Dream Suburbs Pty Ltd ACN 609 015 938 as trustee for the Sok and Amy Family Trust v The Body Corporate for Persse Palace CTS 48289 & Anor [2023] QCAT 4

QUEENSLAND CIVIL AND ADMINISTRATIVE TRIBUNAL CITATION: Dream Suburbs Pty Ltd ACN 609 015 938 as trustee for the Sok and Amy Family Trust v The Body Corporate for Persse Palace CTS 48289 & Anor [2023] QCAT 4 PARTIES: DREAM SUBURBS PTY LTD ACN 609 015 938 AS TRUSTEE FOR THE SOK AND AMY FAMILY TRUST (applicant) v THE BODY CORPORATE FOR PERSEE PALACE CTS 48289 (first respondent) TIM GLOBAL PTY LTD ACN 168 580 505 AS TRUSTEE FOR THE SUNRISE FAMILY TRUST (second respondent) APPLICATION NO/S: OCL046-18 MATTER TYPE: Other civil dispute matters DELIVERED ON: 9 January 2023 HEARING DATE: 12, 13, 14, 15 and 16 December 2022 HEARD AT: Brisbane DECISION OF: Member Cranwell ORDERS: 1. It is declared that: (a) the Management Agreement with Tim Global Pty Ltd dated 23 February 2016 is void ab initio; (b) the Letting Agreement with Tim Global Pty Ltd dated 23 February 2016 is void ab initio; and (c) the Management Agreement with Dream Suburbs Pty Ltd dated 23 February 2016 is valid. 2. The Body Corporate for Persee Palace CTS 48289 must pay to Dream Suburbs Pty Ltd ACN 609 015 938 as trustee for the Sok and Amy Family Trust the amount of $23,360.29 within 28 days of the date of these orders. 3. The amended counter-application filed by the Body Corporate for Persse Palace CTS 48289 is otherwise dismissed. -- 1 of 21 -- 2 4. Any applications on the question of costs must be made within 28 days of the date of this order. In the event such an application is made, the party seeking costs shall file in the Tribunal and serve on the other party written submissions within 14 days of filing and serving the costs application. The other party may file and serve any written submissions in response within 14 days of being served with the written costs submissions. Unless either party requests an oral hearing, the costs application will then be determined on the papers. CATCHWORDS: REAL PROPERTY – STRATA AND RELATED TITLES – MANAGEMENT AND CONTROL – BODY CORPORATE: POWERS, DUTIES AND LIABILITIES – where certain management and letting agreements entered into with body corporate – whether agreements are valid – whether term of agreements permissible – whether remuneration payable to manager is fair and reasonable, and appropriate for the scheme – whether original owner breached fiduciary duties – whether compensation payable Body Corporate and Community Management Act 1997 (Qld), s 59, s 112, s 113, s 128, s 130, s 134, s 310 Body Corporate and Community Management (Accommodation Module) Regulation 2008 (Qld), s 11, s 53, s 94, s 112, s 118, s 119, s 124, s 191 Body Corporate and Community Management (Standard Module) Regulation 2008 (Qld), s 10, s 53, s 96, s 114, s 119, s 126, s 193 Land Title Act 1994 (Qld), s 115L Community Association DP No 270180 v Arrow Asset Management Pty Ltd & Ors [2007] NSWSC 527 Dream Suburbs Pty Ltd ABN 582 477 245 56 v Body Corporate for Persse Palace Community Titles Scheme 48289 & Ors [2019] QCAT 373 Old v McInnes and Hodgkinson [2011] NSWCA 410 Persse Palace [2018] QBCCMCmr 496 Sitting Bear Pty Ltd (receivers and managers appointed) v Body Corporate for Sphere Southport Living CTS 37951 [2014] QCATA 360 APPEARANCES & REPRESENTATION: Applicant and Second Respondent: B Strangman, instructed by Mahoneys -- 2 of 21 -- 3 First Respondent: Y Araki, instructed by Bugden Allen Graham REASONS FOR DECISION Introduction [1] The issue in dispute in these proceedings is the validity of certain management and letting agreements the Body Corporate for Persse Palace (‘the Body Corporate’) purportedly entered into with Dream Suburbs Pty Ltd (‘Dream Suburbs’) and Tim Global Pty Ltd (‘Tim Global’). A declaration that these agreements are invalid would leave the Body Corporate free to enter into fresh agreements, presumably at lower fees. [2] The current chairperson of the Body Corporate, Fudong Liu, purchased his lot off the plan. The contract annexed a draft budget, which showed caretaking fees of $31,000 per annum. Clause 24(a) of the contract also contained the following acknowledgment: The Buyer acknowledges that the agreements described in this clause are appropriate for the Scheme and are on terms which are fair and reasonable. [3] Mr Liu conceded under cross-examination that “what you bought is what you got”. [4] At some point after purchasing his lot, Mr Liu (and apparently other lot owners) formed an alternate view that the management and letting agreements were not appropriate, and were not on fair and reasonable terms. This change in position led to actions by the Body Corporate which ultimately triggered the commencement of these proceedings. [5] For the reasons set out below, I have found the Management Agreement with Dream Suburbs to be valid. The effect of this decision, therefore, is that the Body Corporate continues to be contractually obliged to pay the agreed fees to Dream Suburbs in exchange for performance of the agreed services. The parties [6] Persse Place is a 31 lot townhouse development. [7] Dream Suburbs is a company whose directors at the time of the events in 2016 were Sansok Auv and Chia-Hua Tsai. Mr Auv and Ms Tsai are husband and wife. Mr Auv currently remains a director of Dream Suburbs. [8] Tim Global is a company whose directors were and are Shu-Min Lin and Ting-Chen Lin. Ms Lin and Mr Lin are brother and sister. Tim Global employed Danial Tsai, who is the son of Ms Lin. [9] Ms Tsai is the daughter of Ms Lin, the niece of Mr Lin and the brother of Mr Tsai. Mr Auv is the son-in-law of Ms Lin and the brother-in-law of Mr Tsai. -- 3 of 21 -- 4 An overview of the dispute between the parties [10] The dispute between the parties was precipitated by a decision of the Body Corporate to cease paying management fees to Dream Suburbs in April 2018. [11] Dream Suburbs filed an application with the Tribunal on 28 June 2018, which was amended on 9 August 2018, seeking the following relief from the Body Corporate: (a) a declaration that the Management Agreement and the Letting Agreement are not invalid; (b) specific performance of the Management Agreement and the Letting Agreement, or alternatively damages for breach of contract. [12] The Tribunal subsequently issued an injunction on 10 September 2018, requiring the Body Corporate to continue making payments under the Management Agreement and the Letting Agreement. The unpaid fees under the Management Agreement between 23 March 2018 and 10 September 2018 totals $19,413.76. This amount is not in dispute. [13] The Body Corporate brought a counter-application on 2 January 2019, which was amended on 5 May 2020, seeking the following relief Dream Suburbs and Tim Global: (a) a declaration that the Management Agreement and the Letting Agreement are void; (b) alternatively, a declaration that the terms of the Management Agreement and Letting Agreement are limited to 10 years; and (c) an order for restitution; and (d) compensation for breach of section 112(3) of the Body Corporate and Community Management Act 1997 (Qld) (‘the Act’) and for breach of fiduciary duty. [14] For completeness, I note that the jurisdiction of the Tribunal was considered in Dream Suburbs Pty Ltd ABN 582 477 245 56 v Body Corporate for Persse Palace Community Titles Scheme 48289 & Ors [2019] QCAT 373. For the purposes of these proceedings, I consider myself bound by the findings therein, namely that the Tribunal does have jurisdiction to grant the relief sought by the parties. [15] I also note that references to legislation appearing in this decision are to the version of the legislation in force at the relevant time in 2016. The section numbers may differ from the legislation currently in force. The extraordinary general meeting on 23 February 2016 [16] An extraordinary general meeting of the Body Corporate was held on 23 February 2016. [17] The Body Corporate has raised as a threshold issue that the owners of lots 6 and 29 did not receive notice of the meeting. The best evidence available to me is a “Roll -- 4 of 21 -- 5 List” prepared by the Body Corporate and dated 2 February 2018. This roll records lots 6 and 29 as having “transfer dates” of 22 February 2016 and 19 February 2016 (respectively). These transfer dates were one and four days prior to the meeting. Section 191(2) of the Body Corporate and Community Management (Accommodation Module) Regulation 2008 (Qld) (‘the Accommodation Module’) and section 193(2) of the Body Corporate and Community Management (Standard Module) Regulation 2008 (Qld) (‘the Standard Module’) require notice of a transfer of ownership to be provided to the Body Corporate within two months. Even if I assume the transfer dates are recorded accurately, there is no evidence before me that the Body Corporate received notice of the transfers prior to the meeting of 23 February 2016. In the absence of such notice, I am not satisfied that any obligation to provide notice of the meeting to the new lot owners was triggered. [18] The minutes of the extraordinary general meeting recorded: The Chairperson tabled a Caretaking Agreement between the Body Corporate and Dream Suburbs Pty Ltd ABN 582 477 245 56 and a Letting Agreement between the Body Corporate and Dream Suburbs Pty Ltd ABN 582 477 245 56. RESOLVED that commencing 23/02/2016 the Body Corporate enter into the Caretaking Agreement and the Letting Agreement in the terms as set out in those Agreements tabled at the meeting both being for a period of 10 years and both having an option for a further 15 years and that Daniel Tsai as Corporate Nominee affix the common seal to those Caretaking and Letting Agreements. [19] The evidence before the Tribunal includes four agreements purportedly entered into by the Body Corporate at or around the time of the meeting on 23 February 2016: (a) a Management Agreement with Tim Global dated 23 February 2016; (b) a Letting Agreement with Tim Global dated 23 February 2016; (c) a Management Agreement with Dream Suburbs dated 23 February 2016; and (d) a Letting Agreement with Dream Suburbs dated 23 February 2016. [20] A contract register of the Body Corporate prepared the following day, on 24 February 2016, records contracts with Dream Suburbs in relation to “caretaking” and “letting” duties. I note that during, the course of the hearing, counsel and a number of witnesses used the terms “caretaking” and “management” interchangeably. [21] Following the meeting, on each of 8 April 2016, 22 April 2016, 25 May 2016, 22 June 2016 and 20 July 2016, Dream Suburbs issued invoices to the Body Corporate in respect of a “caretaking salary” for the period from 23 February 2016 to 29 June 2016. The latter date is the date that the rights under the Management Agreement and the Letting Agreement with Tim Global were purportedly assigned to Dream Suburbs. [22] The first annual general meeting of the Body Corporate was held on 28 June 2016. The minutes record that the minutes of the extraordinary general meeting held on 23 February 2016 were confirmed. The minutes also recorded: THAT the Body Corporate confirms that a Caretaking Agreement has been entered into between the Body Corporate and Dream Suburbs Pty Ltd ABN 582 -- 5 of 21 -- 6 477 245 56 and a Letting Agreement has been entered into between the Body Corporate, Dream Suburbs Pty Ltd ABN 582 477 245 56 and Tim Global Pty Ltd CAN 168 580 505 as Trustee for Sunrise Family Trust both for a period of ten (10) years with a further option to renew for fifteen (15) years, commencing on 23 February 2016. [23] I note that while there is no agreement in evidence styled as a “Caretaking Agreement”, given the apparent interchangeability of terminology, it would be reasonable to regard the reference to the Caretaking Agreement between the Body Corporate and Dream Suburbs as a reference to the Management Agreement between those parties. However, there is no tripartite letting agreement between the Body Corporate, Dream Suburbs and Tim Global. [24] It is not in dispute that only two people attended the 23 February 2016 meeting. One was Daniel Tsai, who attended as the nominee for Tim Global. The other person at the meeting was Daig Allman, who was in attendance as the body corporate manager. [25] Mr Tsai and Mr Allman gave near identical affidavit evidence that the minutes incorrectly referred to Dream Suburbs rather than Tim Global. In his affidavit, Mr Allman stated: I was the person who prepared the minutes of the First EGM and see now that they contain an error in that, under the hearing “Caretaking and Letting Agreements” it notes that Mr Tsai (the Chairperson) tabled agreements between the Body Corporate and “Dream Suburbs”. That is incorrect and I confirm that the agreements tabled at the meeting were the same as those which were signed at that meeting, namely [those with Tim Global]. I have also been shown and read a copy of a Management Agreement and Letting Agreement with handwritten amendments and otherwise bearing the dated 23 February, 2016, in each case between the Body Corporate and Dream Suburbs (Wrong Agreements) … I am uncertain as to why the Wrong Agreements now form part of the Body Corporate records. As I recall, those agreements were draft documents which incorrectly made reference to Dream Suburbs instead of Tim Global. The Wrong Agreements ought to have discarded (sic) as they were never tabled at the First EGM, reference the wrong parties, were signed and sealed in error and never subsequently relied upon. [26] However, under cross-examination, Mr Allman conceded that the agreements with Dream Suburbs were executed by himself and Mr Tsai at the meeting. He could not recall whether the agreements with Tim Global were signed by Mr Tsai at the meeting or at a later time in close proximity to the meeting. That said, Mr Allman confirmed that the signatories to the respective agreements on behalf of both Dream Suburbs and Tim Global were not present at the meeting. [27] In his affidavit, Mr Tsai stated: -- 6 of 21 -- 7 I have reviewed the minutes of the First EGM and see now that they contain an error in that, under the hearing “Caretaking and Letting Agreements” it notes that I tabled agreements between the Body Corporate and “Dream Suburbs”. That is incorrect and I confirm that the agreements tabled at the meeting were the same as those which were signed at that meeting, namely [those with Tim Global]. I have also been shown and read a copy of a Management Agreement and Letting Agreement with handwritten amendments and otherwise bearing the dated 23 February, 2016, in each case between the Body Corporate and Dream Suburbs (Wrong Agreements) … I am uncertain as to why the Wrong Agreements now form part of the Body Corporate records. As I recall, those agreements were draft documents which incorrectly made reference to Dream Suburbs instead of Tim Global. The Wrong Agreements ought to have discarded (sic) as they were never tabled at the First EGM, reference the wrong parties, were signed and sealed in error and never subsequently relied upon. [28] However, under cross-examination, Mr Tsai conceded that the agreements with both Dream Suburbs and Tim Global were executed by himself at the meeting. He stated that he thought the agreements with Dream Suburbs were draft agreements, notwithstanding that they were not marked draft. It is relevant to note that the Body Corporate’s seal was also affixed to the execution clause of these so-called draft agreements. [29] For completeness, I note that both agreements with Dream Suburbs were purportedly signed on its behalf by one of its directors, Sansok Auv. The agreements record that they were executed by Mr Auv in accordance with the company’s constitution, and there is no evidence before me to the contrary. Mr Auv’s evidence under cross- examination was that he recalled signing only one agreement. The same signature page appears on both agreements, and has on its footer “Page 23 of 23”. The Management Agreement is 23 pages, and the Letting Agreement is 12 pages. Accordingly, I am not satisfied that this purported Letting Agreement was ever executed on behalf of Dream Suburbs. Instead, what appears to have occurred is that the signature page for the Management Agreement has been copied and attached to the Letting Agreement. Consideration [30] The starting point for a consideration of the minutes of the extraordinary general meeting on 23 February 2016 is section 94 of the Accommodation Module and section 96 of the Standard Module. Those provisions both require a body corporate to ensure that full and accurate minutes are taken of each general meeting. [31] The minutes of the 23 February 2016 meeting are consistent with: (a) the evidence of Mr Allman and Mr Tsai that the Management Agreement and the Letting Agreement between the Body Corporate and Dream Suburbs were executed at the meeting on 23 February 2016; -- 7 of 21 -- 8 (b) the contract register prepared the following day, on 24 February 2016, recording caretaking (management) and letting agreements with Dream Suburbs; (c) the minutes of the 23 February 2016 meeting having been confirmed at the meeting on 28 June 2016; (d) the minutes of the meeting on 28 June 2016 confirming that a Caretaking (Management) Agreement was entered into with Dream Suburbs; and (e) the invoices issued by Dream Suburbs in respect of “Caretaking Salary”, for periods from 23 February 2016 onwards. [32] In these circumstances, I do not accept the evidence of Mr Allman and Mr Tsai that the minutes contain an error. I find the near identical wording of their affidavits to detract from the credibility of those affidavits in this regard. [33] I prefer Mr Allman’s evidence at the hearing, namely that the Management Agreement and Letting Agreement with Tim Global were executed shortly after the meeting on 23 February 2016. I consider Mr Tsai’s evidence that all of the agreements were executed at the meeting lacks credibility. In particular, I consider it implausible that Mr Tsai would have signed two agreements granting management rights to two different companies, as well as two agreements granting letting rights to two different companies, on a single occasion. [34] Accordingly, I find that: (a) the agreements tabled at the meeting on 23 February 2016 were the agreements with Dream Suburbs; (b) the agreements with Dream Suburbs were executed by Mr Tsai and Mr Allman at the meeting; (c) only the Management Agreement was executed by Mr Auv on behalf of Dream Suburbs; (d) a short time after the meeting, and in any event likely on 23 February 2016, the agreements with Tim Global were executed. [35] Section 112 of the Accommodation module and section 114 of the Standard Module empower the Body Corporate to engage a service contractor, but only in the words of paragraph (2)(a) if: the body corporate passes an ordinary resolution approving the engagement, authorisation or amendment and, for the passing of the resolution, no votes are exercised by proxy; … [36] I find that the Management Agreement and the Letting Agreement with Dream Suburbs were validly authorised by the meeting on 23 February 2016, although as noted above only the Management Agreement was fully executed by both parties. It follows that the Management Agreement with Dream Suburbs is valid. Having regard to the invoices issued by Dream Suburbs to the Body Corporate for periods from 23 February 2016 onwards, I find that the Management Agreement also commenced on -- 8 of 21 -- 9 that date for the purposes of section 119(2) of the Accommodation Module and section 121(2) of the Standard Module. [37] However, I have no alternative but to find that the Management Agreement and Letting Agreement with Tim Global were not validly authorised by the meeting on 23 February 2016. In considering whether this resulted in the agreements being void ab initio, I have also had regard to section 310 of the Act, which 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. [38] The evidence before me includes a document dated 23 February 2016, appointing Mr Tsai as the corporate nominee of Tim Global. In circumstances where Mr Tsai attended the meeting and was aware of the resolution passed authorising entry into the agreements with Dream Suburbs, it is not possible to say that Tim Global did not have notice of the irregularity. [39] As section 310 does not apply, the Management Agreement and the Letting Agreement with Tim Global are void ab initio. The committee meeting on 20 June 2016 [40] On 20 June 2016, a meeting of the committee of Body Corporate took place. The meeting was attended by the sole member of the committee, namely Mr Tsai. The minutes recorded that the following resolution was passed: THAT the Body Corporate consent to the assignment of the Caretaking and Letting Agreement dated 23 February 2016 between Tim Global Pty Ltd to Dream Suburb Pty Ltd with no transfer fee appliable and that the Body Corporate enter into the attached Deed of Consent to Assignment of Management Right and Letting Right to give effect to such assignment and that the Chairperson be authorised to affix the common seal of the Body Corporate to the Deed. [41] The material before the Tribunal includes a sale contract between Tim Global and Dream Suburbs dated 20 June 2016. Relevantly, the contract provides that in exchange for the transfer of the rights under the Management Agreement and the Letting Agreement, Dream Suburbs was to pay Tim Global the amount of $185,000. [42] The sale was purportedly given effect to be a Deed of Consent to Assignment of Management Right and Letting Right dated 29 June 2016. Relevantly, the Deed provides for the assignment of the rights of Tim Global under the Management Agreement and the Letting Agreement to Dream Suburbs. The assignment was consented to by the Body Corporate, and certain warranties were provided. [43] I have found above that the Management Agreement and Letting Agreement with Tim Global were not validly authorised by the extraordinary general meeting on 23 February 2016. Given the provisions of section 112(2)(a) of the Accommodation module and section 114(2)(a) of the Standard Module, set out above, the power to engage a service contractor is not exercisable by the committee. Accordingly, the -- 9 of 21 -- 10 resolution passed by the committee was incapable of authorising the Management Agreement and Letting Agreement with Tim Global, and the Deed was incapable of assigning agreements which were void ab initio. [44] The Body Corporate has alleged that the committee resolution is void on at least two grounds: (a) Mr Tsai was ineligible to be a voting member of the committee under section 11(2)(b) of the Accommodation Module and section 10(2)(b) of the Standard Module on the basis that he was an “associate” of both Tim Global and Dream Suburbs, as that term is defined in section 309 of the Act. (b) Mr Tsai was not entitled to vote on the resolution under section 53(2) of the Accommodation Module and section 53(2) of the Standard Module on the basis that he failed to disclose a conflict of interest to the meeting, namely that Tim Global stood to gain $185,000 from the sale of the management and letting rights. [45] I will, without engaging in an exhaustive analysis, accept that the committee resolution is void as Mr Tsai, the only committee member, was ineligible to vote on the resolution. Validity of the Deed [46] Ultimately, nothing turns on the validity of the Deed. However, I note that in clause 4(b) of the Deed the Body Corporate relevantly warranted: The Body Corporate: (i) warrants and agrees with the New Manager that: (aa) the interest of the Existing Manager is not liable to forfeit or surrender; (bb) the Management Agreement and Letting Agreement are in full force and effect (regardless of whether they are executed) and have not been forfeited or surrendered; and (cc) the remuneration is the current remuneration payable to the manager under the Management Agreement. [47] For completeness, I will proceed to consider the validity of the Deed for the purposes of making an alternative finding in relation to the warranty below. [48] It follows from my findings that the committee resolution of 20 June 2016 is invalid that I must also find that the Deed was not validly authorised by the committee. However, again, regard must also be had to section 310 of the Act in considering whether this resulted in the Deed being void ab initio. [49] Mr Tsai gave oral evidence on re-examination that he was unaware of any defects in his appointment as chairperson of the Body Corporate, and that he held an honest belief that he was the chairperson. I accept this evidence. In these circumstances, I -- 10 of 21 -- 11 am not satisfied that Tim Global had notice of any irregularity through Mr Tsai’s appointment as its corporate nominee. Further, the signatories of the Deed on behalf of Tim Global were Ms Lin and Mr Lin. They did not give evidence in the proceedings. Accordingly, it was not put to them that they acted dishonestly or had notice of an irregularity. [50] The signatories of the Deed on behalf of Dream Suburbs were Mr Auv and Ms Tsai. Ms Tsai did not give evidence in the proceedings. Accordingly, it was not put to her that she acted dishonestly or had notice of an irregularity. It was also not put to Mr Auv, who did give evidence, that he acted dishonestly or had notice of an irregularity in entering into the Deed. [51] Mr Tsai, as the purported chairperson of the Body Corporate, clearly had apparent authority to bind the Body Corporate in signing the Deed. In those circumstances, section 310 of the Act has the effect of validating the Deed, together with the warranty contained in clause 4(b). Grounds of alleged invalidity [52] The Body Corporate has alleged that the Management Agreement with Dream Surburbs is invalid on a number of further grounds, which I will examine in turn. Breach of the Standard Module [53] Under clause 2 of the Management Agreement, the term of the agreement is 10 years with an option for a further 15 years exercisable by the Manager. [54] At the time the agreement was entered into, terms totalling 25 years were permitted under section 118(1) of the Accommodation Module, but not under section 119(1) of the Standard Module. [55] The first community management statement for the Body Corporate was recorded on 4 February 2016. This statement stated that the Accommodation Module applied to the scheme. [56] On 4 October 2018, an Adjudicator made the following orders in Persse Palace [2018] QBCCMCmr 496: I hereby declare that, since the establishment of the Body Corporate for Persse Palace in February 2016, the regulation module applying to the scheme has been the Body Corporate and Community Management (Standard Module) Regulation 2008, despite the contents of the recorded community management statement. I further order that, within three months of the date of this order, the Body Corporate for Persse Palace must lodge a request to record a new community management statement that records the Body Corporate and Community Management (Standard Module) Regulation 2008 as the regulation module applying to the scheme. -- 11 of 21 -- 12 [57] It is not in dispute that a new community management statement was lodged within three months of the Adjudicators order, recording the Standard Module as applying to the scheme. [58] Section 115L(3) of the Land Title Act 1994 (Qld) provides: The community management statement takes effect when it is recorded by the registrar as the community management statement for the scheme. [59] Section 59 of the Act in turn provides: A community management statement takes effect under the Land Title Act, section 115L(3). [60] It is clear from these provisions that the community management statement for the Body Corporate recording the Standard Module as applying to the scheme took effect when lodged within three months of the date of the date of the Adjudicator’s order on 4 October 2018. In particular, section 115L(3) of the Land Title Act does not support the proposition that the effect of the Adjudicator’s declaration resulted in the new community management statement taking effect from the earlier date of 4 February 2016. [61] Section 128 of the Act provides: (1) This section applies to the engagement of a person as a body corporate manager or service contractor, or the authorisation of a person as a letting agent, for a community titles scheme if— (a) a new community management statement is recorded in place of the existing statement for the scheme; and (b) the new statement identifies, as the regulation module applying to the scheme, a regulation module different from the regulation module (the existing regulation module) identified in the existing statement. (2) The provisions of the existing regulation module applying to the engagement or authorisation continue to apply to the engagement or authorisation until the engagement or authorisation, including any renewal or extension of the engagement or authorisation, comes to an end. [62] In my view, the provisions of section 128 are engaged. The effect of the Adjudicator’s order was that a new community management statement was recorded in place of the existing statement, and that the new community management statement identified a different regulation module. [63] In light of section 128(2), I am unable to conclude that the Management Agreement is invalid due to non-compliance with the Standard Module. That agreement was entered into while the Accommodation Module was recorded on the community management statement, and the Act is clear that the Accommodation Module continues to apply to the agreement. [64] For completeness, I note that the Management Agreement purports to commence on 23 February 2016 and expire on 23 February 2026, with an option for a further term -- 12 of 21 -- 13 of 15 years. Accordingly, the total terms are for 25 years and one day. The inclusion of an additional day is of no consequence to the validity of the agreements, given the terms of section 118(3) of the Accommodation Module, which provides: If the unexpired term of the authorisation purports to be longer than 25 years, it is taken to be 25 years. [65] The extra day is simply removed by operation of the provision. Breach of section 112 of Act [66] Section 112 of the Act relevantly provides: (2) The original owner must exercise reasonable skill, care and diligence and act in the best interests of the body corporate, as constituted after the original owner control period ends, in ensuring each of the following— (a) the terms of the engagement or authorisation achieve a fair and reasonable balance between the interests of— (i) the contracted party; and (ii) the body corporate as constituted after the original owner control period ends; (b) the terms are appropriate for the scheme; (c) the powers able to be exercised, and functions required to be performed, by the contracted party under the engagement or authorisation— (i) are appropriate for the scheme; and (ii) do not adversely affect the body corporate’s ability to carry out its functions. Maximum penalty—300 penalty units. (3) If the body corporate or an owner of a lot included in the scheme incurs loss or damage because of the original owner’s contravention of subsection (2), the body corporate or owner may claim compensation from the original owner in a proceeding brought in a court of competent jurisdiction. [67] The primary ground for the Body Corporate’s allegation that Tim Global failed to comply with section 112 is that the proposed remuneration under the Management Agreement exceeds the fair market value. Other grounds relied upon by the Body Corporate were that the dominant purpose of entering into the agreements was to provide Mr Auv and Ms Tsai with a stable income, and that a tender process was not engaged in. [68] Tim Global and Dream Suburbs rely on expert reports from Kim Cox attached to affidavits dated 25 June 2020 and 22 February 2022. Mr Cox’s expertise was set out in his first report as follows: -- 13 of 21 -- 14 Mr Cox has extensive qualifications and experience in the Management Rights industry and has completed in excess of 150 reports for Community Title Schemes throughout Australia and New Zealand. … Twenty-five years as an owner/operator of management & letting rights including: Hi-Rise, Medium-Rise, Walk-Up and Town House or Villa community title schemes involving all types of letting; short-term/holiday, long-term/permanent and corporate in CBD/regional locations. … Review and determination of suitable levels of Bodies Corporate Remuneration for Resident Managers in existing/new/proposed buildings/complexes. [69] In his first report, Mr Cox concluded that the recommended manager’s annual remuneration, as at 23 February 2016, would have been $30,918.45 (excluding GST). This is based on 815.36 hours per annum at $37.92 per hour (excluding GST). [70] In his second report, Mr Cox deleted a number of items following discussions with the Body Corporate’s experts, David Leary. Mr Cox reduced the annual hours from 815.36 hours to 787.70. Applying the same hourly rate, I have calculated that the recommended manager’s annual remuneration, as at 23 February 2016, would have been $29,869.58 (excluding GST). [71] During cross-examination, Mr Cox’s expertise was not challenged and it was not put to him that his report was prepared in bad faith. [72] The Body Corporate relies on expert reports from Mr Leary attached to affidavits sworn on 23 March 2019 and 6 August 2020. Mr Leary’s expertise is set out as follows: I am the managing director of Lear and Partners Pty Ltd, a professional company of quantity surveyors and asset management consultants with extensive experience of strata titled buildings. … In addition to my company management role, I was for eight (8) years onsite building manager for a seven-level strata-titled office building in Toowong, Brisbane. I am currently the body corporate chairman for two schemes (commercial and residential) and have over twenty years experience as an active chairman or committee member. … I have extensive experience in the preparation of caretaker duty schedules, caretaker contract valuations and caretaker performance reviews, on behalf of both caretakers and bodies corporate. I also coordinate the open-market tendering of new caretaker contracts. -- 14 of 21 -- 15 [73] In his report, Mr Leary concluded that the fair yearly remuneration for the manager should be $17,618.02 (excluding GST). This is based on 445.916 hours per annum at $39.51 per hour (excluding GST). [74] Again, Mr Leary’s expertise was not challenged on cross-examination, and it was not put him that his report was prepared in bad faith. [75] In general, I note that the cross-examination of each expert related to allowances made by them for particular duties. Unsurprisingly, the position of the Body Corporate was that the allowances made by Mr Cox were too high, and the position of Dream Suburbs and Tim Global was that the allowance made by Mr Leary were too low. Mr Cox made a number of reasonable concessions which are reflected in his second report, but Mr Leary made none. Mr Leary’s report was also criticised for not making any allowance for profit, risk or the requirement that the caretaker live onsite. I consider these to be valid criticisms, although no attempt was made to quantify these allowances. [76] For completeness, I also note the Body Corporate raised the issues that a copy of the Management Agreement was not attached to Mr Cox’s report, and that the report did not include the date of the site inspection or the photographs taken at the inspection. I attach no weight to these issues, as there was no serious suggestion that Mr Cox had inspected some other scheme or used some other agreement. Mr Cox also confirmed in oral evidence that he had based his opinion on the standard of work set out in item 1(c) of schedule 2 to the Management Agreement, namely that the manager use its best endeavours to keep the scheme “in good order and repair, clean and neat”. [77] Similarly, an issue was raised by the Body Corporate that the hourly rate of $37.92 used by Mr Cox was based on “commercial-in-confidence” information not included in his report. Given that Mr Leary used a similar but higher hourly rate of $39.51, I am unable to attach any weight to this issue either. [78] It seems to me that the parties have proceeded on the fallacy that there is a single fair market value for the proposed remuneration under the Management Agreement, and that fair market value is reflected in the valuation contained in either Mr Cox’s report or Mr Leary’s report. Basic commercial experience tells us that there are necessarily a range of values for the proposed remuneration which may be described as fair. Had additional experts been retained, it is unlikely that their reports would have contained identical valuations. There is also an inherent imprecision in the required standard of work as set out in the Management Agreement, which is likely to lead to a degree of variability. Given the unchallenged expertise of Mr Cox and Mr Leary, and in the absence of bad faith, I conclude that the range of fair market values includes both $17,818.02 and $29,869.58, but is not necessarily bounded by these figures. [79] The remuneration specified in the Management Agreement totalled an annual rate of $34,100 (excluding GST) as at 23 February 2016, being comprised of 31 lots at $1,100 per lot (excluding GST). While this is approximately $4,200 higher than the figure of $29,869.58 used by Mr Cox in his second report, I do not consider that it is obviously outside the range of fair market values such as to constitute a breach of section 112 of the Act. In making this finding, I observe that any range including the remuneration in both Mr Cox’s report and Mr Leary’s report is necessarily a wide one. By way of -- 15 of 21 -- 16 counter-example, remuneration of $50,000 would more clearly be outside of the range. [80] Separate objection was also taken to the provision in clause 2 of schedule 1 to the Management Agreement, namely: For the second year and each subsequent year thereafter, the remuneration of the Manager shall be reviewed at each anniversary of the Term and the remuneration shall be the remuneration paid for the immediately preceding twelve (12) calendar month period multiplied by a fraction obtained by dividing the CPI determined immediately prior to the date upon which the relevant amount is to be determined (hereinafter referred to as the “Review Date”) by CPI determined immediately prior to the date which is twelve (12) calendar months prior to the Review Date or, alternatively, increased by five per centum (5%) per annum whichever is greater. [81] The Body Corporate alleges that the minimum 5% increase is manifestly excessive and inappropriate. Mr Leary expressed the view: I also note that Schedule One sets a minimum annual remuneration increase of five percent. In my experience, the actual increase in labour rate and corporate expenses will frequently be less than five percent. [82] Mr Leary implicitly accepts that, while there may be years where the minimum 5% increase is above the level of cost rises, there may also be years where it is not. Indeed, on the figures provided by the Body Corporate, CPI is currently 7.3%. In the context of Dream Suburbs having assumed a degree of risk in limiting its remuneration increases to 5% or CPI over the course of 25 years, without any provision for a market review, I am not satisfied that a minimum 5% increase is manifestly excess or inappropriate. [83] In my view, the finding that the remuneration was within the range of fair market values has the effect that the other grounds relied upon by the Body Corporate for breach of section 112 are incapable of standing by themselves. The Act contains no prescription to engage in a tender process, and no proscription on the purposes for which an agreement may be entered into. Section 112(2) relates only to the terms of the agreement. If, as I have found, the remuneration was a fair market value, it is not possible say that the agreement was not appropriate for the scheme, or that it did not constitute a fair and reasonable balance of the interests of Dream Suburbs and the Body Corporate. [84] Objection was also taken to the choice of the Accommodation Module, as opposed to the applicable Standard Module. I do not regard as contentious the proposition that the term of the Management Agreement being 25 years rather than 10 years increases the value of the management rights. The Body Corporate has provided expert evidence from a valuer, Alison Sun, on this issue, but I consider the proposition is self-evident. The benefit of this increase in the value of the management rights would flow to the holder of those rights in the event of a sale. Given that I have found the Management Agreement with Tim Global to be void ab initio, this benefit is capable only of flowing to Dream Suburbs and any such benefit has yet to crystalise. -- 16 of 21 -- 17 [85] The evidence of both Mr Tsai and Mr Allman was that they relied on the agreements prepared by Tim Global’s lawyer in relation to the Accommodation Module being the appropriate module for the scheme. This was not challenged. While this advice was ultimately found to be incorrect by the Adjudicator, it is not possible to say that the lawyer’s advice was not reasonably arguable. Indeed, the Adjudicator conceded that (at [22]): The CMS refers to a caretaking or letting agreement and the manager’s lot, clearly demonstrating that the letting of lots was contemplated. [86] More broadly, it is relevant to note the engagement by Tim Global of the services of lawyer and a body corporate manager, namely Mr Allman. Mr Tsai’s consistent evidence was that Tim Global acted on the advice of its lawyer and the body corporate manager. Mr Tsai also gave evidence that Persse Palace was the first property development venture undertaken by Tim Global. In the absence of previous experience, engaging and relying on expert assistance, including the lawyer’s advice as to the choice of module, appears to me to be consistent with the exercise of reasonable skill, care and diligence. [87] Further, I note that there is insufficient evidence before me to support the conclusion that it was unreasonable for Tim Global to rely on the advice of its lawyer to draft appropriate duties and to calculate a fair and reasonable remuneration for those duties. Mr Leary’s evidence was that, while he characterised them as “sparse”, he had seen similar written duties in other management agreements. The remuneration calculated by the lawyer turned out to be consistent with that recommended by Mr Cox, which I have found was within the range of fair market values. [88] In any event, the remedy set out in section 112(3) is not order that the Management Agreement is void or voidable, but compensation for any loss suffered. In circumstances where the remuneration was a fair market value, I am not satisfied that there was any loss suffered by the Body Corporate. [89] Alternatively, even if I am wrong about no loss having been suffered, I note that the compensation sought under section 112(3) by the Body Corporate is the difference between the remuneration assessed by Mr Leary and the remuneration actually paid to Dream Suburbs. Any compensation awarded on this basis to the Body Corporate against Dream Suburbs would necessarily be indemnified by the damages payable by the Body Corporate to Dream Suburbs for breach of the warranty in clause 4(b) of the Deed, namely that the Management Agreement is in “full force and effect” and that “the remuneration is the current remuneration payable to the manager under the Management Agreement”. [90] For completeness, I note in passing that section 130 of the Act provides a process for the review of the duties and remuneration contained in the Management Agreement with Dream Suburbs, such agreement having been entered into during the original owner period. The review criteria in section 134 include: (a) the appropriateness of the reviewable terms for achieving a fair and reasonable balance between the interests of the reviewing parties; … -- 17 of 21 -- 18 (d) whether the reviewable terms are appropriate for the scheme; (e) the term of the engagement as service contractor and the period of the term remaining. [91] It would have been open to the Body Corporate to seek such a review, rather than ceasing payment of the management fees to Dream Suburbs. Breach of fiduciary duties [92] The Body Corporate has also alleged that Tim Global breached fiduciary duties owed to it. [93] It is not in dispute that a developer of a residential development owes a fiduciary duty to the resulting body corporate: Community Association DP No 270180 v Arrow Asset Management Pty Ltd & Ors [2007] NSWSC 527 at [225] per McDougall J. [94] The position of Dream Suburbs and Tim Global is that the fiduciary duty cannot be said to differ from the requirements of section 112(2) of the Act. In order words, their position is that section 112(2) “covers the field” of the fiduciary obligations owed to a body corporate by an original owner. [95] I do not accept this position. Neither the wording of section 112(2), nor the Explanatory Memorandum, evinces an intention that Parliament intended to provide an exhaustive statement of the fiduciary obligations of the original owner. In this regard, the Explanatory Memorandum states: The amendments to the Body Corporate and Community Management Act 1997 generally provide for: … • increased obligations on the original owner (developer) of the scheme … The intent of the section is to place a greater responsibility on the developer to consider the long term arrangements, including letting agent authorisations and service contracts, that are put in place when the developer constitutes the body corporate at the commencement of the scheme. The money made from the sale of these rights must have no relevance to the arrangements the developer puts in place. [emphasis added] [96] I agree with the statement of Member Barlow QC (as he then was) in Sitting Bear Pty Ltd (receivers and managers appointed) v Body Corporate for Sphere Southport Living CTS 37951 [2014] QCATA 360 at [84] that: [T]hose are only specific instances of obligations imposed by the legislature concerning specific dealings of bodies corporate. They do not, in my view, purport to cover the field of the relationship between a developer and a body corporate. -- 18 of 21 -- 19 [97] For the reasons set out above, I do not accept that there was any breach of fiduciary duty in relation to the quantum of remuneration payable to Dream Suburbs under the Management Agreement, or the choice of module. [98] The Body Corporate has raised claimed additional breaches of fiduciary duties by Tim Global. For convenience, I will summarise these into three categories. [99] The first category relates to the failure by Tim Global to disclose the familial relationship between its directors and those of Dream Suburbs prior to entering into the Management Agreement. This includes the associated failure to disclose that the dominant purpose of entering into the agreements was to provide Mr Auv and Ms Tsai with a stable income. [100] It is relevant to note that Mr Auv, who performs the duties on behalf of Dream Suburbs, gave evidence that he undertook two months’ work experience at a similar scheme prior to taking up the role. The duties contained in schedule 2 to the Management Agreement generally include cleaning and grounds maintenance. Clause 1(y) expressly excludes any duty that requires the services of a skilled or specialist tradesman or contractor. There is no complaint that Mr Auv lacked the requisite knowledge and skills to carry out the duties contained in the Management Agreement on behalf of Dream Suburbs. [101] Nevertheless, I accept that Mr Tsai’s execution of the Management Agreement on behalf of the Body Corporate, while acting as the corporate nominee of Tim Global, constituted a conflict of interest. I also accept that the relevant disclosure did not occur. [102] However, given that I have found that the remuneration was within the range of fair market values, I am not satisfied that a benefit was obtained by either Dream Suburbs or Tim Global. To award compensation would result in the Body Corporate being put in a better position than if the breach had not occurred: see Old v McInnes and Hodgkinson [2011] NSWCA 410 at [97] per Meagher JA. [103] The second category relates to the failure to disclose that, under the sale contract, Tim Global was to receive $185,000 from Dream Suburbs for the sale of the management rights. This was described by the Body Corporate as a “secret commission”. [104] It is useful to set out the context in which this transaction took place: (a) Mr Leary gave evidence that it was a normal industry standard for service agreements to be entered into during the original owner control period with an entity controlled by the developer, with the intention to sell the management rights at a later date. (b) Mr Allman also gave evidence confirming that this was a standard practice, and that developers often made these arrangements to ensure maintenance standards during the initial life of the scheme. (c) Ms Sun provided an independent valuation of the management rights at $160,000, on the basis of the remuneration and term contained in the Management Agreement. Her report stated: -- 19 of 21 -- 20 Based on our assessed market value of $160,000. (sic) We consider the sale from Tim Global Pty Ltd to Dream Suburbs Pty Ltd to be at an arm’s length sale. [105] Notwithstanding this evidence, I accept the existence of a conflict of interest and that the relevant disclosure did not occur. [106] The Body Corporate has claimed an account of profit of $185,000 as a remedy. I considering whether to grant a remedy, I have had regard to the Parliament’s expressed intention that a body corporate should not receive payment for the engagement of a service contractor. Section 113 of the Act relevantly provides: (1) The body corporate for a community titles scheme must not seek or accept the payment of an amount, or the conferral of a benefit, for— (a) the engagement of a person as a service contractor for the scheme (including a replacement or renewal of an engagement of the person as a service contractor); or … (3) If an amount is paid to, or a benefit is accepted by, the body corporate in contravention of subsection (1), the person who paid the amount or conferred the benefit may recover the amount, or the value of the benefit, as a debt. [107] In my view, section 113 precludes the Body Corporate from receiving a payment or benefit on the sale of the management rights, which would extend to the account of profits claimed. [108] In any event, the basis for ordering an account of profit falls away given my finding that the Management Agreement and the Letting Agreement with Tim Global were void ab initio. Despite receipt of the $185,000 from Dream Suburbs, Tim Global was not capable of transferring management rights which it did not hold. The payment may be liable to recovery by Dream Suburbs on the basis of a total failure of consideration under the sale contract. [109] The third category relates to the waiver of a transfer fee in the committee resolution dated 20 June 2016. Section 124(3) of the Accommodation Module and section 126(3) of the Standard Module provide that a transfer fee can be waived in certain circumstances, which I am satisfied do not apply in the present case. [110] Again, no transfer of management rights was capable of taking place, as the Management Agreement and the Letting Agreement with Tim Global were void ab initio. No transfer fee was payable in the absence of a transfer, and to award compensation would result in the Body Corporate being put in a better position than if the breach had not occurred. Disposition [111] Given my findings above, I will declare that: -- 20 of 21 -- 21 (a) the Management Agreement and the Letting Agreement with Tim Global are void ab initio; and (b) the Management Agreement with Dream Suburbs is valid. [112] It not necessary for me to make any formal declaration in relation to the Letting Agreement with Dream Suburbs. The failure by Dream Suburbs to execute the Letting Agreement is an issue which first emerged at the hearing, and was not pleaded to by any of the parties. It does not affect the other relief claimed in these proceedings. [113] Similarly, it is not necessary for me to make any formal declaration in relation to the validity of the Deed, as this does not affect the ongoing relationship between the Body Corporate and Dream Suburbs and is not relief claimed in the pleadings. [114] It follows that I will order that the Body Corporate pay to Dream Suburbs the outstanding fees in the amount of $19,413.76 plus interest from 10 September 2018. According to the Queensland courts interest calculator, the total amount payable as at the date of order is $23,360.29. [115] The amended cross-application by the Body Corporate will be otherwise dismissed. Costs [116] The parties may make written submissions on the question of costs in the event that a costs order is sought within 28 days hereof. -- 21 of 21 --