Barintore Nominees Pty Ltd v Owners Corporation Plan No SP22934S (Owners Corporations) [2019] VCAT 406

1. Miralem Basic is joined as the sixth respondent to the proceeding.
2. Pursuant to ss 125, 162, 165(1)(i)(i) and (iii) of the Owners Corporations Act 2006 (Vic) ('Act'), Victorian Body Corporate Services Pty Ltd ('VBCS') is appointed as the manager of the first respondent, Owners Corporation Plan No SP22934S ('OC') for the purposes of receiving the ballot forms, counting them and forwarding the result of the ballot and a copy of the completed ballot forms received by VBCS to lot owners with respect to a ballot that is to be arranged by the first applicant, Barintore Nominees Pty Ltd (ACN 006 012 335) ('Barintore') pursuant to s 83 of the Act, to vote by ballot on resolutions to register a new plan of subdivision ('ballot').
3. The appointment in paragraph 2 of these orders is made on the condition that VBCS is entitled to charge a fee of $300 plus GST for its services provided in respect of the conduct of the ballot and that the applicants are to pay that fee including GST.
4. OC is to forthwith provide the applicants' solicitors with the postal addresses recorded in its records for all lot owners affected by OC other than the applicants.
5. Within 4 days of receiving the addresses pursuant to paragraph 4 of these orders, the applicants' solicitors are to serve a copy of these orders and reasons for decision, by regular post sent to the addresses provided pursuant to paragraph 4 of this order, on all lot owners affected by OC other than the applicants.
6. The ballot is to be commenced, by sending the ballot papers to all lot owners affected by OC by 4pm on 12 April 2019.
7. The closing date for the ballot is to be no earlier than 4pm on 10 May 2019.
8. The parties, lot owners affected by OC and VBCS have liberty to apply.

Mr R Peters of Counsel, instructed by Arnold Bloch Leibler

Mr J Karkar QC with Ms R Bird of Counsel, instructed by Howard Bear Legal Consulting Services

1. The applicants are lot owners on registered strata plan 22934S, being the current strata plan for the mixed use complex ('complex') at 26-34 Church Street, Brighton ('the property'). The current strata plan was registered on 15 November 1985, and has 111 lots.
2. The first respondent is Owners Corporation Plan No SP22934S ('OC').
3. The complex consists of the Dendy Plaza shopping centre, as well as professional and residential units. The common property is informally managed and administered by two separate groups of lot owners through a common manager separately appointed by each group. The residential and professional unit owners are represented by one group, while the commercial unit owners are represented by the other.
4. The applicants apply to the Tribunal for the appointment of Victorian Body Corporate Services Pty Ltd ('VBCS') as manager of OC to undertake specified tasks in support of a ballot that is to be arranged by the first applicant under s 83 of the Owners Corporations Act 2006 (Vic) ('Act'). The appointment of VBCS is to be done on the basis that VBCS is entitled to charge a fee of $300 plus GST for its services. The applicants are to pay the fee plus GST.
5. At a hearing on 22 February 2019, the Tribunal joined four additional respondents to the proceeding. These respondents are lot owners who desire to be heard in the proceeding. The Tribunal also directed that notice of the proceeding be given to all members of OC. One additional respondent, Miralem Basic, appeared and made submissions at the hearing of the proceeding. He is also a lot owner, and is joined as the sixth respondent.

1. The applicants seek to arrange a ballot of lot owners to vote on a resolution to register a new plan of subdivision for the property to effect the following:

(i) one to manage and administer the common property relating to the residential and professional lots;

(ii) one to manage and administer the common property relating to the commercial lots; and

(A) the shared services provided to both the residential and professional and commercial lots; and

(B) the air space above the common property relating to both the residential and professional and commercial lots; and

(b) to alter the existing boundaries of the common property and lots to reflect the on-the-ground changes made to lot boundaries, and various lot owner's long standing possession and use of parts of the common property, that have taken place since 1985.

1. The applicants rely on affidavits sworn by their solicitor, and one sworn by a law graduate in the employ of their solicitor. Each of these affidavits was tendered in evidence together with the exhibits thereto without objection from any party. Mr Basic tendered three exhibits also without objection.
2. I had the benefit of an accompanied view of the complex on 17 December 2018 in the context of Supreme Court proceedings. The view was for the purpose of understanding the evidence in those proceedings and preceded the commencement of the current proceeding.

1. The Act creates the legal framework for the governance of owners corporations.[1] It is a pivotal responsibility of an owners corporation to carry out all functions conferred on it by the Act.[2] 'Function' includes 'duty and authority'.[3] An owners corporation must act honestly and in good faith, and exercise due care and diligence in exercising its functions and powers.[4] It must act in accordance with law.
2. All parties agreed that the governance and affairs of OC were in a state of disarray and non-compliance with the Act. OC does not have an elected committee, and has not had one for many years.[5] There is no chairperson or secretary of the committee.[6] There is no manager.[7]
3. The applicants and the respondents are parties to heavily contested proceedings in the Supreme Court of Victoria, proceeding number S CI 2017 02301 and S ECI 2018 01159. The relief sought in the court proceedings includes orders that all necessary action be taken to register a new plan of subdivision for the property. There are continuing disputes in the court proceedings about the rules of OC. Since 1985, no further subdivision of the property has occurred.
4. OC has not conducted an annual general meeting since 2000. The applicants and some of the respondents have requested that an annual general meeting of OC be convened on a number of occasions. Three requests were made by solicitors acting for some of the parties in 2017 and 2018. No general meeting occurred in response to any request. Without resolution of the serious problems that face OC, it is likely that disputes and disagreements will continue into the foreseeable future.

1. The main purposes of the Act are found in s 1 and include:

(a) to provide for the management, powers and functions of owners corporations; and

(b) to provide for appropriate mechanisms for the resolution of disputes relating to owners corporations;

1. Section 69 of the Act sets out the requirement for the conduct of annual general meetings:

(1) An owners corporation must have an annual general meeting if it receives or pays out money in any financial year.

(2) The time between the annual general meetings must not exceed 15 months.

1. Where there is a committee, annual general meetings (other than the first) may be convened by any of the chairperson, secretary, by a manager acting on the authority of the committee. If there is no committee, the manager of the owners corporation or a lot owner may convene an annual general meeting, other than the first.[8]
2. Section 71 deals with the agenda and matters to be discussed at an annual general meeting:

(1) The person convening an annual general meeting must prepare an Agenda setting out the matters to be dealt with at the annual general meeting.

(2) The matters to be dealt with at the annual general meeting must include -

(a) the election of a committee, if the owners corporation is to have a committee;

(c) the provision of details of the insurance held by the owners corporation;

(d) the provision of details of fees fixed by the owners corporation during the year;

(e) the consideration of the financial statements of the owners corporation;

(f) the consideration of the proposed annual budget of the owners corporation;

(h) the consideration of any report under section 29(4), 39, 65(3), 115 or 126 or under section 159 in relation to disputes dealt with under Part 10;

(i) the tabling and consideration of the minutes of the previous annual general meeting.

1. Section 74 provides that special general meetings may be convened by -

(c) a lot owner nominated by lot owners whose lot entitlements total at least 25% of all lot entitlements for the land affected by the owners corporation; or

(ii) if nominated by lot owners whose lot entitlements total at least 25% of all lot entitlements for the land affected by the owners corporation; or

1. The agenda for a special general meeting must be prepared in accordance with s 75:

(1) The person convening a special general meeting must prepare an Agenda setting out the matters to be dealt with at the special general meeting.

(2) If the person convening the meeting has been nominated under section 74(c) or 74(d)(ii), the Agenda must be in accordance with an Agenda approved by the relevant lot owners when making their nominations.

1. Notice of special general meetings must be given in accordance with s 76(1):

The person convening a special general meeting must give notice in writing of the meeting to each lot owner at least 14 days before the meeting.

1. The quorum for a general meeting is at least 50% of the total votes, or if 50% of the total votes is not available, the quorum is at least 50% of the total lot entitlement.[9] Achievement of a quorum is not simple in the case of an owners corporation where lot ownership is widely held by members who conduct different uses and have different types of interests.
2. Under s 32 of the Subdivision Act 1988 (Vic), a unanimous resolution of the members of OC is necessary if the proposed resolution is to be passed.

1. Section 83 of the Act provides for the conduct of ballots by owners corporations:

A ballot of an owners corporation may be arranged by -

(c) a lot owner nominated by lot owners whose lot entitlements total at least 25% of all lot entitlements for the land affected by the owners corporation; or

(ii) if nominated by lot owners whose lot entitlements total at least 25% of all lot entitlements for the land affected by the owners corporation; or

1. A ballot can be conducted by post, telephone, or digital means.[10]
2. Notice of a ballot must be given to lot owners in accordance with s 85(1):

The person arranging a ballot must give notice in writing of the ballot to each lot owner at least 14 days before the closing date for the ballot.

1. Resolution by ballot may be made in accordance with s 86:

(1) A person may vote in a ballot by completing the ballot form and forwarding it to the secretary of the owners corporation in accordance with the rules of the owners corporation.

(2) A resolution of the owners corporation by ballot is made as follows -

(a) matters requiring an ordinary resolution must be passed by a majority of the votes returned by the closing date but the number of votes returned must be not less than the number needed for a quorum in accordance with section 77;

(b) other matters must be passed by a special resolution or unanimous resolution, as appropriate.

(3) If a ballot is arranged by a person nominated by lot owners, the lot owners must give the owners corporation all information necessary to enable it to keep records of the ballot.

1. Section 11 provides that an owners corporation is to be managed by or under the direction of the lot owners. Except for certain powers or functions, an owners corporation may, by instrument or by resolution at a general meeting, delegate any power or function of the owners corporation to the manager of the owners corporation or a lot owner.
2. A manager of the owners corporation may be appointed for fee or reward if the person is a registered manager.[11] Where there is no committee of the owners corporation, the manager has the functions and powers that are conferred by the Act, the regulations made under the Act, the rules of the owners corporation, and by resolution or delegation of the owners corporation.[12]
3. The manager:

(a) must act honestly and in good faith in the performance of the manager's functions; and

(b) must exercise due care and diligence in the performance of the manager's functions; and

(c) must not make improper use of the manager's position to gain, directly or indirectly, an advantage personally or for any other person.[13]

1. The Tribunal is empowered to appoint a manager where an owners corporation has not done so.[14]
2. The Tribunal has very wide powers to hear and determine disputes or matters arising under the Act, regulations or rule of an owners corporation.[15] Lot owners can apply to the Tribunal to resolve owners corporation disputes.[16]
3. In determining an owners corporation dispute, the Tribunal can make any order it considers fair, including:

(1) In determining an owners corporation dispute, VCAT may make any order it considers fair including one or more of the following -

(i) appointing a person (with the person's consent) as manager of the owners corporation, on specified terms and conditions;

(ii) revoking the appointment of a manager of an owners corporation;

(iii) imposing conditions or restrictions on the management by a manager of the owners corporation;

(3) VCAT may make any interim orders and ancillary orders it thinks fit in relation to an owners corporation dispute.[17]

1. In making an order, the Tribunal must consider:

(b) an act or omission or proposed act or omission by a party;

(c) the impact of a resolution or proposed resolution on the lot owners as a whole;

(d) whether a resolution or proposed resolution is oppressive to, unfairly prejudicial to or unfairly discriminates against, a lot owner or lot owners;

(e) any other matter VCAT thinks relevant.[18]

1. The applicants submitted that the Tribunal should make the orders that they sought for the following reasons:

(a) there was an owners corporation dispute within the meaning of s 162 of the Act;

(c) there was no committee or office bearers, chairperson, secretary or manager;

(d) the Tribunal had wide jurisdiction to resolve the dispute and to make any order it considered fair. Its jurisdiction should not be read down;[19]

(e) the applicants and the second to fifth respondents were unable to have a general meeting convened to appoint a secretary or manager;

(f) a ballot would enfranchise all lot owners and permit them to make a decision as to the future ownership of the land shown on the plan of subdivision;

(g) the manager selected to perform ballot services was the manager already providing services to all lot owners;

(h) the ballot would be no cost to lot owners, as the applicants would cover the manager's costs; and

(i) each lot owner would remain free to decide whether, and how to vote in the ballot.

1. OC confirmed that no general meeting had occurred for many years, and that it was dysfunctional. As there was a large number of lot owners, one month's notice in writing of the ballot should be given to lot owners, rather than the minimum 14 day period required by s 85 of the Act.

1. The second to fifth respondents did not oppose the application. They made a number of submissions as to the correct form of the Tribunal's order in this proceeding. These suggestions were largely accepted by the applicants.

1. Mr Basic submitted that the proceeding should be struck out. He submitted:

(a) the notice provided to lot owners was vague and lacked detail;

(b) it did not sufficiently describe how the boundaries would change under the proposed new subdivision;

(c) the proposal was forcing OC to incur legal and professional costs; and

(d) the real intent of the applicants was to obtain approval of the new plan of subdivision.

1. At the hearing, Mr Basic referred to the huge problems at the complex, defects in the original building, the dysfunctional affairs of OC and the value of air space. He suggested that an administrator should be appointed.

1. VBCS is a registered manager on the Register of Managers maintained by Consumer Affairs Victoria. The Register of Managers also lists the notified insurer of VBCS.
2. VBCS currently provides management services to the two groups of lot owners in the complex. It is in good standing with the lot owners and is experienced with the complex. No party or lot owner expressed any objection or concern to the appointment of VBCS to carry out ballot services if the Tribunal was minded to appoint it to do so.
3. VBCS has agreed to be appointed as the manager of OC for the purposes of a ballot at a fee of $300 plus GST and in accordance with its standard terms of service as they may apply to the services to be performed. The $300 fee plus GST will be paid by the applicants.
4. I conclude that VBCS is qualified and experienced to be appointed by the Tribunal to provide the services that are sought.

1. When Parliament enacted the Act permitting the constitution of owners corporations, it required owners corporations to conduct their affairs in accordance with its provisions, as well as regulations made under the Act, and the rules of the owners corporation.[20] It is plain that this has not occurred at this complex for many years.
2. All parties are agreed, and there is abundant evidence, that the affairs of OC are dysfunctional and have been for a long time. Corporate governance and administration of OC have failed comprehensively. In part, this is due to the mix of uses which has made governance more difficult and complex.[21] The current state of affairs affects all lot owners, and is likely to adversely affect lot values, as prospective purchasers would be reluctant to become involved in an owners corporation in such a parlous state.
3. The breakdown in governance of the affairs of OC is so great that, for many years, there has been no committee, no chairperson, secretary or manager. Lengthy and complex Supreme Court proceedings have occurred between the applicants, respondents and other parties.
4. It is the legal duty of the Tribunal and of all lot owners to restore corporate governance and the rule of law to OC at the first opportunity. The provisions of the Act should be adhered to and not ignored.
5. In the absence of a Tribunal order, it would be very difficult, if not impossible, for lot owners and OC to overcome the current impasse and deadlock. OC has no committee or officers who might ordinarily bring recommendations forward to the lot owners to rectify parties problems.
6. There is a great deal to be said in favour of the conduct of a ballot as part of a concerted effort by lot owners to regularise the position. There is an opportunity for lot owners to find a solution to the current difficulties. It is not for me to comment on the merits or demerits of the proposed resolution, or how many owners corporations the complex requires, and I will refrain from doing so. Nevertheless, the conduct of a ballot will highlight the need for lawful governance, and bring resolution of the current predicament to the forefront of lot owners' minds. I do not propose now to appoint an administrator, as Mr Basic suggested, although this may occur in the future if the position is not rectified.[22]
7. The following points should be noted as to Mr Basic's submissions:

(a) notice of the Tribunal proceeding together with relevant documents was given to all lot owners. All lot owners who desire to be heard have been joined as parties;

(b) any proposed new subdivision must be prepared by surveyors in the form needed to meet the requirements of the Bayside City Council and the Registrar of Titles;

(c) the explanation of the effect of the proposed new subdivision can be provided by OC's solicitors in a meeting of lot owners if this is desired;

(d) it is inevitable that some costs and expenses will be incurred by OC in restoring corporate governance and rectifying the long history of non-compliance at the complex; and

(e) the preferred governance arrangements and form of subdivision require serious consideration by lot owners.

1. Under s 167 of the Act, the Tribunal is required to consider the following:

(a) The conduct of the parties. The general position is described in this decision. No one party is responsible for the impasse and dysfunction that has arisen in relation to the affairs of OC.

(b) An act or omission or proposed act or omission by a party. There is no act or omission by any party that is solely or mainly responsible for the present situation. The conduct of a ballot will ensure that lot owners have the opportunity of considering changes to the present governance arrangements. This may provide an opportunity to move forward from the present dysfunctional state of affairs.

(c) The impact of a resolution or proposed resolution on the lot owners as a whole. The conduct of a ballot will provide an opportunity for all lot owners to consider changes to the subdivision and governance arrangements. All lot owners need to consider how corporate governance can be restored and legal obligations met.

(d) Whether a resolution or proposed resolution is oppressive to, unfairly prejudicial to, or unfairly discriminates against, a lot owner or lot owners. The conduct of a ballot of all lot owners is not oppressive, or unfairly prejudicial to any lot owner. It does not unfairly discriminate against any lot owner.

(e) Any other matter the Tribunal thinks relevant. In the Tribunal's view, the most important consideration is the restoration of corporate governance and the rule of law to the affairs of the complex. Other matters considered by the Tribunal to be relevant are set out in these reasons.

1. It is plain, and I accept, that there is an owners corporation dispute within the meaning of s 162 of the Act. I also accept that the Tribunal's powers to determine disputes and make orders under ss 125, 162 and 165 of the Act are of the widest character. The use of a ballot would enfranchise lot owners to be able to express their view. It would also be more convenient than a general meeting, as a number of lot owners might be unable to attend a general meeting whenever the meeting was called.
2. It is appropriate that VBCS, as the existing informal manager, be appointed by the Tribunal. As the cost of the ballot services to be provided by VBCS is to be paid by the applicants, there will be no managerial cost to lot owners generally arising from the conduct of the ballot.
3. Turning to the respondents' submissions, I accept, as submitted by OC, that a period of one month's notice should be allowed for lot owners to express their vote, rather than the minimum period of 14 days found in s 85 of the Act. I also accept the amendments proposed by the second to fifth respondents. They will add clarity to the function and tasks of the manager in conducting the ballot.
4. Steps must be undertaken to restore corporate governance to OC, and to bring its affairs into compliance with law. The Tribunal will make orders in the form set out above.

[1] Explanatory Memorandum, Owners Corporations Bill 2006, 1.

[5] Ibid s 100(1); in Lewino v Owners Corporation Plan No. 505169T & Ors [2010] VCAT 59, the Tribunal made a declaration that the owners corporation was under a statutory obligation to elect a committee.

[14] Ibid s 125; see Liu v Lam [2015] VCAT 1940, where relationships between the lot owners were acrimonious, and management of the common property unworkable.

[15] Ibid s 162; Shearman v Owners Corporation No 1 417405Y [2016] VSC 551 [31] (Bell J); Owners Corporation RP 3454 v Ainley [2017] VSC 790 [23] (Derham AsJ); Elwick 9 v Freeman [2018] VSC 234 [55] (Quigley J).

[16] Ibid s 163(1), (1A); Boyes v Owners Corporation No 1. PS 514665E [2009] VCAT 2405 [17], [18].

[17] Ibid s 165(1)(i)(i)-(iii) and (3).

[19] Referring to Owners of the Ship Shin Kobe Maru v Empire Shipping Co Inc (1994) 181 CLR 404, 421; Hillpalm Pty Ltd v Heaven's Door Pty Ltd [2004] HCA 59; (2004) 220 CLR 472, 488-489 [47]; Naroghid Wind Farm Pty Ltd v Minister for Planning [2013] VCAT 675 [46].

[20] Act s 128; Explanatory Memorandum, Owners Corporations Bill 2006 (Vic), 1.

[21] Victoria, Parliamentary Debates, Legislative Assembly, 20 July 2006, 2487 (Rob Hulls, Attorney-General).

[22] See McKinnon v Adams [2003] VSC 116 [20], [21] (Bongiorno J).