Warren v Body Corporate for Buon Vista Community Titles Scheme 14325

[3] An application for leave to appeal to the District Court against that order was filed, but was dismissed by another judge on 20 February 2002. An application for leave to appeal to the Court of Appeal against that dismissal was filed, and was ultimately dismissed by the Court of Appeal. In the meantime, an application for assessment of costs and costs statement were filed in the District Court pursuant to the order for costs made on 20 February, and came on for assessment before a deputy registrar. At that point, the applicants sought to challenge the entitlement of the respondent to recover the costs claimed in the costs statement, on the basis that no liability for costs had ever been validly incurred by the respondent, so that no amount was recoverable from the appellants, under the indemnity principle. It is now established that this is a matter which the deputy registrar could determine[2] but it does not appear that the deputy registrar has ever in fact determined this.

[4] In October 2003 the appellant was a member of the committee of the body corporate. Because of that, on 2 October 2003 the manager of the body corporate sent to her a flying minute voting paper for a proposal that the committee adopt particular motions to be put forward at the next annual general meeting. She voted against the adoption of those motions, and replied to the body corporate manager objecting to the validity of this process. Nevertheless, the majority of the committee voted in favour of the proposal. As a result, the resolutions were put to the general meeting of the body corporate on 30 October 2003, where they were all carried by a majority of the owners voting.

[5] Prior to this, however, the appellant on 29 October 2003 applied by way of dispute resolution application under the Act seeking orders that the committee decision made by flying minute on 6 October 2003 was void, and that the motions referred to be removed from the agenda for the 2003 annual general meeting. In addition, interim orders were sought to prevent voting at the 2003 annual general meeting in respect of those motions, prohibiting the body corporate or the committee from seeking legal advice in the absence of the compliance with requirements of the Act, prohibiting the body corporate from paying any further amounts to any solicitors in the absence of compliance with the requirements of the Act, requiring the chair of the general meeting to act in accordance with the provisions of s 47 of the regulation in relation to the motions, and prohibiting the body corporate from voting on another proposed motion. Interim orders were not granted, and it is unnecessary to say anything further about them. The substantial issue arises in relation to the application to find relief.

[6] That was finally determined by a decision of an adjudicator on 2 August 2004. The adjudicator declared that there "was no resolution of the body corporate authorising the estimated spending of up to $15,000 on legal fees for the proposed proceedings to seek costs from the owners of lot 11 pursuant to orders of the District Court and the Court of Appeal." The adjudicator also authorised "the committee of the body corporate to spend any moneys reasonably necessary to protect the rights or interests of the body corporate in respect of pursuing costs against the owners of lot 11 pursuant to orders of the District Court and the Court of Appeal. This authorisation shall cease to have effect on the owners in general meeting having the opportunity to consider whether they wish to approve spending for the proposed proceedings at the upcoming extraordinary general meeting planned for 6 August 2004." The grounds of appeal expressed in the notice of appeal are in very general terms, and they are essentially unhelpful in defining the issues in the appeal. An outline of argument on behalf of the appellant was filed on 1 November 2004, and a supplementary outline was handed up on the hearing of the appeal. One of the matters complained of in the outline of the appellant is that there was a failure on the part of the adjudicator to give adequate reasons.

[7] The adjudicator outlined the background information and set out a short chronology. He then considered dismissing the application on the ground that it was frivolous, vexatious, misconceived, or without substance, but for reasons stated decided not to do so. The reasons noted that the applicant alleged irregularities at the commencement of proceedings, the engagement of solicitors and the spending of body corporate funds on legal fees. In relation to the commencement of proceedings, the adjudicator refused to decide any question about that on the basis that the proceedings had resulted in an order against the appellant, so that the issue was res judicata. Whether there was any irregularity in the decision of the body corporate to commence the proceedings could have been challenged by the appellant in those proceedings, and it was not possible by the proceedings before the adjudicator to do anything which would cast doubt on the regularity of the decision of the magistrates court. With respect, that must be correct.

[8] The adjudicator also held that the appellant could not challenge the validity of the appointment of the solicitors. Even if she could show there was some irregularity in the procedure in entering into the engagement, it would not mean the engagement was necessarily invalid; for example, the body corporate must still be liable on the basis of apparent authority under s 310 of the Act. He also noted that it would be necessary for the solicitors themselves to be a party to any challenge of the validity of the engagement between them and the body corporate. That appears to be consistent with the obligation that the adjudicator to act in accordance with the rules of natural justice: Act s 269(2)(a). The adjudicator also pointed out that the applicant did not have standing to seek to recover unauthorised spending that had already occurred, this being a matter for the body corporate. Again, this proposition appears to be correct.

[9] The adjudicator did, however, acknowledge that it was within his jurisdiction to make declarations as to whether a particular resolution was valid or void, and it may be possible in an appropriate case to make an order requiring the body corporate to take reasonable steps to ensure that no further unauthorised spending of its funds occurred. The adjudicator identified the particular resolutions which were in issue, but then turned first to the question of whether the resolution of the committee to put the notions before the general meeting was invalid. On that point, the adjudicator concluded that none of the grounds sought to be advanced by the appellant had any merit. Two of them were dealt with especially in the reasons: the proposition there was a conflict of interest involving the committee members so that they were not entitled to vote on the issue pursuant to s 34 of the standard module regulations,[3] and the proposition that the proposal to put the motions was too serious for determination by a written vote of committee members without holding an actual meeting at which the matters could be discussed.

[10] The adjudicator then turned to the question of whether the disputed resolutions were contrary to legislation and should be declared void. He expressly refused to consider the issues which were directed to past irregularities. He held that the applicant did not raise any substantive argument to the effect that it was contrary to the legislation for the body corporate to pass the disputed resolutions. There was nothing unreasonable in passing the resolutions and nothing unreasonable in retrospectively validating some irregularity by a resolution. He concluded that it was not contrary to the legislation for the owners to pass the disputed motions.

[11] It was submitted in the original outline filed on behalf of the appellant that the reasons of the adjudicator were inadequate because the reasons did not reveal that the adjudicator considered whether the motions that were passed by the body corporate were valid. It was submitted that there had been a failure to consider whether there had been compliance in the internal decision-making process of the body corporate, whether there had been a breach of the Act, and whether they were valid. However, the question of whether there was a breach of the Act was a question addressed, in the statement that the applicant had failed to point to any specific provisions of the Act which made the passing of the resolutions void. That is an adequate statement of reasons in relation to that point. The reasons cannot be expected to address submissions that were not put by the appellant.

[12] In relation to whether there had been compliance with the restrictions on the decision-making process, the adjudicator for reasons which he gave concluded that it was not appropriate for him to decide that question, in circumstances where the only issue before him was the question of whether the resolutions were void. What the applicant was really trying to challenge was not the validity of the resolutions but the validity of the various processes addressed by the resolutions, and for the reasons that the adjudicator gave, which seem to me to be clear enough, the adjudicator declined to decide those questions. There is no inadequacy as alleged in the reasons given by the adjudicator.

[13] Insofar as this decision is challenged on the basis that these reasons were inadequate, in my opinion that really depends on whether it can be shown that there is some substance in the submissions advanced in support of the proposition that the adjudicator should have declared the resolutions void. In effect, the adjudicator has said that the submissions advanced did not justify that conclusion. Leaving aside for the moment the question of whether that decision was right, it seems to me that in principle the reasons given must be adequate.[4]

[14] The adjudicator then went on to discuss questions of continuing spending on legal fees. In relation to this proposition, the adjudicator rejected a submission on behalf of the respondent that the question of whether spending limits in the body corporate legislation had been complied with was res judicata as a result of the appeal from the decision in the magistrates court. This was regarded as a separate issue from the question of whether the proceedings were properly commenced. The adjudicator noted that the question of whether to commence proceedings seeking recovery of arrears from an owner was a matter within the scope of the committee of the body corporate[5]. He pointed out, however, that the decision to engage solicitors to prosecute the proceeding at a cost exceeding the committee spending limit would require authorisation by the owners in a general meeting. The adjudicator concluded that it was proper to consider the issue of whether the mechanisms of the body corporate legislation were complied with to determine if there was any valid resolution of the body corporate authorising the continuing spending of legal fees in applications against the owners of block 11.

[15] The adjudicator sought to identify legal fees which had been incurred, but in some cases no particular amount could be identified. He made no findings with regard to whether the body corporate was liable to pay the fees, and in particular did not decide the significance of a failure to provide a client agreement, or whether the lawyers were aware of any irregularity in their engagement, because that would need to be determined between the body corporate and the lawyers. That with respect appears to be correct. The adjudicator then made some reference to the restrictions on expenditure by bodies corporate, under ss 103 and 104 of the regulation.

[16] Under s 94 of the Act the body corporate must administer the body corporate assets, property for the benefit of the owners generally. A body corporate has all the powers necessary to carry out its functions and may for example enter into contracts: s 95(1). Ordinarily, a decision of the committee of the body corporate is a decision of the body corporate (s 100(1)) but this does not apply to a decision that under a regulation module is a decision on a restricted issue for the committee. By s 150 of the Act, financial management arrangements applying to a community title scheme are those stated in the regulation module applying to the scheme. The appeal was conducted on the basis that the regulation applicable to this body corporate is the Body Corporate and Community Management (Standard Module) Regulation 1997.

[17] Part 7 of the regulation deals with financial management, and Division 6 of that Part deals with control of spending. Under that Division there are three categories of spending: spending which is within the relevant limit of the committee spending; spending which is above the relevant limit of committee spending, but less than the relevant limit for major spending; and spending which is above the relevant limit for major spending. These limits are identified in the definitions in the schedule to the regulation; they are worked out by multiplying the number of lots included in the scheme by a particular amount. That amount has varied, but at the relevant time the amount per lot for the limit for committee spending was $100 and the amount for the limit for major spending was $200.[6] The decision of the adjudicator noted that this scheme has only 12 lots, so the limits were relatively low, $1,200 for committee spending, and $2,400 for major spending. In each case, the limit is to be assessed by reference to the costs of a whole project so long as it forms a single project.

[18] Apparently, for an amount under the committee spending limit, the committee can just authorise the expenditure; this is not dealt with expressly in Division 6. For spending above the limit of committee spending, there must be authorisation by ordinary resolution of the body corporate, or the consent in writing of the owners of all lots, or an order by an adjudicator authorising the spending on the basis that the spending is required to meet an emergency, or the spending is necessary to comply with the statutory order or notice given to the body corporate, an order of the adjudicator, or a judgment or order of a court: s 103(1). The effect of s 103 therefore appears to be that a committee could validly carry out a proposal involving spending more than $1,200 if one of those steps occurred; for present purposes relevantly if the spending was authorised by resolution of the body corporate. However, if the amount was more than $2,400, even that was not good enough: s 104 provides for a situation where the cost of carrying the proposal into effect is more than the relevant limit for major spending. Before a motion can be moved proposing the carrying out of work or the acquisition of personal property or services in such circumstances, the lot owners must be given copies of at least two quotations for carrying out the work or supplying the personal property or services, and the quotations must be retained as an attachment to the minutes of the meeting at which the quotations were considered. There is a provision for proceeding on the basis of a single quotation if it is not practicable to obtain two quotations: subsection (6).

[19] There is an air of unreality about this process, particularly when dealing with expenditure such as legal expenditure. As the adjudicator recognised, lawyers, or for that matter plumbers, may be quite unable to give a reliable estimate of the cost of doing their work prior to commencing the work, because so much depends on things that are not known to them at that time. This strikes me as particularly impractical when the limit for major spending which activates this mechanism is as low as it is. Nevertheless, that is what is required by this regulation, and the adjudicator at p 9 suggested that, to authorise spending properly where an exact quote cannot reasonably be obtained, a resolution should be passed authorising commencement of the project and spending up to a specified amount. That is a practical approach to the difficulties created by a fundamentally impractical provision, although it suffers from the difficulty it is not easily reconciled with the terms of s 104, particularly, subsection (9)(b).

[20] One of the deficiencies of s 104 is that it is not clear whether subsection (1)(b) operates by reference to the actual cost or the anticipated cost at the time of moving the motion proposing approval of the project.[7] The section reads as though it is the former, but it is really only the latter which would make sense. On the other hand, s 103(3)(b) is more readily interpreted as being applicable to actual spending rather than proposed spending, and that is the provision which activates s 104. Section 103 appears to operate by reference to the actual spending involved in carrying out the proposal rather than what is expected to be involved, though to be frank it is difficult to see how a committee can operate other than on the latter basis.

[21] The answer may be that the restrictions are triggered by proposals, and so long as the proposal does not involve spending above particular limits, these provisions do not restrict the power of the committee to, for example, enter into a contract. If the effect of that contract is that the body corporate becomes liable for more than the amount contemplated in the proposal, the body corporate is liable and the liability cannot be resisted on the basis that there had been a failure to comply with ss 103 or 104 of the regulations. It seems to me that these provisions can only operate prospectively, and cannot restrict the liability of a body corporate under a contract which has been entered into. That would follow from the express statutory power of the body corporate to enter into contracts; presumably that gives rise to the ordinary consequences of a contract, which may include, depending on the terms of the contract and what happens, a liability to pay money pursuant to the contract, or a liability to pay damages for breach of the contract.

[22] In view of this, I have doubts in relation to the validity of the approach suggested at p 9. It seems to me that even if an exact quote cannot reasonably be obtained, in circumstances where a proposal involves spending more than the major spending limit, viewed prospectively, the requirement of s 104 must be complied with before the proposal to carry out the work can be authorised. Once the requirements of s 104 have been complied with, however, spending on the proposal is authorised and the committee has authority to pursue it, with whatever consequences follow from that. That does not, however, involve any implied authorisation of further things to be done; if a situation arose where the project had to be modified or extended in a way which would involve additional expenditure, further authorisation would have to be obtained. That could well be in the form of emergency authorisation under s 103(1)(c), which is not subject to the major spending limit.

[23] There is a further consideration which arises in relation to whether the body corporate is liable to pay particular money as a result of a contract having been entered into. Section 310 of the Act provides "If a person, honestly and without notice of an irregularity, enters into a transaction with a member of the committee for the body corporate for a community titles scheme or a person who has apparent authority to bind the body corporate, the transaction is valid and binding on the body corporate." Under this provision, liability may well be validly incurred, even in the absence of compliance with ss 103 and 104 of the regulation.

[24] This is a statutory manifestation of what is referred to as the indoor management rule, sometimes called the rule in Turquand's case.[8] That rule is that persons dealing with a company in good faith may assume that acts within its constitution and powers have been properly and duly performed and are not bound to enquire whether acts of internal management have been regular.[9] The rule is not confined to companies, but applies to corporations generally.[10] The common law rule can also apply in circumstances where the statutory rule does not operate.[11]

[25] That the indoor management rule applies to a body corporate of this nature was confirmed by the decision of the Court of Appeal in Coastalstyle Pty Ltd v The Proprietors "Surf Regency" BUP No 4246 [1995] 1 Qd R 132. Although that case was decided under the 1980 Act, in my opinion the reasoning is applicable to the present Act. The court on p 139 rejected one of the arguments advanced on behalf of the appellant, on the basis that it was answered by the application of the indoor management rule. The application of that rule was also referred to by the Full Court in Victorian Professional Group Management Pty Ltd v The Proprietors "Surfers Aquarius" BUP No 3881 [1991] 1 Qd R 487 at pp 495-6; in that case, the application of the rule was rejected on the basis that the defect was known to the person contracting with the corporation; but nothing was said in that judgment to suggest that in an appropriate case the rule did not apply to a body corporate, and Surf Regency confirmed that it can.

[26] The practical effect of the common law rule, and indeed the statutory rule, would seem to be if that someone such as a firm of solicitors is instructed by someone having the apparent authority to act on behalf of the body corporate, such as a management company, to take certain action, and the solicitors do not actually know or have reason to suspect that the procedural requirements, which would have to be satisfied before such a step could be taken, have not been satisfied, the solicitors would be entitled to assume that the procedural requirements had been satisfied, and would be entitled to recover remuneration as if they had been.

[27] The requirements for ss 103 and 104 of the regulation are not restrictions which put certain matters beyond the power of the body corporate, they are simply procedural requirements for spending the body corporate money. In the present case, there was no investigation by the adjudicator of the question of whether in relation to any particular legal fees, the solicitors were entitled to rely on the indoor management rule, either at common law or under s 310. As the adjudicator correctly pointed out, such an issue would only properly arise in proceedings to which both the body corporate and the solicitors were a party. The only question for me is whether there was an error of law on the part of the adjudicator in failing to decide that point. I am not persuaded that there was.

[28] It would seem to me that the mere fact that the solicitors might be expected to know of the existence of the spending restrictions on a body corporate such as the respondent would not in itself amount to knowledge of the requirement of the regulation had not been complied with, or indeed put them on inquiry as to that. It may be, however, that once a point was reached where the issue was raised by the appellant and that came to the notice of the solicitors, they were at least put on inquiry in relation to any further legal costs being incurred. I should not say anything more about the application of these principles, which do not arise directly in this proceeding. I mention them because they demonstrate that a liability can arise on the part of a body corporate notwithstanding non-compliance with the restrictions in ss 103 and 104 of the regulations.

[29] Central to the appellant's arguments on this appeal was the proposition that the body corporate cannot ratify something which has been done by someone purporting to act on behalf of the body corporate where that person did not have actual authority to act on behalf of the body corporate, either because of the spending limits imposed by ss 103 and 104 or for some other reason.[12] The appellant's submissions challenge the general proposition that ratification could occur in relation to the affairs of the body corporate, and the specific proposition that the particular resolutions the subject of this challenge could be effective as a ratification of things that had been done irregularly previously on behalf of the body corporate.

[30] As to the former proposition, ratification is a general incident of the relationship of principal and agent, which is applicable in the case of a body corporate because the body corporate means the lot owners in general meeting, and ordinarily things required to be done on behalf of the body corporate will be done other than by all the lot owners in general meeting, either by the committee of the body corporate, or a committee member, or some other person to whom the management or aspects of the management of the body corporate has been delegated, such as a management company. In the present case, ratification could apply at various different levels: in respect of a decision of the committee of management where the committee had done things which required the authorisation of the members in general meeting without that authorisation, in respect of the management company, or in respect of the solicitors who were acting or purporting to act on behalf of the body corporate in, for example, a legal proceeding.

[31] When an act has been done by one person assuming to act on behalf of another, though without authority, and the other subsequently ratifies what has been done on his behalf, this operates retrospectively to give the first person authority to do what has been done as agent.[13] In the present case there is no doubt that the various things which have been purportedly done on behalf of the respondent were done purportedly as agent for the respondent, and the respondent was in existence and capable of acting through an agent at the relevant times. This is not a situation where any of the acts relied on were acts which could not have been done by the respondent or through validly authorised agents, the question is whether the appropriate procedural requirements for valid authorisations had been carried out.

[32] Two relevant restrictions arise in relation to ratification. The first is that the principal at the time of the ratification must have full knowledge of all the material facts and circumstances pertaining to the agent's unauthorised act.[14] It is also said that ratification must be effected within a reasonable time, although no rigid rule is laid down as to what is a reasonable time.[15] There is considerable flexibility about this concept; ratification has been held to have validly occurred about three years after the unauthorised act of the agent.[16] What matters is whether there has been sufficient delay to result in prejudice to some third party. There is a discussion of this in Dal Pont at para 5.22-5.24; it is unnecessary to discuss it at length, but it is sufficient to say that the authorities discussed there suggest that it is not mere lapse of time which is relevant, but rather whether the rights of a third party have intervened in a way which was making it unjust to a third party to allow ratification. Plainly that consideration did not arise in the present case. Another restriction is that an estate which has been vested cannot be divested, but that also does not arise in the present case.[17]

[33] The ratification by the appropriate organ of a company of acts done purportedly on behalf of the company is something which often occurs and is recognised.[18] There are some restrictions on this, the main one being that the company cannot ratify something which could not have been authorised in advance, on the basis that it was ultra vires the company, or contrary to the constituting documents, such as the memorandum and articles, or if it would amount to a step which cannot be taken even by all of the members in general meeting or unanimously, for example because of insolvency.[19]

[34] One example of a situation where an unauthorised act can be ratified is where a solicitor has commenced a proceeding in the name of a client without proper authority to do so; and the client subsequently ratifies this, notwithstanding that this would have the effect of depriving the other party in the proceeding of any rights which might otherwise have arisen in respect of an order for costs against the solicitor.[20] Because ratifications operate retrospectively, a proceeding which is started without authority by an agent can be subsequently validated by a ratification by the principal, even after the expiration of the limitation period.[21]

[35] The principle of ratification is an incident of the law of agency, rather than the law of companies or corporations. Accordingly, one would expect it to apply in any situation where there can be a relationship of principal and agent, and such a situation can certainly arise under the Act. There is nothing I can see in the Act which would prevent the general principle of ratification from applying to the operation of a body corporate under the Act, and in my opinion, it does apply under the Act. Insofar as the appellant's arguments are based on the contrary proposition, I reject them.

[36] Furthermore, there is authority in the Court of Appeal in Queensland that a body corporate can ratify a step that was taken by a person purporting to act as agent for the body corporate without proper authority of the body corporate. In Banks v Body Corporate "Noosa on the Beach" CTS 6417 [2000] QCA 146, an application for leave to appeal to the Court of Appeal from the District Court was filed on behalf of a body corporate in circumstances where it did not comply with the requirements of s 259 of the Act as it then was (now s 312) that such a proceeding be authorised by special resolution of the body corporate. Nevertheless, about three months after the application was filed a special resolution of the body corporate was passed authorising the commencement and conduct of the appeal. The court held on a subsequent objection to the competency of the appeal that the resolution in substance ratified the proceedings already commenced, so that the application was competent: [7].

[37] That decision was followed in Hollis Holdings Pty Ltd v PJ Handley and Ors [2002] QDC 1 at [29]. In Sattell v The Proprietors Be-Bees Tropical Apartments BUP No 71593 [2000] QCA 496; [2001] 2 Qd R 331 the court struck out an appeal because of a failure to comply with the then s 259, and at [10] refused to adjourn the appeal to enable a special resolution to be passed ratifying what had been done. Nevertheless, there was nothing in the comments of the court about that point to suggest that that resolution, had it been allowed, would have been ineffectual; the court simply was not prepared to allow an adjournment for that purpose in the circumstances of that case. A similar approach was adopted by the Court of Appeal in Oceana on Broadbeach CTS 24163 v Searle [2003] QCA 238, where the court referred to the decision in Banks without suggesting that that decision was wrong. The position seems to be that if by the time the matter comes on for hearing in the Court of Appeal the deficiency has not been remedied, the court will as a matter of practice strike out the appeal rather than adjourn it to enable that step to be taken; but there is nothing in the decision in Searle to suggest that the ratification of proceedings initially commenced in breach of s 259 is ineffectual, and the contrary was directly decided in Banks.

[38] The question of ratification was also raised in the "Surfers Aquarius" case referred to earlier, at pp 496-7, where Connolly J held that what had subsequently occurred did not amount to ratification, but there was nothing said inconsistent with the proposition that in principle the particular decision in that case, which was to enter into an agreement in excess of the spending limits of the committee, was capable of ratification by the body corporate in general meeting. Thomas J also held on p 499 that the proprietors had never attained a sufficient state of knowledge to permit anything they did to amount to ratification, while a third member of the court, Ambrose J, agreed with Connolly J.

[39] The first resolution ratified the instructions issued by the management company to two separate firms of solicitors, consecutively, to commence recovery proceedings against the appellant for arrears of contributions. It cannot be a criticism of that resolution that it was unnecessary, though of course it may well be that it was entirely unnecessary. But assuming that it was necessary, this was on the face of it simply an exercise of the power referred to earlier by which a party can ratify the commencement of proceedings by a solicitor on behalf of that party where that has occurred without proper instructions to do so. In other words, assuming that the proceedings against the appellant had been commenced by the solicitors without proper instructions, that deficiency was overcome by this resolution.

[40] As a general proposition, there was no reason why that step could not then be taken by the body corporate, or why this resolution was ineffective to take that step. This resolution was not concerned with the question of remuneration of solicitors; it is concerned simply with the question of whether the solicitors had authority to commence proceedings against the appellant. If and insofar as they did not have authority to take that step, this resolution in my opinion gave them that authority.

[41] Section 312[22] contains a restriction on a body corporate commencing a proceeding unless it is authorised by a special resolution. Such a restriction therefore applies to a resolution purporting to ratify commencement of a proceeding without authority, but there is an exception to that restriction in subsection (2)(a), in the case of a proceeding for the recovery of a liquidated debt against the owner of a lot in the scheme. That in my opinion applied in the present case; the proceeding to be commenced was a proceeding for recovery of a liquidated debt from the owner of a lot. Accordingly, a special resolution was not required, and the first disputed resolution passed was not invalid because it was not passed as a special resolution.

[42] It was submitted in the supplementary submissions that there was a continuing practice by the solicitors for the respondent and the respondent of taking action in contravention of the legislation and subsequently attempting later to ratify improper or defective conduct. It does appear that on a number of occasions, not just on the occasion relevant here, there have been resolutions passed by a general meeting of the body corporate in an attempt to meet challenges raised previously by the appellant as to the validity of things purportedly done on behalf of the body corporate. That seems to me to be an appropriate response to allegations that there had been some procedural deficiency in steps taken earlier, and not to be an indication of impropriety on the part of either the respondent or the solicitors. There seems to me to be no basis for suggesting that there has been any impropriety by the solicitors, and certainly not by the proprietors generally who constitute the membership of the body corporate.

[43] It was submitted that the proceedings that had been commenced were not only against the appellant but also against the other co-owners of lot 11. That appears to be correct, and it may be that it would have been more appropriate for the body corporate to ratify the commencement of such proceedings against all three of the co-owners, not just the appellant. But that did not affect the validity of the resolution that was passed: it simply means that the resolution, if it were necessary, is of a somewhat limited effect.

[44] Overall, the appellant has not shown any sound basis for disputing the validity of the first disputed resolution. The appellant has certainly not shown that the adjudicator made an error of law in failing to find that the resolution was void.

[45] The second disputed resolution purported to ratify the execution of a client agreement with a firm of solicitors by committee members on 2 May 2002. It does appear that there was a client agreement executed by committee members on 2 May 2002 on behalf of the body corporate. Several issues can arise in relation to the validity and effect of the client agreement. The first question is whether the persons who executed it had authority to do so on behalf of the body corporate, that is whether they had authority to enter into a contract on behalf of the body corporate. On the face of the resolution, it seems to me that this issue is one that the resolution was seeking to address. No argument was advanced on behalf of the appellant to the effect that, viewed as an exercise in ratifying that authority for people to sign the agreement, so as to enter into a contract on behalf of the body corporate, the resolution was invalid.

[46] The second issue which can arise is whether the effect of the client agreement was to commit the body corporate to expenditure in a way which was not consistent with the restrictions on the spending in ss 103 and 104 of the regulations. That depends on the effect of the execution of the client agreement. The matter is complicated by the fact that the client agreement had been executed 12 months earlier, and there may well have been money payable pursuant to it in such an amount that there was a relevant spending limit engaged. In particular, it may well be that the major spending limit was engaged. That would raise the question of whether this resolution would be effective in order to authorise spending more than that limit pursuant to that client agreement. Other issues could potentially arise in relation to this, such as whether there had been disclosure of relevant matters. This was not a matter decided by the adjudicator. Accordingly, the relevant matter for my consideration is whether there was an error of law on the part of the adjudicator in failing to decide this issue.

[47] The adjudicator's approach was that there was nothing in terms of the operation of the Act which prevented the body corporate from passing a resolution in these terms, and the issue of whether the resolution was effective ought not to be decided. The validity and effectiveness of the client agreement could arise for determination in proceedings between the solicitors and the body corporate, or proceedings between the body corporate and a person or persons who purported to commit the body corporate to expenditure which was unauthorised. As the adjudicator recognised, the application by the appellant did not give rise to either of those proceedings. In effect, what the appellant was trying to achieve by these proceedings was to prevent a situation from arising where, in some other proceedings where the validity of the client agreement became relevant, a finding could be made that the client agreement was invalid for a reason which could have been rectified by the passing of this resolution.

[48] The appellant has certainly disputed the validity of the retainer of the solicitors for the respondent, and she raised the proposition, in relation to orders for costs that have been made against her, that the respondent has not validity incurred the legal costs because the spending on the solicitors has never been validly authorised. The adjudicator declined to enter into that issue, and I think it is equally appropriate for me to decline to enter into that issue. It is sufficient to say, however, that insofar as a resolution of the body corporate in these terms can be of assistance to the respondent in recovering costs which have been ordered to be paid by the appellant (either alone or with the owners of lot 11), the body corporate is entitled to take this course, and it has not been shown that the passing of this resolution as such was invalid. Whether it has any effect, and what effect it has, can then be left to the determination of whoever it is who has to decide those questions.

[49] That was I think a reasonable attitude for the adjudicator to take, and the appellant has not shown that there was any error of law on the part of the adjudicator in taking that attitude. Indeed, it seems to me that it would have been inappropriate for the adjudicator to have decided anything touching on the validity of the client agreement without the solicitor being a party to the proceedings before the adjudicator, which did not occur. Not only has the appellant not shown that the approach of the adjudicator in this respect was wrong, in my opinion it would have been inappropriate for the adjudicator to have decided that issue.

[50] Because the adjudicator took the view that the effect of s 104 was that a general meeting had to approve spending up to a particular limit, he seems to have taken the view that the approval of the initial costs agreement only had the effect of approving spending up to the $3,000 estimate in the client agreement. As he pointed out, there were difficulties with that proposition in the context of a meeting in 2003 in circumstances where the costs already incurred with the solicitors in relation to the whole matter had already substantially exceeded the amount of $3,000. Of course, the costs agreement was originally only in relation to the proceeding in the magistrates court to recover outstanding levies, and most of the costs that have been incurred were incurred in relation to subsequent proceedings by which the appellant was seeking to appeal against the decision in the magistrates court, or in proceedings in relation to the assessment of costs.

[51] The adjudicator seemed to take the view that all this was one project, and that all that had happened was that there was authorisation to spend money up to the initial estimate of $3,000, and that what was needed was some further authorisation to spend the additional money up to the current estimate for enforcing various costs orders made against the appellant. In doing this, he rejected an argument that there were four separate projects, and concluded that there had not been any authorisation beyond the initial $3,000. I must say that it seems to me difficult to see how what occurred here could be seen as all one project; viewed prospectively, one would not expect that a proceeding in the magistrates court to recover outstanding levies would include resisting applications for leave to appeal to the District Court and to the Court of Appeal, as well as further proceedings seeking to enforce costs orders made in various courts. That seems to me to be an unrealistic approach apparently arrived at as a result of viewing what happened with the benefit of hindsight, which in my opinion was the wrong approach.

[52] What ought to have been done is that an estimate for pursuing to judgment a claim in the magistrates court ought to have been obtained and, depending upon the amount estimated, the relevant provisions of the regulations ought to have been complied with. When it emerged that further proceedings were indicated, such as the application for leave to appeal to the District Court, there should have been an estimate for resisting that application, and the decision should have been taken in relation to that estimate whether to approve spending for that step. The same applies to the later developments.

[53] Whether something is one project or a series of projects is not something which can sensibly be decided retrospectively; the question of whether the requirements of ss 103 and 104 have to be complied with has to be assessed prior to the expenditure being incurred and therefore on the basis of what is expected at that time. It would be an absurd interpretation of the regulations if they had the effect that an authorisation which was proper at the time it was given became improper or ineffectual as a result of something that happened later.

[54] It would of course be open to the body corporate when approving expenditure of uncertain amount, such as legal expenditure, to put a limit on the amount of that expenditure to be incurred without further approval. I am not suggesting that that would be invalid, or even inappropriate, but it does not seem to me that ss 103 and 104 require that such a limit be imposed, at least in the case where the expenditure has been approved by the members in general meeting. It seems to me that the requirements of those sections can be complied with without such a step being taken, and it follows that an approval of expenditure can be valid notwithstanding that there was no limit imposed.

[55] In relation to spending which had already been incurred, that involves a consideration of whether the requirements referred to earlier for ratification had been satisfied in the circumstances of this matter, in particular whether all of the material facts had been disclosed to the body corporate in general meeting. That may turn on the question of what was told to the lot owners, either in a notice before the meeting or in documents distributed at it, or indeed orally at the meeting. It occurs to me, however, that at the very least there should have been full and frank disclosure as to what amount of expenditure had already been incurred in respect of the matters ratification of which was being sought, upon the basis that the proposed client agreement was valid.

[56] It is not at all clear that this has occurred, particularly in circumstances where I note from the adjudicator's reasons that one of the propositions advanced on behalf of the body corporate was that it was not possible to determine the ultimate cost to the body corporate because costs orders had been made against the appellant, so that what was relevant was the amount left over, as it were, after such amounts as were recoverable from the appellant had been recovered. That submission was rightly rejected by the adjudicator; in my opinion it is plainly wrong in law. Indeed, because of the indemnity principle in relation to costs, the costs recoverable by the body corporate from the appellant as a result of any costs order made against her in any other proceedings are necessarily limited to the extent to which the body corporate is itself properly liable for costs to its legal advisors. Accordingly, the liability for costs of the body corporate to legal advisors has to be assessed without regard to the question of whether any and what amount will or may ultimately be recovered by the body corporate from anyone else as a result of any order of the court. It occurs to me that if a similar argument had been advanced to the lot owners at the body corporate meeting, then it would be difficult to see how it could be successfully argued that those lot owners had been put in possession of all of the material facts for their decision in relation to ratification. That, however, is a matter which would involve findings of facts, and no such findings have been made.

[57] There is also the consideration which arises under s 104 that the requirement that two quotations be obtained is subject to an exemption in the case of exceptional reasons: subsection (6). Where the resolution is concerned to ratify past expenditure which has already been incurred in relation to the supply of services by a particular person, such as in this case a particular firm of solicitors, there would I think obviously be exceptional reasons; it would be meaningless to contemplate ratification other than by reference to the particular person to whom the expenditure has been paid. The absence of a second quotation in such circumstances would in my opinion be of no consequence.

[58] All this, however, is really beside the point. Even if there were aspects of the adjudicator's reasons in relation to the question of authorisation of legal expenditure with which I might not entirely agree, none of this serves to cast any doubt on the correctness of the adjudicator's decision not to decide the effect of the resolution passed by the body corporate, as distinct from the question of whether there was anything in the legislation which prevented it being passed. The appellant has not shown that there was any error of law in the decision of the adjudicator not to decide what the effect was of the second disputed resolution.

[59] The third resolution purported to ratify the execution of a file transfer authority whereby the recovery file was transferred from one firm of solicitors to another. The position here is really the same as that in relation to the first disputed resolution; this is essentially just a ratification of the instructions to the new solicitors to act on behalf of the body corporate, so that if there were any doubt about the authority of the new firm to act as solicitors for the body corporate, that doubt would be removed. The considerations referred to earlier in relation to the first resolution apply to this as well. At one point it seemed that the appellant was disputing the validity of this on the basis that the solicitors were a service contractor for the purpose of the Act. If so, that was wrong, because they were not. They did not meet the requirement of the definition in s 15 of the Act of being engaged for a term of at least one year.

[60] The fourth resolution was somewhat more complicated. First, if confirmed the appointment of the new firm of solicitors to act for the body corporate in the matter against the appellant for the recovery of outstanding contributions and legal fees and interest, which it seems to me the previous resolution had already confirmed, and went on to authorise the affixing of the common seal of the body corporate to an attached client agreement. It then went on to purport to ratify "all instructions given to" that firm by the management company, and finally instructed that firm to take all necessary steps to respond to the appeal,[23] which was then pending in the Court of Appeal, to enforce current costs orders against the appellant in the Magistrates and District Courts, and to represent the body corporate in any mediation of the dispute sought by the appellant.

[61] The proposed client agreement, which was apparently attached to the notice of meeting, identified the work to be undertaken pursuant to the agreement as:

"All attendances required and instructed by the body corporate to carry out with regard to the recovery of the outstanding levies of lot 11, including all attendances and appearances in all courts including any appeals instituted by the lot owner. All other attendances for which the client provides instructions ... The client confirms that this deed covers all work performed and disbursements incurred by the firm and the previous firm Herd and Janes prior to the signing of this deed."

[62] The agreement went on to identify that fees would be charged on a time charging basis, at various rates ranging from $295 per hour for a principal, to $100 per hour (or $120 per hour) for a paralegal. These would be plus GST. The agreement contained an estimate of the "total of fees and costs to complete the work detailed in clause 1" of $3,000. It went on to note that the fees may be significantly less or significantly more, depending on what happened in the course of carrying out the instructions contained in clause 1.

[63] The adjudicator made some findings in relation to the fees incurred in the name of the body corporate in seeking to recover arrears at p 8 of his reasons. The amount specified included amounts paid to a different firm, which would not be covered by the client agreement on its face, but included amounts paid to Herd and Janes which apparently would be covered on the face of the deeds. The amounts paid to that firm came to $472 paid in March 2001, and there was a further amount of $5,656.43 paid in respect of the magistrates court proceeding, which was also invoiced in 2001, in May, August and November. There was said to be a further invoice in February 2002 for defending the District Court application for leave to appeal, amounting to $2,923.49, and an amount already said to be invoiced in April 2002 in respect of the application for leave to appeal to the Court of Appeal, in the sum of $905.58. That came to $9,957.50. In addition, the further costs identified included counsel's fees at $1,980 in respect of the costs assessment of the District Court order, and $3,700 in respect of costs assessment of the Court of Appeal order. This is a further $5,380. In the light of these amounts, the estimate of $3,000 in the document to complete the work detailed in clause 1 seems obviously unrealistic.

[64] In my opinion, the effect of the fourth disputed resolution, if valid, would be to commit the body corporate to whatever amount may be validly payable under the client agreement, which would include amounts incurred in taking all necessary steps to respond to the appeal filed in the Court of Appeal, and enforcing the current costs orders. Bearing in mind the scope of the client agreement, on its face it seems to me that that potentially provides a commitment for expenditure for future work which would amount to major spending for the purpose of ss 103 and 104 of the regulation. The adjudicator seems to have approached the matter on the basis that, because the resolution did not authorise spending up to a particular amount, it was ineffective to produce such a result. Accordingly, by having concluded that the resolution did not authorise such a level of expenditure it became unnecessary to decide what effect, if any, the resolution had.

[65] That is an approach with which respectfully I do not agree. In my opinion, the effect of this resolution, if valid, was to commit the body corporate to whatever expenditure came to be properly chargeable to it under the client agreement (or indeed otherwise) as a result of carrying out the instructions contained in the resolution. It may well be that that would not involve expenditure in the future which would amount to major spending, but in circumstances where past expenditure has apparently already exceeded the major spending limit, and bearing in mind the amounts charged on an hourly basis for work done and the scope of the work contemplated, it seems to me at least plausibly arguable that, so far as the future work is concerned, the agreement on its face and the implementation of the instructions contained in the fourth disputed resolution would involve incurring expenditure in excess of the major spending limit.

[66] I do not think it is an answer to say that the client agreement may be invalid, that is void, pursuant to the Queensland Law Society Act. That is not something which could be decided without hearing the solicitors, and in any case, in order to consider whether there has been compliance with ss 103 and 104 of the regulations, it would be appropriate to assume that any such agreement was valid, and that the agreement took effect in accordance with its terms. The adjudicator has power to determine whether there has been an effective decision of a body corporate in compliance with the requirements of ss 103 and 104 of the regulation. That seems to follow by analogy from the decision of the Full Court in the "Surfers Aquarius" case referred to earlier, where Connolly J at pp 494-5 discussed the effect of the decision of a referee appointed under the 1980 Act, the predecessor to the 1997 Act, that a purported authorisation of a contract by that body corporate was invalid.

[67] A further difficulty is that, even if the client agreement is for one reason or another void, it does not follow that no amount is payable by the body corporate to the solicitors; the effect of the Queensland Law Society Act 1952 s 48I(1) is that in such circumstances, the solicitors are still entitled to recover from the client an amount calculated in accordance with any applicable scale for the work done, or if there is no applicable scale, a reasonable amount for that work. Accordingly, there could well be substantial liability for costs incurred by the body corporate if the fourth disputed resolution is valid. That in my opinion is the effect of the resolution according to its terms, unless the resolution is invalid because of a failure to comply with ss 103 and 104 of the regulations.

[68] In relation to future expenditure and future work, therefore, an issue did in my opinion arise in relation to this resolution as to whether there has been compliance with ss 103 and 104 of the regulations. If there has not been, then this resolution in my opinion was invalid so far as it purported to authorise future expenditure. The appellant as an owner (or at least as a part owner) of one of the lots in the body corporate in my opinion had sufficient standing to challenge the validity of a resolution of the body corporate purporting to authorise expenditure on the ground of a failure to comply with ss 103 and 104 of the regulation. Accordingly, in my opinion it was necessary for the adjudicator, in order to resolve the dispute, to decide whether there had been compliance with these provisions of the regulation in relation to the passage of this resolution, so far as it purported to authorise future expenditure. So far as it purported merely to ratify past expenditure, the position was the same as with the second disputed resolution, and for the reasons given earlier the adjudicator was entitled to decline to decide the effect of the resolution.

[69] In relation to future expenditure a question would arise as to whether the fact that some of the work had already been done by one firm constitutes exceptional reasons why there was no need to obtain alternative quotes in relation to the future work. That would be a matter for consideration by the adjudicator. The adjudicator seems to have taken the view that this resolution necessarily could not have authorised future expenditure, and therefore it was unnecessary to decide whether it had complied with the requirements of the regulations. In my opinion, however, it could have had the effect of committing the body corporate to future expenditure, depending on whether it had complied with the requirements of the regulation. The mere fact that expenditure was not authorised up to a specified limit did not mean the requirements of the regulation had not been complied with, and accordingly the question of whether the requirements of the regulation had been complied with remained in issue. That is something which in my opinion the adjudicator ought to have determined.

[70] It also follows in my opinion that the first order or declaration that was made by the adjudicator, there is no resolution authorising the estimated expenditure of up to $15,000 in legal fees, ought not to have been made. Depending on whether there had been compliance with s 104 of the regulation in relation to future expenditure in passing the fourth disputed resolution, there may well have been a resolution which was effective to authorise future expenditure to that end, although it did not have the effect of authorising expenditure to a particular amount. In my opinion that declaration ought not to have been made in such circumstances without determining whether the fourth disputed resolution was effective to authorise future expenditure. The other specific order for authorisation made by the adjudicator is spent, so there is no reason for me to consider its validity in this appeal.

[71] Accordingly, the appeal is allowed in part, the declaration made by the adjudicator is set aside, and the matter is referred back to the adjudicator to determine whether, in respect of future expenditure, the fourth disputed resolution was invalid because of any failure to comply with s 104 of the Standard Module regulation. The appeal will be otherwise dismissed. In relation to costs, overall the appellant's success has been quite limited. Indeed, it is not at all clear to what extent the respondent would seek to rely on the fourth disputed resolution as an authorisation for future expenditure anyway; it may well not wish to do so. If it does not seek to uphold this resolution as a valid authorisation of future expenditure, then the matter can be easily resolved by the adjudicator's simply declaring that that resolution did not have that effect. Most of the issues raised by the appellant were without substance, particularly the issues in relation to ratification. In all the circumstances, I think the appellant should make some contribution to the respondent's costs, and I have in mind fixing an amount myself, but I will hear the parties before doing so.

[1] These costs were claimed not as costs in the proceedings but as a debt payable under the by-laws then in force, and hence on a solicitor and client basis.

[2] Casey v Quabba [2006] QCA 187.

[3] It seems to me obvious that the one member of the committee who had a clear conflict of interest was the appellant.

[4] As to adequacy of reasons, see Soulemezis v Dudley (Holdings) Pty Ltd (1987) 10 NSWLR 247; Mifsud v Campbell (1991) 21 NSWLR 725; Crystal Dawn Pty Ltd v Rudruth Pty Ltd [1998] QCA 373 at [15]; Bawden v ACI Operations Pty Ltd [2003] QCA 293 at [29]; Martin v Rowling [2005] QCA 128 at [3] per McMurdo P, [80] per Mullins J

[5] Referring to s 100(1) and s 312 of the Act, and s 26 of the Standard Module Regulation.

[6] As from 1 December 2003, the amounts were modestly increased to $125 and $250: 2003 SL 263, s 240(5) and (6).

[7] It does not appear to have occurred to the draftsman that there can be a difference. The section really only makes sense for fixed price contracts.

[8] After Royal British Bank v Turquand (1856) 6 EI and BI 327[1856] EngR 470; , 119 ER 886.

[9] Ford "Principles of Corporations Law" (11th edition, 2003) p 670, citing Northside Developments Pty Ltd v Registrar General [1990] HCA 32; (1990) 170 CLR 146.

[10] Ford, p 683, citing Halsbury's Laws of England, 4th edition volume 9 para 1221, 1338.

[11] Australian Capital Television Pty Ltd v Minister for Transport and Communications (1989) 86 ALR 119, a decision on companies legislation but in my view also applicable here.

[12] In paragraph 10 of the outline filed 1 November 2004 this is described as the nub of the appellant's complaint.

[13] Jones v Peters [1948] VicLawRp 56; [1948] VLR 331 at 335. See generally Dal Pont "Law of Agency" (2001) chapter 5.

[16] Presentaciones Musicales SA v Secunda [1994] Ch 271.

[18] Ford "Principles of Corporations Law" (11th edition, 2003) p 719.

[19] Kinsela v Russell Kinsela Pty Ltd (1986) 4 NSWLR 722 at 732.

[20] Danish Mercantile Co Ltd v Beaumont [1951] Ch 680 at 687-8, 688-9; Alexander Ward and Co Ltd v Samyang Navigation Co Ltd [1975] 1 WLR 673; Re Manias (1986) 15 FCR 1 at 3.

[21] Presentaciones Musicales SA v Secunda (supra)

[22] Formerly s 259, as renumbered in reprint 2.

[23] Actually, an application for leave to appeal to the Court of Appeal from the decision of the District Court.