A long-running legal battle between Southport Central’s residential and commercial body corporates have cost residents dearly.

Our complex shares the Southport Central site with ‘Commercial’, three retail body corporates, and the Australia Fair western carpark.

Newsletter 12 published by the Committee on 14 August 2019, described the circumstances concerning the apportionment of expenses of running the Southport Central site which led to a dispute between the Commercial and Residential body corporates.

Commercial commenced legal proceedings against Residential after Residential refused to pay an amount that Commercial says was owed as part of a cost sharing arrangement,

Newsletter 12 said: “it is clear that around $4,000,000 is owed to Residential” and that the committee “will endeavour to keep owners updated and believe this process will result in a significant reduction in levies”.

Unfortunately, there were minimal efforts to keep owners updated.

In response to an owner’s question at the 8 June 2022 committee meeting question and answer session, a committee member told the 16 owners present that the legal claim by Commercial against Residential had ‘settled’ – neither party would pay anything to the other and that both parties would bear their own legal costs.

That advice was disputed by Mr Colin Buckley, the former chairperson, whom those present and the minutes confirm had been engaged by the committee as a consultant. The settlement issue has never been further addressed by the committee.

Committee minutes of 23 October 2023 (Voting Outside of Committee Meeting – or VOCM), said: “The matter remains unresolved and is essentially unchanged from what is described in Newsletter No 12”.

Ahead of the 25 March 2024 committee meeting, it was put to the committee:

That concluding (VOCM) statement is not true in that the Residential counterclaim was, in March 2021, reduced to $545,962.34 (a long way from the $4 million counterclaim mentioned in Newsletter 12) and implies that the proceedings are continuing, whereas there has been no progress in this proceeding for over three years and if the committee intends to advance the matter, it must first obtain an order from the court – which can be expected to incur significant legal costs.

QUESTIONS:

Why has no action been taken to advance or finalise this matter?
What are the intentions of the Committee?

The Chairman avoided addressing the above questions, saying only that the committee would “follow the legal advice it receives”.

The 10 June 2024 committee meeting minutes said in relation to item 6.1 legal claim by Commercial:

“We refer owners to committee newsletter no 12 sent to all owners on 14 August 2019 which is available in English and Chinese for downloading from the online community portal. Newsletter No 12 gives the background of the matter. Requests by Residential to Commercial to cease the legal action and resolve the issues by discussion have not been successful. The matter remains unresolved and is essentially unchanged from what is described in Newsletter No 12.

What can be concluded from the above is that the repeated advice to owners that the matter is ‘essentially unchanged from what is described in Newsletter No 12’ is false; and that owners have been intentionally misled by committees since March 2021

There is more to be said regarding this matter.

In the Queensland court system, where there has been no action in a court matter for a period of two (2) years, the matter is said to have gone “stale” and a party wishing to proceed further, must first obtain an order from the Court – at a cost. Costs to date, including those paid to Herdlaw, a barrister and a Queens (now Kings) Counsel are estimated to be in excess of $150,000, but the committee needs to clarify this!

This article does not dispute the committee decision to oppose the Commercial application, the original Residential counterclaim or the amended counterclaim, it does question why the committee has intentionally misled owners, leading us to believe that there was a prospect of recovering up to $4 million, notwithstanding the amount of the counter claim was reduced in March 2021 to $545,962.34.

Transparency in body corporate administrative and financial management should concern every owner.

Unfinished legal actions could cost owners hundreds of thousands of dollars. Owners have little or no way of knowing what is happening in several expensive cases due to a lack of transparency by the current body corporate committee.

We list several cases where information has been concealed. These cases demonstrate a lack of transparency by the committee. Transparency means being open and honest about what you do. It’s a necessary step in fostering a culture of trust and is essential if owners are going to understand body corporate matters and successfully manage their apartment finances in an informed manner.

1. Removal and/or omission of records from the body corporate portal

The Southport Central Residential Community ‘Portal’, to which all owners have access, is
maintained by the Body Corporate Manager (BCM). You can access the portal on your
computer using the login information and password provided by the Body Corporate Manager or on your mobile using the Community app found on the Apple and Android App Stores.

The portal is effectively the only means by which owners can keep abreast of information
concerning the body corporate and is therefore of vital interest to all owners.

Until July 2023, owners could access the portal ‘Financials’ tab which included details of invoices submitted by, and payments made to, service providers. It allowed owners to see how our body corporate monies were being spent.

However, the Financials tab was removed after the Body Corporate manager was asked why access to invoices issued by the body corporate gardener had been blocked. Rather than unlock access to the gardener’s invoices, the BCM removed the Financials tab entirely (including the General Ledger) from the portal. The BCM has not responded to requests to re-instate the ‘Financials’ tab.

The ‘Financials’ tab could not have been removed without the knowledge of the committee.

The questionable actions previously included a payment of more than $50,000 for legal costs from body corporate funds. A legal company had provided services to the company CTS 35751 Investments Pty Ltd, not the body corporate and had erroneously invoiced the body corporate. It was paid by the Body Corporate Manager from body corporate funds and the payment apparently not disputed by the committee at the time. The body corporate was subsequently re-imbursed, but the entirety of this ‘error’ was never disclosed to owners and would not have been discovered save for the investigations of the Adjudicator.

In the Adjudicator’s words: “. . . there appears to have been a wholesale failure of even a basic level of appropriate and transparent decision-making and record-keeping over an extended period . . . . decisions to invest in the company, would appear. . . to have occurred in a procedural vacuum. There appears to be an extraordinary lack of records. There also appears to have been very little disclosure to owners as to what was being done.”

If you don’t have access to the portal, or have forgotten your password, just email the Body Corporate Manager: cmg@completemanagementgroup.com.au Click here if you’d like to download the Adjudicator’s report.

2. The legal dispute with the Southport Central Commercial Body Corporate

In August 2019, a body corporate newsletter reported a long running dispute over the Residential Body Corporate arm of Southport Central paying a disproportionate share of expenses for the overall operation of the Southport Central site, which it shares with the Commercial arm, three Retail Body Corporates and Australia Fair. It was estimated that the Residential arm overpaid by $4 million. As a result, Residential withheld contributions to the common property electricity costs. Commercial then started legal proceedings.

Our committee told owners that they would be defending the proceedings and counterclaiming to claw back this money.  The newsletter concluded “We will endeavour to keep owners updated and believe this process will result in a significant reduction in levies.”

Despite repeated requests for information, successive committees did not update owners. However, in June 2022, a committee member told a committee Q&A session (attended by just 16 owners) that the legal dispute had settled along the lines that “neither party would pay anything to the other, and that both parties would bear their own legal costs”. This was despite Residential incurring legal expenses of about $150,000 which included engaging a solicitor, barrister and Kings Counsel. No further details were disclosed.

However, the matter hasn’t ended there and it seems our body corporate is still incurring legal costs. Committee meeting minutes dated 31 August this year says Southport Central Commercial action against Southport Central Residential is amongst legal matters noted as ‘current and ongoing’.

We don’t know what, if anything, has been achieved to date, and what exactly is the present status of this unresolved issue despite the spending of $150,000 of owners’ funds.

3. Unresolved debt issue with Metered Energy Holdings (MEH)

In October 2018, a body corporate newsletter reported that Southport Central Residential had changed its electricity and gas supplier from MEH to Flow Systems.

At the AGM in the same year, the body corporate approved the purchase of three gas hot water heater systems for up to $150,000, subject to a final valuation.

However, there is no available record that this purchase occurred, or confirmation as to who owns the hot water systems that Residential continues to use and maintain despite terminating the MEH contract as Southport Central Residential’s energy and gas supplier.

This raises the following questions:

• Does the body corporate or MEH own the hot water systems?
• Is the body corporate at risk of legal proceedings arising from this issue?

4. Unpaid invoices from Altogether Group estimated at $480,000

A dispute eventually arose between Flow Systems and our body corporate. In February 2021, the committee passed a motion not to pay invoices previously issued by Flow Systems (renamed as Altogether Group) and all future invoices for ‘common property’ electricity. The committee alleged that communications and negotiations between the supplier and the committee had been “unsatisfactory”, but no explanation was provided by the committee.

Common property electricity is for lighting across the complex, lifts, air-conditioning, carpark lighting and exhaust system, security system etc. As a result of the committee’s decision, invoices for common property electricity costing about $20,000 per month were not paid between February 2020 and February 2022. The two-year financial liability is calculated at about $480,000.

In March 2022, solicitors for Altogether Group, wrote to the Body Corporate concerning the outstanding accounts. The Body Corporate Manager denied receipt of such a letter but later paid an invoice from Herd Lawyers for “Professional fees for all attendances up to 5 April 2022” in response to a letter received from Hall & Wilcox regarding alleged outstanding accounts.

At the 8 June 2022 Q&A session, the committee denied there were unpaid invoices but offered no explanation as to why this could be so.  We all know that all electricity is not free and that Altogether has threatened debt recovery proceedings over these unpaid invoices, including interest and court costs.

The Committee has been asked to explain exactly where this matter stands but won’t say. Silence is NOT golden. Altogether have six years to recover the debt but do we want this issue hanging over our heads??

5. Removal of Altogether Group as our Energy Supplier

In what can only be described as dubious circumstances, the committee proposed a motion at the October 2021 AGM to replace Altogether Group with Locality Planning Energy Pty Ltd (LPE) for the supply and billing of electricity, hot water heating and cooker gas.

The motion is described as ‘dubious’ as owners were intentionally misled by the committee which presented a quote from LPE, but submitted a quote ‘attributed’ to Altogether, which had been prepared in January 2020 and was valid only until 30 June 2021. The expired quote used by the committee gave the impression that it had obtained two competitive quotes, when only one new quote had been sought, that being from LPE. At the very least, this was intentionally false and misleading, a slight of hand, the committee assuming that naive owners would not notice what had been done.

Despite several requests, neither the committee (nor the Body Corporate Manager who published the material) has not have provided an explanation as to why they engaged in such conduct.

Owners are invited to draw their own conclusions.

6. Investment Adviser’s Report

We have detailed the Body Corporate’s dubious action to spend almost $1.5 million of owners’ funds on buying four apartments in the name of a company established and operated by the then chairman of the body corporate committee and now under the control of the present Chairman. Not only was the activity ethically questionable, the body corporate’s own financial adviser had warned about the plan.

The committee had told owners and a Body Corporate Commission Adjudicator that it had relied on the investment advice provided by Innovative Financial Solutions (IFS).

The IFS report was initially provided to the committee in June 2020, but was not posted publicly on the community portal until just a few days before the 2020 AGM. The timing was too late for most owners to read and consider the report before they voted at the 2020 AGM.

Importantly, the IFS report did NOT advise the committee to invest in residential property, as they had claimed. The report cautioned against investing in real estate.  It warned about “a lack of diversity in investments”. It said: “alternative investment vehicles and asset classes are not being addressed in detail in the light of your decision to invest in residential property”/ The IFS report said it was unable “to draft an actual investment strategy document”; and concluded that “you are still heavily exposed to residential property”. The Body Corporate Adjudicator concluded: “I do not consider that the decision to invest in the Company was in accordance with the IFS advice.”

It seems this highly relevant report was removed from the community portal because it did not support the Committee’s investment scheme. In September 2022, the Adjudicator ordered that the body corporate “divest itself of its current shareholding CTS 35751 Investments Pty Ltd and recover the funds invested in that company”.

A copy of the Innovative Financial Solutions (IFS), ‘Statement of Advice’ can be found here.

The purpose of a body corporate sinking fund is to collect a small amount of money from all owners each year to meet anticipated major expenditure over the next 10-year period.

The sinking fund forecast (SFF) estimates the cost to cover future expenditure for the replacement and/or maintenance and repair of building components at the end of their expected life – and calculates what owner levy contributions will be required each year to cover those expenses when they become due.

The importance of the SFF is obvious, but few people know ‘what it looks like’ and how it provides a ‘window into the future’ of the body corporate finances.

The SFF is not set in concrete because it is based on estimates, made by experts, but there will be occasions when components fail prematurely or when a vital component must be replaced, and/or the current cost of replacement far exceeds the estimate made in the last SFF.

An example can be seen here in the case of the 2018 estimate of the costs replacement of the scheme intercom system, which enables visitors to contact residents at the entrance to their respective tower, and for the resident to remotely release the front door and activate the lift call button to enable the visitor to reach the resident’s apartment.

In 2018 this cost was estimated at $121,471 whereas Motion 10 (on the 2023 AGM agenda) shows competitive quotes between $408,204 and $539,572. The body corporate is not required to strictly follow the SFF, but it must adapt to unforeseen demand on financial resources.

The sinking fund forecast provides a blueprint and a ‘window into the future’ through which owners can see what is ‘reasonably’ expected to occur over the coming year or years both in terms of repair and maintenance of building components and the associated costs.

The easiest way to understand the scope of the SFF is to take a look at the attached SFF prepared by Seymour Consultants for our scheme in 2018.

For reasons not apparent, the sinking fund forecast has not been posted on the body corporate portal where it could be perused by owners.

Gardens across the Level 3 Pool Deck and Level 12 have progressively deteriorated over recent years. Many established plants/shrubs and palms have died off or are looking increasingly distressed.

The pool deck gardens are an important feature of our complex, which if properly maintained, will add considerably to its attractiveness and value.

The gardens are desperately in need of professional attention. The current contractor, a one-man band, does not purport to possess any horticultural qualifications, which are essential if the gardens are to be rejuvenated and maintained to an appropriate standard.

‘Thrive Horticultural’, are a team of professionals with qualifications in horticulture, relevant experience and the firm is a member of Nursery and Gardening Industry Association of QLD.

Last year we proposed a motion at the AGM that we engage Thrive Horticultural to perform the groundskeeping works at the scheme on a month-to-month agreement. This would enable us to assess the quality of the service being provided. No other contractor was proposed for this position.

The Budget proposed by the committee for 2023 included $85,000.00 for garden/lawn maintenance. The Thrive quote was $79,552 per annum (or $6630 including GST per month). We need a better solution than the current one to restore our gardens.

At the 2017 AGM the body corporate voted overwhelmingly in favour of electronic voting
‘when the technology became available’. Compliant electronic voting systems became available in 2019 and in 2020 Body Corporate legislation was amended in 2020 to simplify the introduction of electronic voting to ‘allow voters to cast a vote using a computer, smartphone or computer tablet.’

However, at the 2021 AGM, the committee, rather than encouraging owners to vote and engage in body corporate decision making, proposed a motion without explanation to revoke the 2017 motion, which unfortunately passed. This intentionally limits the opportunity for owners to vote where they cannot attend meetings. Instead, they must download, complete, scan and email their voting papers (which is not always possible) or rely on postal services which are expensive and unreliable – especially for owners living or travelling interstate or overseas.

This complicated process is eliminated entirely when an owner can ‘cast a vote using a computer, smartphone or computer tablet’.

Southport Central Residential is languishing behind many other bodies corporate. Electronic voting is convenient, cost-effective and improves transparency and accuracy in vote counting. It will enable YOU to vote from anywhere. It is not compulsory, and you can still vote by traditional means or vote in person at the AGM, if that is your preference.

VOTE YES to introduce electronic voting and let owners vote online at all body corporate general meetings.

Catastrophe struck tower 1 on 20 February 2023 when a polypropylene Aquatherm water pipe on level 10 burst and unleashed a torrent of hot water that collapsed the level 10 foyer ceiling, and flooded apartments, stairwells, lift shafts and common areas on levels 10 and 9. Lifts, electrical boards, security systems and lighting were taken out and one lift took months to return to service.

Residents on upper floors unable to navigate dozens of staircases were initially stranded. The volunteers who brought them supplies/assisted those who could navigate the stairs deserve our gratitude.

Eight months on, and the body corporate committee has offered only limited information about the progress of repairs and the estimated cost of repairs. Two building managers reports in March and April 2023 describe action to be taken and provide a schedule for reparation works. But that’s it. That’s not good enough.

The body corporate manager, who maintains all the body corporate records, when requested to provide a copy of the ‘expert reports’ obtained by the committee replied: “We are not aware of the documents you refer to.”

The Chairman of the Committee has ignored a similar request for information. Why the secrecy?

We still don’t know whether the damage to common and personal property will be covered by the body corporate insurance or to what extent. We don’t know what steps have been taken to prevent or minimise the prospect of a second pipe failure. We don’t know if insurance would cover a second event, particularly if we’re slow to replace the Aquatherm system.

We do know that in 2019, US$23.5 million was needed to repair a US jail’s extensive Aquatherm system which was under a decade old.

We do know that in February 2016 a Brisbane body corporate made application for an adjudicator’s order to authorise spending to replace the Aquatherm hot water line at a cost
above the committee’s spending limit and that numerous bodies corporate including Watermark Kangaroo Point, Marquis On Main Beach,  Signature Park Apartment
Merrimac, Regatta Riverside Toowong, Ocean Pacific Broadbeach, Metropolis On Ann Brisbane CBD, Tempo Apartments West End, and Quest Riverpark Central Brisbane CBD have all replaced their Aquatherm piping.

We do know that Aquatherm, a German plumbing invention of the 1980s, is expected to fail if the pipes are NOT PROPERLY clamped, became prone to failure if certain
chemicals are in the water such as chlorine, and if the water is particularly hot, as is common in Australian installations.

There had been problems with the hot water pipes at Southport Central in the year before the pipe burst. The Mantra Building Manager’s report of 31 August 2022 advised of significant leaks in the Aquatherm hot water feed pipes in Tower 1, and noted it had been suggested that a secondary hot water feed line be installed using copper pipes to do away with the Aquatherm (polypropylene) pipes to avoid a potential major flooding incident.

At the AGM in late 2022, owners approved a committee motion to set aside $600,000 of sinking fund money to urgently replace “the failing Aquatherm pipes”.

A year on from that, and some extensively water damaged apartments and infrastructure on levels 9 and 10 are still being repaired. It appears a secondary hot water feed line will need to be installed to replace on all residential levels. The
installation includes cutting core holes in the concrete fire stair landings to reroute the hot water feed line.

Insurance usually covers only replacing like-with-like, but it seems the proposal is to not only reroute the hot water feed line but replace all Aquatherm pipes with copper
pipes from the rooftop down through residential levels 39 to 9, and through the foyer ceiling spaces in each level.

Aquatherm pipes are installed in Tower 1 only, but ultimately all owners contribute to the sinking fund and cost of repairs beyond that covered by insurance.

Beyond what insurance will cover, all owners in Southport Central Residential will bear the cost of this work and must be provided with access to all relevant reports, which can be simply posted on the Portal maintained by the Body Corporate Manager) detailing the scope of works, estimated cost and timeframe for this work to be carried out.

We know it is not possible to predict when and if further failure of the existing Aquatherm pipes will occur, but all Tower 1 owners and their tenants must be told what steps, if any, have been taken pending replacement of the existing Aquatherm pipes to minimise the prospect of a further flooding event. Their safety is at stake.

Should an Aquathern pipe burst on a much higher level, it could have an even more widespread, catastrophic effect and send water cascading down dozens of floors with massive cost consequences.

THE BODY CORPORATE CONTROVERSIALLY BUYS FOUR APARTMENTS IN OUR COMPLEX WITH OWNERS’ MONEY.

In 2020, the body corporate committee decided to invest owners’ funds in property. However, instead of investing in a property trust managed by experts, or apartments at another location, unbeknown to owners, an ‘investment scheme’ was devised to circumvent body corporate law which does not allow a body corporate to buy apartments within its own complex.

Tens of thousands in legal fees were paid to get around legislated requirements.

The scheme involved the then chairman of the body corporate committee setting up a private company, CTS 35751 Investments Pty Ltd, that would own the four apartments.

The chairman was the new company’s sole director, secretary and shareholder. The body corporate committee under the same chairman/company director then approved the buying of $1.4 million worth of shares in the company using owners’ sinking fund monies. This financed buying four apartments.

The body corporate holds shares in the company but the property is owned by the company.

 In June 2021, a concerned owner applied to the Office of the Body Corporate Commissioner to stop the body corporate from investing further funds in CTS 35751 Investments Pty Ltd.

In September 2022, a Queensland Body Corporate Adjudicator ordered that the body corporate divest itself of the shares and recover the funds invested in the company.

However the body corporate committee decided to reject the adjudication. Instead committee, which was elected in 2022, unanimously decided to appeal against the adjudicator’s orders to the Queensland Administrative and Civil Appeals Tribunal (QCAT).

This scheme involving placing owners funds in a private company operated by the body corporate chairman to buy apartments is deficient for the following reasons:

1. The body corporate committee failed to get financial advice on the investment options available for property, it simply sought advice on implementing its own questionable plan of buying within the complex. The committee should be getting proper financial advice when investing owners’ money. The adjudicator said: “I am not satisfied on the submitted evidence that the investments made by the body corporate accorded with the IFS advice regarding more effective ways to invest the body corporate funds”;
2. The adjudicator found that the funds to buy the apartments had been transferred from owners’ money to the company before the committee resolved to authorise the investment. The adjudicator said: “Funds were transferred to the company before the committee resolution to authorise the investment. This was not obviously an arm’s length arrangement”;
3. The action of setting up the chairman’s company cost owners more than $54,000 in legal fees; this expense could have been avoided had the committee invested in compliance with the law, and with minimal fees, for example in a property trust;
4. The adjudicator found that owners were not adequately informed about the plan when they voted to approve it at the 2020 AGM. The adjudicator also said record keeping had been inadequate. In the adjudicator’s words: “there appears to have been a wholesale failure of even a basic level of appropriate and transparent decision-making and record-keeping over an extended period. . . . decisions to invest in the company, would appear. . . to have occurred in a procedural vacuum. There appears to be an extraordinary lack of records. There also appears to have been very little disclosure to owners as to what was being done.”;
5. The failure of the committee to keep records, to adequately brief owners of its actions, to incur tens of thousands of dollars of avoidable legal costs, and the fact the body corporate doesn’t directly own properties bought with $1.4 million of owners’ monies clearly demonstrates that the committee is not competently managing funds in the owners’ best interests. There is a serious lack of accountability and transparency;
6. While the body corporate has shares in the company, it doesn’t have the absolute security of being the registered owner of the apartments;
7. The adjudicator found that the authorisation to use owners’ money to buy the four apartments was not valid. “The resolutions of the committee of the Body Corporate for Southport Central Residential on 22 May and 16 June 2021, authorising the investment in shares in CTS 35751 Investments Pty Ltd and to enter into a subscription agreement with CTS 35751 Investments Pty Ltd, were not valid …“;
8. The adjudicator ruled that the apartments be sold and owners’ money returned. “While the body corporate has declined to provide the legal advice that it says it relied on, I consider it is tolerably clear that the specific intention in creating the company and the structure of the company was to circumvent the statutory restriction on a body corporate owning lots in its own scheme … The Body Corporate for Southport Central Residential must, within a reasonable time, divest itself of its current shareholding CTS 35751 Investments Pty Ltd and recover the funds invested in that company”;
9. The adjudicator said: “That if the body corporate does not have effective
   control of the company, that will mean the body corporate has given effective
   control over significant body corporate funds to a single committee member.”

THE BODY CORPORATE COMMITTEE CHOSE TO IGNORE THE ADJUDICATION AND HAS INSTEAD OPTED TO APPEAL IT.