. Any financial detriment flowing from adjustment of the contribution schedule lot entitlements in respect of two lots only will have a minimal effect on the other lot owners, which the Court may reasonably disregard, especially as the body corporate, representing the interests of those affected, has agreed to it, as a way of resolving the present application.
- [22]It might be noted that s 50 of the Act leaves it open to the owners of two or more lots to agree in writing to change lot entitlements, provided the aggregate lot entitlement of the lots involved is not changed. The acceptability of “tinkering” in that way is consistent with the outcome of this application, with the notion that changing of lot entitlements may occur otherwise than in a wholesale revision of entitlements of all lots.
- [23]S 49(3) of the Act, in my view, leaves it open to the Court to receive and act upon evidence of the consequences of proposed adjustments to lot entitlements. Subsection (4)(b), entitling the Court to have regard to “the nature, features and characteristics of the lots included in the scheme”, makes relevant (but not, of course, determinative) matters such as the relative sizes of lots and their location in the building.
- [24]In introducing the Bill which became the Act, the Minister said (Hansard 9 May 1997, 1806), having noted concerns expressed in Parliament regarding various issues – including exclusive use by-laws and management agreements:
“The legislation will address these problems in the future. However, I have some concerns about redressing the problems of the past. That is where it gets difficult. There is no doubt that this legislation is for the future. However, we are trying to mop up any problems and we are trying to do that without changing or affecting people’s vested rights.”
- [25]A general intention not to change or affect people’s vested rights is no less than one would ordinarily expect of the legislature. That apart, established rights and expectations in my opinion are pertinent in the making of judgments about what is ‘just and equitable’. Although framed more widely, the application before the Court calls only for adjustment of the applicants’ position. I think there is no call for a review of the relativities affecting 180 or so other lots, whose owners are content with the status quo.
- [26]The existing lot entitlements in Golden Gate roughly reflect areas of the lots, although the multipliers applied vary in a range exceeding three to four. There are special considerations affecting commercial lots. An area-based approach seems reasonable, for purposes of assessing contributions given that, by and large, larger units will account for larger areas of walls, roof and windows to clean. In my view, it is common sense that lots containing more bedrooms will generate more wear and tear upon the common property. There is no occasion here to adjudicate as between Mr Linkhorn’s “accommodation potential” approach, which regards every bed as potentially occupied for the purpose of making calculations, and Ms Arkcoll’s highly simplistic one, which tends to treat lots as essentially equivalent, however many bedrooms they have. There was some inconclusive statistical material (the implications of which really were unclear) regarding occupancy. I am aware of local government planning schemes which define the population density in terms of two persons for the first bedroom and one person for each additional bedroom; such an approach may be thought to produce a more ‘accurate’ comparison, assuming that it is realistic to hope for accuracy or anything like it.
- [27]The Court, in approving the resolution reached by the present parties, makes it clear that no precedent is being set, for example, as to what ought to be the lot entitlements of other penthouses. The Court was told that the considerations respecting all of them are not the same. For example, not all are required to maintain a swimming pool as a water reservoir to feed the fire sprinkler system in the building. If the adjustment to be made had come down to my decision, it may well not have gone as far as the parties’ “agreement” in reducing the applicants’ lot entitlements. However, I am satisfied that the agreement comes within the range of ‘just and equitable’ solutions within the Act.
- [28](My approach is indicated by paragraph [46] of reasons recently published in Lupton v Hodge, Southport 138/2003, 9 March 2004:
“[46] The purpose of subdivision 2 of division 4 of Part 19 of the Property Law Act 1974, as set out in s 282 is ‘to ensure a just and equitable property distribution at the end of a de facto relationship’. S 286 authorises the court to ‘make any order it considers just and equitable about the property of either or both of the de facto spouses adjusting the interests’. The expression ‘just and equitable’ which is found also in the headings to subdivisions 3 and 4 and in s 296 seems tautologous, but is increasingly encountered in legislation. An early instance was in relation to contribution among tortfeasors for purposes of apportioning liability (see Daniel v Rickett, Cockerell & Co Ltd [1938] 2KB 32); the ‘just and equitable’ ground for winding up of companies is long established (see re Kurilpa Protestant Hall Pty Ltd [1946] State Reports Queensland 171, 183); more recently, the Body Corporate & Community Management Act 1997 calls for this court or a specialist adjudicator to determine what is ‘just and equitable’ by way of relative lot entitlements of owners of lots in community titles schemes: see s 48 and Sandhurst Trustees Ltd v Condah Bay Investments Pty Ltd [2003] QDC 438, where the view was expressed at para 14, to which I adhere in the present context, that there is no single ‘just and equitable’ solution. Both components of the expression ‘just and equitable’ signify ‘fair’. I think that ‘just’ has a connotation that the outcome is defensible in accordance with legal principles of the kind people would expect to be applied in a court.”)
- [29]As things stand, the applicants are afflicted with high lot entitlements (attributable to the generous proportions and/or, perhaps, the much greater market value of their lots). They must make larger than average contributions to body corporate expenditures, which are devoted not only to maintenance of the common property, but to provision of hot water and air conditioning to the other privately-owned lots. It is apparently the case that the penthouse owners gain no benefit from those services whatever, and are required to provide and pay for them in the penthouses. It seems there may be a facility whereby the body corporate could meter and charge for the hot water supplied by it, but the facility is not made use of so far. The applicants, as both experts acknowledge, have a case for adjustment downwards of their contribution schedule lot entitlements.
- [30]I am inclined to think that the ‘equality’ approach favoured by the Act applies in a general, global kind of way, rather than being one to be examined separately in respect of all categories of body corporate expenditure. I accept that it may be useful for the experts in these matters to do their analyses in this detailed way, treating the dedicated “high-rise” and dedicated “low-rise” lifts separately, for example. This was Mr Linkhorn’s approach, whereas Ms Arkcoll, on the basis that there ought to be no distinction made between lift charges made against the 17th floor as opposed to the 16th, considered that there should be no distinction made between the 2nd floor and the 32nd; Mr Linkhorn thought it significant that the “high-rise” lifts cost more to run. It was not clear whether the costs of a lift depend more on distance travelled, or number of stops. This example illustrates the uncertainties in trying to achieve justice and equity by close financial analysis.
- [31]I would note one argument mounted by Mr Perry which I think merits further consideration, to the effect that the body corporate’s expenditure on maintenance of common property helps the owners with higher interest entitlements to protect or enhance their capital. This may provide some justification, analogous with our so-called ‘progressive’ taxation system (which may be taken to be accepted generally in the community as ‘just and equitable’) for requiring lot owners deemed to be wealthier in the sense that they hold more valuable real estate, to pay more for the upkeep of the whole. Of course, it cannot be predicted whether expenditure on maintaining in good order and appearance a 30-year-old building will be reflected in the value if the whole scheme comes to an end: it may well be if the whole building is purchased by someone proposing to operate it as a going concern, rather than by someone who wishes to demolish it.
- [32]On the topic of values of lots in the building, I would note my acceptance of the evidence of the valuer, Mr Smith, to the effect that the market values of lots in Golden Gate whose lot entitlements in the contribution schedule are increased will decline, and appreciably so.