Case Note: Owners Corporation 1 PS No. 834726V v Melbourne Owners Corporation Services Pty Ltd (Owners Corporations) [2024] VCAT 199

Case Note: Owners Corporation 1 PS No. 834726V v Melbourne Owners Corporation Services Pty Ltd (Owners Corporations) [2024] VCAT 199

This case note was written by Justine Nguyen, a Solicitor in our Melbourne office (and peer reviewed by Tim Graham).

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On 5 March 2024, VCAT handed down its decision in Owners Corporation 1 PS No. 834726V v Melbourne Owners Corporation Services Pty Ltd.[1]  The dispute arose when the Owners Corporation (OC) sought to terminate their OC manager’s services. The OC manager, Melbourne Owners Corporation Services Pty Ltd (MOCS), thereafter deducted fees and compensation it believed it was entitled to prior to the handover, including maintenance fees relating to the gardening, additional fees, management fees, handover fees, disbursements, administrative set up costs and damages for early termination.

The OC relied upon s 67B(1) of the Owners Corporations Act (the Act). [2] MOCS argued s 67B(1) did not apply because its appointment was not prior to the first meeting of the OC.

BY way of reimbursement, MOCS was ordered to pay a total of $2,014.75 to the OC. The Tribunal declared the meeting held on 11 July 2022 was void due to failure to comply with the mandatory 14-day notice period and declared that MOCS’ Contract of Appointment expired at the first AGM on 10 November 2022.

Importantly, the decision also touches on a manager’s obligation to disclose beneficial relationships with suppliers and the manager’s duties under s 122(1)(d) of the Act.

Background

The plan of subdivision was registered on 6 July 2022. At the purported Inaugural Annual General Meeting (IAGM) on 11 July 2022, MOCS was appointed for a 3-year term by the OC.  The developer was the exclusive owner of lots.

In September 2022, MOCS arranged for a gardener, Leon’s Property Maintenance & Care Pty Ltd (Leon’s) to mow the nature strip at the property. In or around September or October 2022, the new lot owners became aware MOCS was the OC manager. The sole director of MOCS and the sole director of Leon’s are married, making it an associated entity.

In October 2022, a lot owner requested MOCS arrange an AGM for all new lot owners, having all settled on or after 20 July 2022. The meeting was subsequently held on 10 November 2022.

At the AGM, in reliance on s 67B(1) of the OC Act, members resolved to terminate MOCS’ services with the owners self-managing thereafter. The termination was later confirmed in writing to MOCS on 20 November 2022.

MOCS asserted s 67B(1) did not permit the new lot owners to terminate MOCS’ contract because MOCS were appointed at the IAGM on 11 July 2022 and was not appointed prior to 11 July 2022 (the first meeting of the OC). MOCS were of the opinion the 11 November 2022 AGM was the second meeting of the OC. However, the termination was ultimately accepted by MOCS on 6 December 2022 and it subsequently calculated its purported entitlement to fees and compensation for breach of contract.The OC alleged MOCS was in breach of ss 122A and 122(1)(d) of the Act stating it failed to disclose the beneficial relationship with Leon’s and failed to take reasonable steps to ensure the gardening services acquired by MOCS on behalf of the OC was priced competitively.

The OC sought reimbursement of managing fees, disbursements, handover fees, lawn and gardening expenses, damages claim and additional services which MOCS deducted from the OC’s bank account.

Decision

Contract of Appointment

Ultimately, the Tribunal declared the meeting on 11 July 2022 to be void given non-compliance with the 14-day mandatory notice period.[3] The Tribunal did not exercise its discretion to validate the meeting for the following reasons:

1. There was not an adequate reason as to why the developer did not comply with the notice period, even if the notice was to themselves;
2. It was not vital for a meeting to be held 14 days of registration given the insurance had been arranged earlier in May 2022 and the developer had 6 months from registration to hold the meeting;[4]
3. No detriment to the OC and lot owners would occur in declaring the meeting void;
4. MOCS, inter alia, negotiated the contract of appointment in its own commercial interest, had not complied with s 122(1)(d) and 122A(3) of the Act and was an experienced OC manager and would, or should have known there was non-compliance with the Act in relation to notice.

Lawn and Gardening Expenses

The Tribunal found MOCS did not comply with the disclosure requirement under s 122A(3) of the Act. Although the beneficial relationship was purported to be disclosed at the meeting on 11 July 2022 and later minuted, no written notice was given to the Chairperson prior to a contract for services being entered into with Leon’s. MOCS’ disclosure to the developer at the meeting on 11 July 2022 was not given in good faith and insufficient for the purposes of s 122A(3) noting Leon’s was ostensibly issued a work order in or around September 2022 and no proposed contract between MOCS and Leon’s at the time of the 11 July 2022 meeting. Moreover, the Tribunal found MOCS breached s 122(1)(d) of the Act in failing to take reasonable steps to warrant the gardener was engaged at a competitive rate, charging over triple that of Jim’s Mowing and well above the average hourly rate for gardeners.

MOCS’ breach of duty under s 122 would have entitled the OC to terminate the contract of appointment had the Tribunal erred in its decision regarding the 11 July 2022 meeting. The Tribunal also made orders in favour of the OC regarding the damages claim and additional services, stating MOCS was not entitled to the damages claim, nor the charge for an additional meeting. MOCS was, however, entitled to management fees and disbursements prior to and including 10 November 2022 and MOCS was not entitled to any management fees or disbursements thereafter.

Although breaches of the Act do not automatically result in decisions being declared void and/or invalid, it is a real possibility. In any event, consequences of breaches or non-compliance with the Act should be determined on examination of the specific breach or breaches on a case-by-case basis.[5]

The decision also highlights OC Managers’ requirement to discharge their obligations under the Act and ensure compliance with same.

[1] (Owners Corporations) [2024] VCAT 199.

[2] 2006 (Vic).

[3] Owners Corporations Act 2006 (Vic) s 76.

[4] Ibid s 66.

[5] Jenkins v OCVM Commercial Pty Ltd (Owners Corporations) [2019] VCAT 1078.