Bodies Corporate and the obligation to act reasonably

13 October 2016

by Ben Seccombe – Partner & co written by Max Walker

The concept of ‘reasonableness’ and what amounts to acting ‘reasonably’ are questions that often vex bodies corporate, committees and lot owners.

This week the High Court handed down its judgment in the matter of Ainsworth & Ors v Albrecht & Anor. In doing so, it clarified the test that will determine whether a lot owner who has dissented to a motion has acted reasonably. Mahoneys acted for the respondent to the appeal.

The decision also gives some guidance about what is meant by the general concept of reasonableness. However, in the context of bodies corporate, it will be most relevant when deciding whether a motion considered at a general meeting has failed because of ‘unreasonable’ opposition.

The facts

In Ainsworth, a lot owner wanted to combine two decks on the same level of a two-storey dwelling in a community titles scheme. Because the proposal involved the lot owner acquiring exclusive use of the airspace between the existing decks, a resolution without dissent was required. A motion to that effect was submitted to the body corporate at an extraordinary general meeting.

At this meeting on 10 August 2012, seven lot owners voted against the motion and it was defeated. The lot owner applied for adjudication to the Office of the Commissioner for Body Corporate and Community Management. The adjudicator granted the application and ordered that effect be given to the motion. That decision was challenged in QCAT, where it was overturned. QCAT’s decision was subsequently overturned by the Court of Appeal and the Adjudicator’s decision reinstated. The dissenting owners appealed to the High Court.

The legislation

Central to the case are two provisions of the Body Corporate and Community Management Act (BCCMA), namely sections 94(2) and 276 (and, by extension, item 10 in schedule 5).
Section 94(2) confers on bodies corporate an obligation to act reasonably in everything they do when administering common property and body corporate assets, enforcing the community management statement and carrying out the functions given to bodies corporate under the BCCMA.

Section 276 empowers adjudicators to make orders to resolve disputes. Item 10 of Schedule 5 gives them a specific power to give effect to a resolution without dissent, which has otherwise failed due to opposition that in the circumstances is considered ‘unreasonable’.

The decision

In Ainsworth, the parties spent much time and effort obtaining opposing reports from experts (architects, valuers etc.) with a view to demonstrating that, on balance, the position adopted by the other side was wrong and, therefore, unreasonable.

The High Court determined that when deciding whether to override the failure of lot owners to pass a resolution (one that needed to be passed without dissent), it is ‘no part of the function of the adjudicator … to seek to strike a reasonable balance between competing positions’ and that the adjudicator should instead focus on whether the opposition from the dissenting lot owners was unreasonable.

The ‘unreasonableness’ that the Adjudicator needs to concern themselves with is that of the opposing lot owners having regard for each other’s (property) interests under the community titles scheme.

The key findings of the High Court are:

  • There is nothing in the BCCMA that suggests an adjudicator may require a lot owner to assist another lot owner, at least where enhancing the proponent’s interest may reasonably be viewed as adverse to their own.
  • Even where common property is of no use to anyone other than the lot owner seeking the enhancement, another lot owner will not be acting unreasonably if they insist on conserving their interest in that common property – if for no other reason than that he or she may reasonably expect to be offered something in return for agreeing to part with it.
  • Dissenting lot owners are not required to act altruistically or sympathetically to the lot owner proposing the motion at the expense of their own (reasonably calculated) interests.
  • If the proposal creates reasonable apprehension (in the mind of a dissenting lot owner) that it will adversely affect his or her property rights, a dissenting vote will not be seen as unreasonable.

Matters seen to adversely affect lot owners’ property rights (and therefore determined to be a reasonable basis for opposition) include:

  • appropriating part of the common property of another lot owner for no return (payment)
  • altering features of the common property that existed when an objecting lot owner acquired his or her lot
  • the risk of interfering with the tranquillity or privacy of an objecting lot owner.

The High Court considered that once grounds of opposition raised questions about which there may be a difference of opinion among reasonable minds, it is impossible to see how that opposition could be determined unreasonable.

The High Court, while being careful to clarify that it was not an exhaustive list of circumstances, indicated that opposition might be seen as unreasonable where:

  • the opposition could not, on any rational view, adversely affect the material enjoyment of an opponent’s property rights
  • the opposition is prompted by spite, ill will or a bid for attention

While the decision provides helpful guidance on the provisions of the BCCMA, it is important to note that the facts of this case involved a particular type of resolution (one required to be without dissent and which involved granting exclusive use of common property to a lot owner) and a specific Adjudicator’s power (only applicable where “a resolution without dissent was not passed because of opposition that in the circumstances is unreasonable”). Care should be taken to consider the types of resolution involved and the specific Adjudicator’s power that applies.

– Mahoneys