Unlawful Removal of Owners Corporation Funds by Manager: Wyndham Harbour A2 Pty Ltd v Your Body Corporate Pty Ltd

The full decision can be found here. The Victorian Civil and Administrative Tribunal considered the following issues:

1. Whether the owners corporation lawfully terminated the management contract of Your Body Corporate Pty Ltd (YBC).

2. Whether YBC’s payment of $192,465 from the owners corporation’s funds to itself was:

a. unlawful;

b. in breach of its statutory duties and contractual duties to act honestly and in good faith with due care and diligence;

c. unconscionable conduct in trade or commerce in breach of sections 20 and 21 of the Australian Consumer Law;

d. misleading and deceptive conduct in breach of section 18 of the Australian Consumer Law.

3. Whether the owners corporation may claim damages under section 236 of the Australian Consumer Law from Stephanie Veneziano (director of YBC) and Giovanni Veneziano (registered manager appointed by YBC to manage the owners corporation) on the basis that they were persons involved in YBC’s contravention of the Australian Consumer Law.

The Decision

The Tribunal found that:

1. The owners corporation lawfully terminated the management contract on the basis that YBC failed to properly maintain the financial records and manage the financial affairs of the owners corporation, by:

a. not recording the payment of $192,465 to itself;

b. depleting owners corporation’s funds during the course of its management;

c. reducing owners corporation fees when expenses of the owners corporation were increasing;

d. not properly advising the owners corporation of the true state of affairs of the owners corporation;

e. not properly preparing the accounts of the owners corporation during its management (the accounts had to be completely reconstructed from the bank statements).

Note: The Tribunal noted that YBC’s conduct in removing owners corporation funds was a repudiation of the management contract. The owners corporation was entitled to accept the repudiation and terminate the management contract. However, the owners corporation, when seeking to terminate the management contract, was unaware of the removal of its funds by YBC.

2. YBC’s payment of $192,465 ($100,187.26 plus $92,277.74) to itself was unlawful for the following reasons:

a. There was no legal entitlement, authority or consent to the payment;

b. YBC is not entitled to payment of $100,187.26 for additional services under the management contract:

i. Whilst the owners corporation conceded a total of $12,806.95 for additional services, the sum was offset against interest owing to the owner corporation on its claim pursuant to section 184 of the Australian Consumer Law and Fair Trading Act 2012 and section 165(2) of the Owners Corporations Act 2006;

ii. The invoice for the alleged additional services was not created in the ordinary course of business. It was created to justify retention of the $192,465 unlawfully removed from the owners corporation’s account;

iii. The invoice was created outside the time limit provided by the management contract without a satisfactory explanation;

iv. The hours claimed were not proved;

v. The delay in invoicing prejudiced the owners corporation’s ability to renegotiate the management contract and decide whether to reappoint YBC or vary the terms of the contract;

vi. Claim for additional accounting and banking services rejected on the grounds that the services were not carried out to a satisfactory standard;

vii. YBC claimed fees for additional services which were already covered by the annual fee;

viii. Some fees claimed were not payable under the management contract e.g. for responding to telephone calls and emails after the contract had been terminated.

c. YBC was not entitled to damages for loss of profit of $92,277.74 for breach of management contract because:

i. whilst the owners corporation conceded a total of $12,806.95 for additional services, the sum was offset against interest owing to the owner corporation on its claim pursuant to section 184 of the Australian Consumer Law;

ii. at the time of payment, YBC’s appointment had not been terminated by the owners corporation;

iii. the management contract was not breached by the owners corporation;

iv. YBC repudiated the contract and the owners corporation lawfully terminated it.

d. Even if there was wrongful termination of YBC’s management contract, no payment was immediately due to it:

i. At best, YBC had a right to bring legal action against the owners corporation. Nothing in the law or in the management contract entitled YBC to calculate a damages payout and pay it to itself;

ii. The management contract did not authorise the payment of a damages claim to YBC;

e. The payment was made from the owners corporation’s maintenance funds, even though there is no maintenance plan or special resolution which authorise the disbursement, contrary to sections 40 to 45 of the Owners Corporations Act 2006.

2. The unlawful payment was in breach of YBC’s statutory duties and contractual duties to act honestly and in good faith with due care and diligence.

3. The unlawful payment was in breach of sections 20 and 21 of the Australian Consumer Law as it was without any legal entitlement, authority or consent, was unfair, unreasonable and tainted by lack of business ethics.

Note: The Tribunal noted having found that the payment was unconscionable, it was not necessary for the Tribunal to make a finding on whether the conduct was also misleading or deceptive in breach of section 18 of the Australian Consumer Law.

4. The owners corporation may claim damages under section 236 of the Australian Consumer Law from Stephanie Veneziano and Giovanni Veneziano. They were the controlling minds of YBC and were intentional participants in the contravention of the Australian Consumer Law by:

a. Preparing unlawful invoice;

b. Removing owners corporation funds, which were ultimately disbursed to an account held by Stephanie Veneziano for the benefit of both Stephanie Veneziano and Giovanni Veneziano.

For more information please contact Phillip Leaman or a member of our Owners Corporation Team.

Disclaimer
The material contained in this publication is meant to be informational only and is not to be construed as legal advice. Tisher Liner FC Law will not be held liable or responsible for any claim, which is made as a result of any person relying upon the information contained in this publication.