Rule - amendment notified to Registrar of Titles - in the form of the special resolution - notice of ballot did not mention amendment of rule - rule invalid - Owners Corporations Act 2006 ss 138, 142.

Special levy - for provision of the service - whether power to set fees could have been and was delegated to the committee - resolution of members at general meeting setting the levy - special levy valid - Owners Corporations Act 2006 s 11.

Mahon v Owners Corporation PS349276K (Owners Corporation) [2012] VCAT 1605

1. The Tribunal declares that the last of the rules (being the second rule numbered 'a') of the owners corporation notified to the Registrar of Titles on 22 October 2009 in document number AG863201B is invalid.
2. Otherwise the proceeding is dismissed.

1. Regency Towers at 265 Exhibition Street, Melbourne is a multi-storey apartment block. The respondent, Owners Corporation PS349276K ('the OC'), affects the land upon which the apartment block is built. The OC has a committee of management of 12 persons ('the committee').
2. The applicants Vincent Mahon and Judy Mahon are the owners of lot 2709 at Regency Towers and are members of the OC. Mr Mahon was formerly a committee member. He is a stern critic of the present committee.
3. Mr and Mrs Mahon have brought this proceeding to air several grievances and to ask the Tribunal to declare that three things, in particular, that the OC and its committee have done are invalid. The three things are:
   • (a) A purported special resolution passed by a ballot of members that closed in June 2009. They submit that the ballot was improperly conducted and did not result in any valid special resolution.
   • (b) A purported rule of the OC, registered as a rule at the Office of Titles, that reflected the special resolution. They submit that the purported rule has not been properly made and is of no effect.
   • (c) A special levy of $50,000.00 for which they, and all other members, have been charged under fee notices from 1 July 2011 onwards. They submit that the special levy has not been properly made and they are not liable to pay it.
4. I heard the proceeding on 14 September 2012. Mr and Mrs Mahon represented themselves and gave evidence. Robert Evans, from the OC's manager The Knight Alliance, represented the OC and gave evidence. I reserved my decision.
5. As will appear, I have concluded that Mr and Mrs Mahon are wrong about point (a), the ballot that led to the purported special resolution, right about point (b), the purported rule of the OC, and wrong about point (c), the special levy.
6. In these reasons 'the Act' means the Owners Corporations Act 2006, and section references are to sections of the Act.

1. In 2009 the committee became concerned that applications that had been made for permits for inner-city developments near Regency Towers might adversely affect Regency Towers residents. Two such developments were the Wesley development and the Brady development. The committee wished to obtain the OC members' authority to act as, in effect, a residents' action group, to scrutinize permit applications and to pursue objections to them if objections were warranted.
2. The committee appreciated that a special resolution of members was needed in order to authorise the committee to act in that way, for the ordinary functions of an owners corporation, as described in s 4 of the Act, do not encompass such action. Section 12(1), however, empowers an owners corporation, by special resolution, to decide 'to provide a service to lot owners'. Provision of a residents' action group would be such a 'service' that the OC could properly provide if its members, by special resolution, agreed to its providing the service.
3. In accordance with ss 83, 84 and 85, the OC's manager, acting on the authority of the committee, arranged a postal ballot of members. By a letter to each member dated 30 August 2009 the manager gave notice of the ballot that specified a closing date of 30 June 2009 and enclosed a ballot paper. The proposed resolution set out on the ballot paper was:

'authorises the Committee of Management to represent the Members of the Owners Corporation in regard to any external issue that could adversely affect the current living standards enjoyed by residents at Regency Towers.

This representation to include appointment of appropriate consultants and if necessary, bring legal proceedings.'

At the foot of the ballot paper was a request to return the ballot by 5.00pm on Tuesday 30 June 2009 to the Knight Alliance at a specified post office box.

1. Unfortunately, on 16 June 2009, 14 days before the closing date for the ballot, the OC's manager wrote to members and purported to announce the result of the ballot. After setting out the text of the resolution, the letter proceeded:

The result to date is that more than 50% of the total votes for all lots affected by the Owners Corporation voted in favour of the above resolution and the votes against the resolutions have not been more than 25% of these votes. This resolution passes as an interim special resolution.

This interim special resolution will pass as a special resolution and become binding from the 15th July 2009 unless lot owners who hold more than 25% of the total votes for all the lots affected by the Owners Corporation petition the secretary against the resolution.

1. Almost immediately the OC manager realised the mistake. The next day, 17 June 2009, it wrote to members as follows:

There has been a miscalculation in the dates of the recent ballot conducted.

The ballot you have been returning is correct and the close of the ballot remains 30 June 2009. You have until then to return your ballot.

Please disregard the contents of the letter dated 16 June 2009. This letter will be re-issued after the close of the ballot being 30 June 2009.

Thank you for your attention and we apologise for any inconvenience this may have caused.

1. By 16 June 2009 Mr and Mrs Mahon had not voted. They proceeded to vote on 17 June 2009, voting 'no' to the proposed resolution.
2. On 22 June 2009 Mr and Mrs Mahon, by email to the OC's manager, urged the cancellation of the ballot. The email read:

The integrity of the Regency Towers Special Resolution Postal Ballot has been compromised. Therefore the ballot should be cancelled.

The letter dated June 16th irrespective of its intentions, created the impression the result had been determined. The letter had the capacity to influence members leading them to believe:

- if they could still vote then it was only worthwhile lodging a vote in favour of the resolution, or

- there was no point voting in the negative as the result was determined, or

- there was no point in voting at all as the result was determined, or

- there was no point in voting as the ballot has closed.

The integrity of the ballot is severely compromised and should be cancelled. If the ballot is not cancelled, the result can be subject to challenge and the result could be set aside. The grounds being the result is denied legitimacy because of the conduct of the ballot. A letter circulated to members during the course of the ballot containing results to date could be regarded as seeking to exert improper influence on members on the outcome of the ballot.

Instead the motion could be circulated with the notice of the AGM and voted on at the AGM.

1. The ballot was not cancelled. It closed on 30 June 2009. On 6 July 2009 the OC's manager wrote again to members and announced the result of the ballot. The letter was identical to the one dated 16 June 2009 except that the date upon which the interim special resolution would become a special resolution was expressed to be 29 July 2009.
2. Apart from Mr and Mrs Mahon's vote, there was no evidence as to whether any members returned ballot papers between 16 and 30 June 2009 or, if they did, how they voted. Nor was there any evidence of what any member, apart from Mr and Mrs Mahon, did or did not do as a consequence of having received the letter of 16 June 2009.
3. I must say that my initial view was the same as the one that Mr and Mrs Mahon clearly and forcefully expressed in their email of 22 June 2009: that because the erroneous sending of the letter of 16 June 2009 had the potential to influence members in one or more of the ways suggested in the email, the ballot had been fatally compromised and should have cancelled, and so the special resolution was invalid. Further reflection, however, has led me to conclude that my initial view was incorrect.
4. While I have been unable to find any case which is directly comparable to the present case, the common law relating to the setting aside of parliamentary elections provides a guide. In Scarcella v Morgan [1962] VicRp 30; [1962] VR 201 at pp 202-203, Smith J expressed the law as follows. Where electoral officials, acting in good faith, have contravened statutory requirements for the conduct of an election but those requirements were not mandatory (in the sense of being intended by parliament to invalidate not just particular votes, but the entire election, if they were contravened), the election is to be declared void if, but only if, the court is satisfied that by reason of the contraventions a majority of electors have in fact been prevented from electing the candidate they preferred or there is reasonable ground to believe that they may have been so prevented.
5. Adapting that rule of law so that it fits the case of the OC's ballot of members upon a motion for a special resolution, it can be expressed in this way. Where the OC or its manager, acting in good faith, has committed an error in the conduct of the ballot, the resolution that has resulted from the ballot should be declared invalid if, but only if, the Tribunal is satisfied that by reason of the error the members have been prevented, or there is reasonable ground to believe that they may have been prevented, from voting to defeat the motion or to cast sufficient negative votes to mean that there was no special resolution.
6. While there was no evidence about why the letter of 16 June 2009 was sent to members, the very fact that on the following day the OC's manager attempted to correct the error and urged members to disregard the letter seems to me to be sufficient evidence of good faith, that is to say, that the sending of the letter of 16 June 2009 was an honest mistake. Mr and Mrs Mahon did not allege otherwise.
7. The first step in the process of satisfying the Tribunal that there has been actual prevention, or reasonable ground to believe that there may have been a prevention, of votes that would have changed the result of the ballot is to adduce evidence which, if accepted, would tend to prove the prevention or the existence of a reasonable ground for the requisite belief.
8. Mr and Mrs Mahon did not adduce any such evidence. They did no more than to point to the potential of the error to influence members. There was no evidence that such influence actually occurred or that would lead one to think that there were reasonable grounds to believe that such influence may have occurred.
9. There having been no such evidence, I conclude that the OC's manager's error did not invalidate the ballot or the special resolution.
10. Mr Mahon submitted that there were other reasons why the special resolution was invalid. He submitted that it authorised the committee to do something which the OC had no power to do because it was not one of the functions of an owners corporation described in s 4. The submission reflected a misunderstanding of the scheme of the Act. Section 4 merely describes functions. It does not provide that an owners corporation cannot lawfully do anything that is not within those described functions. The Act distinguishes between functions and powers (s 5). An owners corporation has all the powers conferred on it by the Act (s 6(a)). One of those powers, if there is an authorising special resolution, is to decide to provide a service to lot owners (s 12). There was an authorising special resolution and so the OC had the power to provide the service that the committee provided. Another of Mr Mahon's submissions was that because the ballot paper did not identify the proposed resolution as a special resolution it could not have become a special resolution. There is nothing in the point. The only requirement for the passing of a special resolution is passing, if a ballot or poss is taken, by 75% of the total lot entitlements (s 96(a)); there is no requirement in the Act that the ballot should foreshadow the resolution as a special resolution. At all events the letter that accompanied the ballot paper notified the members that a special resolution was required before the resolution could confer upon the committee the authority that was sought.
11. The outcome of the ballot was a valid special resolution authorising the committee to provide a service to lot owners.

1. On 22 October 2009 the OC lodged with the Registrar of Titles a notification of amendment to its rules. The notification was numbered AG863201B. The amendment was the addition of a rule that followed the wording of the special resolution. The rule was the second rule numbered 'a' (there were two) in the notification document.
2. What the OC sought to achieve by registering a rule in those words was not explained during the hearing. The passing of the special resolution was enough to confer upon the committee the necessary authority.
3. Rules of an owners corporation may be made or amended by special resolution: s 138. Although a rule made or amended does not take effect until it is recorded by the Registrar of Titles (s 142(4), (5)), the recording does not confer upon a rule a validity that it does not otherwise have. The fact that s 140 provides for circumstances in which a rule is of no effect demonstrates that a rule does not become valid just because it has been recorded.
4. Mr Mahon submitted that the special resolution, if valid (as I have ruled that it is), did not validly make a rule or amend rules because the proposed resolution was not expressed to have that effect. I agree with the submission. A special resolution that makes a rule, or amends rules, in accordance with s 138 must be a special resolution that explicitly states that that is what it is doing. The ballot paper and the notice of ballot given to members on 14 June 2009 said nothing about the creation of a rule or amendment of rules.
5. Mr and Mrs Mahon are entitled to a declaration that the rule is invalid.

1. The members of the OC at an annual general meeting on 20 September 2010, at which Mr and Mrs Mahon were present, resolved to approve a budget and to set a general levy and a maintenance plan levy. I was not given a copy of the budget. The minutes of the meeting included the receipt of the committee of management's report. Maureen Capp (who, I was told, was not a committee member but the wife of a committee member) 'presented an update of her work heading the Development Committee' and indicated that the work was ongoing. What the report did not disclose was that on 23 March 2010 VCAT had refused leave to objectors to make submissions opposing the grant of a permit for the Brady development.
2. Section 13 of the minutes of the annual general meeting of 20 September 2010, headed 'Delegation of Powers', recorded a resolution as follows:
   1. Delegation of Powers

Pursuant to a resolution of 'Regency Towers; at the 2010 Annual general Meeting held on Monday 20th September, 2010, the Owners Corporation hereby delegates to the Committee of the Owners Corporation all the powers and functions of the Owners Corporation that are able to be delegated, provided that the Committee must not exercise any of the delegated powers and functions of the Owners Corporation unless the Committee is acting in accordance with a decision of the Committee of the Owners Corporation.

1. Minutes of a meeting of the committee on 16 December 2010 show that the committee members passed the following resolution:

□ Confirmation of resolution circulated via email on 3rd December 2010

It was resolved to raise an initial special levy from all RT owners by lot size in the amount of $50,000 or $2.07 per unit of liability. Additionally to include the option into the future for the fund to be raised annually and paid by quarterly installment.

1. By a fee notice dated 7 June 2011 the OC charged Mr and Mrs Mahon, for the quarter beginning 1 July 2011, a general levy, a maintenance levy and a 'Levy - Special Resolution 04/08/09' for $56.02. There have been later quarterly fee notices charging the same amounts.
2. The members at an annual general meeting on 19 September 2011, at which Mr and Mrs Mahon were present, resolved to approve a budget, a general levy, a maintenance levy and a 'special levy' in the following terms:

c. Special Levy ('Fighting Fund Against Developments')

It was resolved to raise a Special Levy for the 1st July 2011 to 30th June 2012 financial year. The annual levy is $50,000 (excl. GST) which equates to $3.61 (excl. GST) per unit of lot liability.

The minutes record that the resolution was carried unanimously. I shall assume that there was an error in that respect, because there had been correspondence from Mr and Mrs Mahon to the OC manager that strongly objected to the special levy.

1. The reasons that Mr and Mrs Mahon put forward for the invalidity of the levy, so that they were not liable to pay it, were:

(a) Because the special levy was for the purpose of paying for a service, and there had been no valid special resolution authorising the OC or the committee to decide to provide such a service, the special levy was not properly made.

(b) The committee purported to make the special levy. It could not do so because an owners corporation cannot delegate to a committee the function of setting fees or making levies.

1. As I have ruled that there was indeed a valid special resolution authorising the decision to provide the service, the first reason is a bad one.
2. The second reason is also a bad one. My conclusions are:
   • (a) the committee did not make the special levy; the OC itself did, by the resolution of members at the annual general meeting on 19 September 2011;
   • (b) an owners corporation is and was on 20 September 2010 capable of delegating to its committee a power to make decisions about fees;
   • (c) the OC did not, in fact, validly delegate to the committee on 20 September 2010 any such power;
   • (d) but the OC on 19 September 2011 validly ratified the committee's decision about fees made on 16 December 2010 and made the special levy in its own right.
3. The law that has to applied is the Act in the form that it took on 20 September 2010 when the OC made the purported delegation to the committee. On that date, s 11 and s 101(1) were in a different form to their present form in the Act. Section 11, so far as relevant, provided:

An owners corporation may by instrument delegate any power or function of the owners corporation (other than a power or function that requires a unanimous resolution or a special resolution or this power of delegation) to -

The section was amended in 2011. It now provides that an owners corporation may 'by instrument or by resolution at a general meeting' delegate any power or function to the committee. The power to delegate by a resolution at a general meeting did not exist as at 20 September 2010. Section 101(1), as it was in 2010, provided:

(1) Subject to this section and the rules of the owners corporation, a committee has all the powers and functions that may be delegated by the owners corporation under section 11.

The section was amended in 2011 to provide that a committee has all the powers and functions that are (not 'may be') delegated under s 11.

1. Nowhere does the Act specify that fees must be set or levies made at an annual general meeting or by resolution of the members. The words of s 11, as they were on 20 September 2010, were wide enough to encompass delegation, 'by instrument', of a power to make decisions about fees.
2. The scheme of the Act, however, appears to be that the passing of a resolution at a meeting of members is an essential part of the process of a proper setting of fees. An agenda for an annual general meeting must include 'consideration of the proposed annual budget of the owners corporation' (s 71(2)(f)) and the notice to members of the annual general meeting must include the proposed annual budget that a member's fee or levy must be calculated, in accordance with lot liability.
3. While the OC was able to delegate to the committee a power to make decisions about fees, it did not validly do so on 20 September 2010 because it did not do so 'by instrument'. In its present form s 11 empowers delegation by resolution at a general meeting, but it did so not so empower the OC in the form that it took on 20 September 2010.
4. None of this really matters. In the end, the committee itself did not make the special levy; the OC itself did, by the resolution of members at the annual general meeting on 19 September 2011. Insofar as the committee had decided or had purported to decide anything, the resolution on 19 September 2010 ratified the decision. But the OC made the decision in its own right on 19 September 2011. The special levy was validly made. Mr and Mrs Mahon are liable to pay it.
5. They told me that they had paid all fees except the quarterly special levy but the OC had appropriated their payments to the special levy and had maintained that there was a balance of other fees that remained unpaid. Mr Evans, having heard that evidence, said that he would see to it that the OC's records were corrected to show that the special levy was unpaid but all other fees had been paid.

1. Mr and Mrs Mahon asked me to make orders that would require the OC to return to its members not only the special levy but also all funds that, one way or another, had been set aside or earmarked for the purpose of objecting to the nearby developments. Even if I had found that the special levy had not been properly made, I would not have made any such orders, and I shall not make them. So far, members of the OC as a whole have approved of their money being used to provide the service that the committee has provided. If the majority of members should decide that they no longer approve - because Ms Caddy did not disclose the fact that they have been refused leave to appear at VCAT as objectors, or for any other reason - they may decide themselves what, if anything, the OC should do. As a rule, the Tribunal should not interfere in majority decisions made by members of an owners corporation unless those decisions result in unlawful conduct and the circumstances require that such conduct be prohibited. This not such a case.
2. Mr Mahon spent some time airing a complaint that the committee had spent about $2,000.00 per year of members' funds on Christmas functions for themselves. This is the kind of matter that is pre-eminently one for the members themselves to judge. One view of the matter would be that it is self-indulgent behaviour that ought to be stopped. Another view of the matter would be that the committee members get no other reward for performing voluntary and burdensome tasks and that a criticism of such minor expenditure on themselves is petty. I see no reason for the Tribunal to express a view. The members may decide for themselves.
3. The OC had entered into a contract of appointment with its manager. The contract was in a standard form which states that Owners Corporations Victoria (as it was once called) owned copyright in the form. Mr Mahon started to argue that the OC should not have entered into a contract in that form. When he expressed criticisms of some of the provisions of the contract the proceeding threatened to develop into an attack upon the standard form contract. Such an attack may have had serious ramifications for owners corporations and their managers generally and would have required an adjournment of the proceeding so that notice could be given to other interested persons. Eventually, however, Mr Mahon stated that he and his wife did not seek any determination that the contract of appointment or any part of it was invalid, and that their contention was only that before entering into the contract the committee ought to have got advice about whether its contents were appropriate and whether they should enter into it. All I propose to say is that if once were to criticise the committee in that way one would have to criticise a very large number of owners corporations and the body that was responsible for the wording of the standard form contract, which leads one to think that no such criticism ought to be made at all.
4. Mr Mahon raised various other complaints about the committee and the way that the OC was managed, but since he was not asking me to make any orders with respect to the subject matter of the complaints I shall say nothing about them.
5. I shall make the declarations that the purported rule is invalid. Otherwise the proceeding is dismissed.