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Mistakes happen

By Frank Higginson06 Apr 2010

The reality is that in business (as in life) mistakes happen. What generally matters after a mistake occurs is how the problem is rectified. Unfortunately (or fortunately – depending on which side of the fence you sit on), this is where we as lawyers are quite often called upon.

One of our clients recently became aware that they had been overpaid their caretaking salary for the period of their ownership of the management rights business. The mistake was completely innocent. Our clients had confirmed the amounts with the body corporate manager at the time they purchased the management rights, and had invoiced on that basis for the entire time. Unfortunately the information supplied by the body corporate manager was wrong.

The amount in question was under $10,000, but it was not money that our clients had sitting around.

Our clients put a proposal to the body corporate that:

  • acknowledged that an innocent mistake had been made;
  • offered monthly payments for the time being with a lump sum on the sale of the management rights business (if that occurred); and
  • did not offer interest on the outstanding amounts due to the innocence of the mistake.

Rather incredibly, the body corporate rejected this proposal.

Our letter to the body corporate pointed out that it was absurd to spend as much chasing the debt as the debt itself, in circumstances where costs were unlikely to be awarded, and where our client had agreed to pay the amount in instalments to the body corporate.

Despite this, the committee ran a motion to general meeting to commence proceedings for recovery of the amount. The motion was soundly defeated. Our clients might not have had the support of the committee, but they did have the support of owners generally.

A dissatisfied committee member began an application to overturn that decision. The application sought to have the vote overturned because the body corporate had not acted reasonably. That application was also lost.

The commissioner held that 'owners have a right to exercise their voting rights as they see fit. It is not sufficient … to allege that an owner exercised their votes in their own interests without also providing grounds that can establish the decision of the body corporate was objectively unreasonable in the circumstances'.

What this shows is that the committee is always going to be subject to the will of the body corporate in general meeting, and that the commissioner’s office will not support a committee that adopts a commercially unreasonable position, such as that adopted in this building.

Our clients will now continue to make the payments in the terms they originally proposed many months ago.