Developer hit with largest ever fine under Queensland Strata Law

Developer hit with largest ever fine under Queensland Strata Law

Introduction

On 31 January this year, the highest Court in Queensland upheld the largest ever fine imposed for a breach of the State’s strata law. The developer Corella Rd Dev Pty Ltd was ordered to pay a fine of $125,000 plus $115,000 in costs. The maximum available fine for the second most serious offence under the Body Corporate and Community Management Act 1997 was $232,200.

Corella’s offence arose from it making an application for a new development approval in respect of the final stage of the Gympie Pines Fairway Villas community titles scheme without first notifying the body corporate for the scheme. The Body Corporate first became aware of the changes to the final stage of the residential townhouse development when the local newspaper reported that the Council had granted development approval to Corella. By failing to give the Body Corporate notice as required under the BCCM Act, Corella had deprived the Body Corporate and all existing owners of the right to make submissions to the local Council about the development application.

Prosecution by Body Corporate

As there is no #StrataCop in Queensland to investigate and prosecute breaches of the strata law, it was left to the Body Corporate to decide whether to bring a private prosecution. The decision to prosecute was taken by the owners of the 54 existing townhouse lots in a general meeting of the Body Corporate. The vote was strenuously opposed by Corella, as owner of the balance development lot in the scheme.

Indeed, after the Body Corporate’s decision to prosecute was made, Corella tried, and ultimately failed, to obtain Adjudicators orders that the Body Corporate hand over the privileged legal advice it had received, about the proposed prosecution!

After the guilty finding was made by the local Magistrates Court on 19 May 2022, but before the sentence was imposed, Corella appealed the Magistrate’s decision to the District Court. That appeal was dismissed by the District Court on 30 August 2023.Not satisfied, Corella appealed to the Court of Appeal, including to seek the Court’s leave to introduce further evidence. That evidence was, however, reasonably obtainable by Corella at all earlier times and could have been provided to the Magistrates Court or the District Court.

In all three of the hearings, that is, before the Magistrates Court, the District Court and ultimately the Court of Appeal, one central issue was crucial. Corella was only required to give the Body Corporate notice of Corella’s development application to the local Council if, and only if, there was a ‘current development approval’ for the community titles scheme when Corella made the development application.

Before each Court, Corella argued that a development approval, under Queensland law and for the purposes of the BCCM Act in particular, could only be ‘current’ if the development approval had not been cancelled, revoked or it’s ‘currency period’ had expired under the Planning Act 2016. In opposition, the Body Corporate argued that the ‘current development approval’ for a staged community titles scheme development, was the development approval for the whole scheme, which was current when the last stage of development was completed, as reflected within the community management statement for the scheme.

Understanding Staged Community Titles Schemes

In Queensland, when a community titles scheme is intended to be developed progressively, that is in stages, and the progressive development is not yet complete, then the community management statement for the scheme must explain the proposed development and illustrate that proposed development by concept drawings.

That explanation of development fulfills a very important role for developers. As long as a developer ‘sticks to’ the development as described in the community management statement, and the relevant development approval, then the body corporate must sign the developer’s community management statement required for a new stage.

In other words, developers don’t have to keep control of the body corporate (through ‘loaded’ entitlements or powers of attorney etc.) to ensure that after they have finished a new stage, and are at ‘peak debt’, the body corporate, under the control of the new owners (who typically bought their lots from the developer and may have an axe to grind), cannot hold the developer to ransom over the new stage.

That was exactly what developers had reported was happening, after the BCCM Act commenced in 1997 and before the change to that Act was made in 2003 to protect the rights of developers who did the right thing.

The schema of the relevant provisions in the BCCM Act meant that, in effect:

• the initial developer would obtain an en globo development approval for the entire development (usually a ‘preliminary approval’ which included approval for a ‘material change of use’);
• the development authorised by that development approval would be summarised in the community management statement for the new community titles scheme; and
• each time the developer completed a stage, the description in the community management statement would be updated to reflect:
  • the completion of the stage; and
  • any changes to the development authorised by the original development approval, by later development approvals (i.e. a stage approval or an amendment to the original development approval).

This practice brought about by developers following the requirements of the BCCM Act, meant that in community management statements for staged developments there would be a summary of the development approval for the scheme current as at the date the last stage was completed, and the community management statement for that stage was recorded.

In effect, the development approval that was ‘current’ for a staged community titles scheme development, and which was not yet completed, was the development approval ‘reflected’ in the community management statement recorded after the last stage of development.

The Body Corporate argued before each Court that this was the intended meaning of “current development approval for the scheme”.

The District Court

The Magistrate agreed with the Body Corporate’s argument. The District Court did not, and instead agreed with the developer’s interpretation, that the development approval had to not have been revoked, cancelled or it’s ‘currency period’ elapsed under the Planning Act by the time the developer applied for the new development approval. It was clear, before the District Court, that the relevant development approval (in this case the original ‘preliminary approval’ for the entire development site) had not been revoked or cancelled. The issue was whether the currency period for the development approval had expired.

The Body Corporate lead evidence, in the form of a planning and development certificate issued by the local Council, which stated that the original, preliminary approval was still ‘in effect’; that is, its currency period had not expired.

The developer Corella, lead some evidence that the planning and development certificate was wrong. Crucially however, the District Court ultimately found that the developer had failed to lead all the evidence necessary to prove that the certificate was wrong. Accordingly, the District Court could not find that the ‘currency period’ for the preliminary approval had expired.

Twenty days after the District Court decision was handed down, Corella obtained the missing evidence. Seven days after that, Corella appealed the District Court’s decision to the Court of Appeal.

The Court of Appeal

If the Court of Appeal allowed the developer’s fresh evidence and adopted the same legal test for ‘current development approval for the scheme’ as the District Court (that is, the developer’s preferred test), then the District Court decision would be overturned. The net effect being the developer would have not committed any offence.

Before the hearing in the Court of Appeal, and because the developer’s appeal to the District Court had been dismissed, the Magistrates Court handed down the sentence; costs, in an amount nearing an indemnity, and a fine of more than 54% of the maximum available, even though it was the developers ‘first offence’.

Further, and as requested by the Body Corporate, half of the fine, being $62,500, was to be paid to the Body Corporate (once the State Penalties Enforcement Registry had recovered it from Corella).

The sentence having been imposed, it was then also open for Corella to appeal the sentence to the Court of Appeal, if Corella wished.

Very early in the hearing before the Court of Appeal, the Court raised an issue which turned out to be the fatal flaw in the developer’s argument; if the development approval for the scheme that was current when the last stage of development was completed, is revoked, cancelled or expires (i.e. its’ ‘currency period’ ends), then no one is compelled to give notice of that fact to the Body Corporate.

The lot owners, who make up the Body Corporate, would be in the dark about the future development of the remaining stages of their community titles scheme.

In an extreme case, a developer who no longer wanted to be bound by an earlier development approval for the scheme, reflected in the currently recorded community management statement for the scheme, could simply apply to the local council to have the development approval cancelled. On cancellation, the developer would have a clean slate and could apply for whatever new development approval they wanted, without having to tell their body corporate.

Corella had adopted the ‘blank slate’ approach at Gympie Pines, because in Corella’s view the original development approval had lapsed by the time Corella applied to Council for approval for its preferred final stage of development. That is:

• instead of 36 new townhouse lots, in 8 or 9 new buildings, each having a separate title, each contributing body corporate levies, and being largely the same as the earlier townhouses.
• Corella wanted approval for one ‘mega lot’ (no subdivision of the balance development lot at all), on which it could construct 3 ‘clusters’ of a single bedroom house surrounded by 6 two-bedroom houses, for a total of 21 new residential dwellings, suitable for low care NDIS accommodation (i.e. a ‘carer’ located in the single bedroom house, and 12 NDIS participants in the 6 surrounding two-bedroom houses adjacent to the carer’s house).

If the Court of Appeal adopted Corella’s proposed test for ‘current development approval’ the important consumer protection object of the BCCM Act would not be fulfilled; savvy developers could circumvent the relevant consumer protection provisions.

That consumer protection object could, however, be upheld, if the Court adopted the orthodox approach when interpreting the relevant words in the BCCM Act.

That is, to begin with the plain meaning of the relevant words ‘current development approval’, and then to have regard to both their context and the purpose of the statute, even if the meaning of the relevant words appeared to be clear. The Court could then have regard to the different interpretations, but it must then prefer the interpretation which will best achieve the purpose of the BCCM Act.

The Court’s Interpretation 

Her Honour Justice Brown, with whom the President, Justice Mullins, and Justice Boddice concurred, closely examined the statutory context and provisions, and ultimately landed very close to the Body Corporate’s position:

• ‘Current’ refers to the development approval that is current under the community management statement and not ‘current’ under the Planning Act.
• The Development Approval is ‘for the scheme’ referring to the approval which governs the development of the scheme as a whole intended to be developed progressively, including in stages.
• That development approval is the one current at the time of the existing community management statement.
• The development approval includes the planning approval relevant to its use and any approval which has required a new community management statement for the scheme, as a result of a new plan of subdivision (for land in the scheme).

Applying this approach, Her Honour found that the ‘current development approval’ for the scheme was the preliminary approval (which included the material change of use approval for the scheme land), and the development approval for the last stage of development current as at the date the last community management statement for the scheme was executed, on 19 March 2009.

On this interpretation, it did not matter whether the preliminary approval had, in law, ‘run out’ (its currency period had expired), based on the developer’s new evidence, in or about 2010, more than a decade before Corella applied for the new development approval.

What was relevant was that the preliminary approval, augmented by the last completed stage development approval, was current as at the time the 2009 community management statement had been recorded, and it is that ‘version’ of the development approval that was both:

• reflected in the 2009 community management statement, in the form of the description of development of the scheme land, and illustrated by concept drawings, including that development yet to be completed; and
• by virtue of being reflected in that community management statement, the ‘current’ development approval as at the date Corella applied to Council for the new development approval.

Implications

Queensland property developers, bodies corporate of incomplete staged schemes, and their respective advisors, should take careful note of the Court of Appeal’s decision.

The Court has explicitly recognised the consumer protection function that the community management statement plays, in staged developments. The BCCM Act reflects Parliament’s intention to ensure that consumers can rely on what their community management statement says, about what the final stages of their community titles scheme will look like.

If a developer wishes to depart from that description of development, then the required written notices must be given, at the correct time, before the developer seeks the new or amended development approval, for the developer’s new development intentions.

Ascertaining what the ‘current development approval’ for the scheme is, is not simply an exercise in checking whether any preliminary approval has expired. The development, and development approval history of the scheme must be closely considered, along with how that has been reflected in the community management statements for the scheme, those statements being what lot owners, and others, have relied upon to form their views of what development of the scheme land will take place in the future.

Developers who do not adopt this approach, and who cross the line, can expect a significant fine, irrespective of whether it is their first offence.

Legal Representation

In all of the proceedings, the Body Corporate was represented by the writer (Michael Kleinschmidt) and his team, now Bugden Allen Group Legal, and (exceptionally well) supported by Andrew Davidson and Adelle Sirett of Team Body Corporate Management.

© Bugden Allen Group Legal Pty Ltd. This is general information only and not legal advice. You should not rely on this information without seeking legal advice tailored to your specific circumstances.
The image used in this article is subject to copyright, and kindly provided by Gympie Pines Fairway Villas web site: https://gympiepines.com.au/