Committees Behaving Badly (And what we can do about it)
Paper Presented by Susan Proctor at the ACSL Conference in Auckland, NZ
Friday 1 March 2019
Activities of bodies corporate are overseen by committees. Usually these committees consist of volunteers with little to no relevant experience in operational and governance issues.
Generally, in order to sit on a such a committee, a member must either be a body corporate member or have a close association with a member of a body corporate, which, naturally limits the size of the pool from which committee members can be selected. The motivation or drivers for people to sit on such committees are varied and can be complex, and which can lead to either committees as a whole or committee members in isolation behaving badly.
Bad behaviour can extend to major crimes, including stolen property/physical violence/embezzlement to name a few, to coercion, intimidation/vexatious complaints/misleading or false information and to arrogance, racism and other forms of bigotry/bullying and inconsiderateness.
This paper will examine some recent decisions across Queensland, Victoria and the ACT, that demonstrate how such “bad” behaviour has been addressed in those respective jurisdictions and the impact of the varying Acts/Codes and a discussion around the consequences for committees more broadly with respect to good governance structures or lack thereof.
Inconveniently, but unsurprisingly each jurisdiction has adopted slightly different variations on a theme when it comes to the management and governance of committees, which I will also address with respect to the three jurisdictions considered.
The Queensland Legislative Position
Queensland is arguably the most sophisticated in its approach by virtue of the splitting of the BCCMA Act across five subsidiary regulations (called modules) to accommodate varying complexities of scale and use. It is understood this was done with the legislative intent to impose greater regulation on larger schemes and less regulation on smaller schemes[1].
However, the BCCMA ensures that each committee member is deemed, upon taking office, to have agreed to comply with the Code of Conduct, no matter which module they are governed by.
The BCCMA and the QLD Code require committee members to;
1. have a commitment to acquiring an understanding of the BCCMA, including the QLD Code, insofar as is relevant to their particular role on the committee;[2]
2. act honestly and fairly in performing their duties as committee members[3];
3. not unfairly or unreasonably disclose information held by the body corporate, including information about lot owners;[4]
4. act in the best interests of the body corporate[5];
5. take reasonable steps to ensure they comply with the BCCMA and the QLD Code[6];
6. not cause a nuisance of behave in a way that unreasonably affects a person’s lawful use or enjoyment of a lot or common property[7];
7. disclose any conflict of interest in any matter before the committee[8]; and
8. act reasonably when making a decision[9].
The sanctions for a breach of the code is basically removal from office. This can only occur following a meeting to determine whether to issue a breach notice, the provision of a breach notice and a period of at least 21 days has followed the serving of the breach notice. This process is quite arduous and must be followed as otherwise the removal resolution will be invalid.[10] This procedure for removal where there is an allegation of a breach of the code is in addition to the general power of body corporate members to remove a committee member by ordinary resolution.
R v Davy [2017] QCA 312
The 2017 Queensland Court of Appeal decision, R v Davy[11], is an interesting scenario to consider as to the effectiveness of the above remedy for breaches of the code and how criminal penalties can be imposed in certain circumstances.
The relevant facts are that Davy, whilst the chairperson of the Tower Mill Motor Inn (Community Titles Scheme 1918), a complex containing 107 strata titled apartments, made 42 unauthorised withdrawals from the bank account of the body corporate over a period of 2 years, from 2008 – 2010. The withdrawals totalled in excess of $550,000.00 and were used by Davy for personal expenses and to purchase a unit on the river front in his own name. He did not consult or tell any of the owners that he was transferring body corporate money into his own personal bank accounts.
The facts were not in dispute, however the defence by Davy was that he honestly believed he was authorised to use the funds to obtain the best return for members which in his view was to pursue another lot owner, Mr Burnitt, as he had caused significant expense to the body corporate through encroaching on common areas on the ground floor of the complex.
In Mr Davy’s opinion, ‘he used the money for personal expenses as if he did not carry on Burnitt would win. There was no-one else who would fight. He needed time and money to continue the fight. He believed as chairman he was entitled to use the body corporate’s money. He had approval from the committee to invest the body corporate to get the best return for owners. The best return was to make Burnitt pay.’[12]
The issues between Davy and Burnitt are complex and had been ongoing since 2005, some 3 years prior to the fraud occurring. Mr Burnitt in essence wished to utilise the ground floor space he occupied as a tavern with a liquor licence, and not simply a restaurant/café as was the permitted use.
To do so he needed to apply for a material change of use, with the approval of the Body Corporate. There was also a third party Hotel Manager operating under lease with a number of the Lot Owners. There were disputes in relation to which entity was responsible for repairs and maintenance to the common property. For Burnitt to proceed with his works he needed the Hotel Manager to agree as well as the Body Corporate. The works he wanted to do encroached onto common property which the Hotel Operator had rights over and he needed to relocate bathrooms necessary to support the tavern.
Burnitt eventually proceeded with the works without obtaining the body corporate’s approval. He appeared to have some verbal approvals from the Hotel Operator.
This appears to be the major trigger for Davy, who felt that Burnitt should pay for the right to use the common areas. Attempts were made to obtain agreement on value and area however no decisions were passed in Burnitt’s favour.
In 2009 there was agreement reached that Burnitt would pay for the area, however the arrangement did not proceed as Davy voted against it. In anticipation of a further meeting, the then Chair, a Mr Tapp and Burnitt signed a transfer in anticipation of the meeting and somehow Mr Burnitt ended up with the signed transfer and his lawyer mistakenly subsequently stamped, lodged and registered it, together with a mortgage to Burnitt’s bank. The body corporate then proceeded to request the transaction was undone, which was not possible.
Subsequent proceedings by the Owners Corporation to reverse the transfer failed
Davy appealed his conviction for fraud, as a member of a governing body, in excess of $30,000 and his sentence to 6 years imprisonment. Davy complained that he was not afforded a fair trial as he was self-represented, having dismissed his previous legal representatives at an earlier trail on the basis of incompetence, that the trial was conducted unfairly in that the complainant (Burnitt) did not have the authority to act on behalf of the governing body the subject of the charge of the fraud, was biased against Davy and had a motive to lie and illegally provided an accountancy report to police et al.[13]
The criminal matter against Davy originally arose due to Burnitt making statements to the police, indicating that he was making the complaint on behalf of the body corporate’s committee and by providing a Deloitte forensic audit report, which was commissioned at the request of the body corporate committee, to the Police. The report has been commissioned when an incoming chair (Tapp) queried the lack of sinking funds and solvency issues of the body corporate in 2012. Although the committee received the report it had not decided what to do with the contents of the report, when the Chair was advised by Burnitt that he had indeed provided the Police with the report.
The committee had felt as Burnitt was pursuing the matter, that the committee need not do anything further regarding the report.
This case study illustrates the issue posed by current legislation on the lack of oversight for committee members. While this is a complex issue, discussed more below, there should be more oversight on the authority and ability to use body corporate funds. In addition, the lack of knowledge of the role of each committee member is highlighted by this case. Davy thought that he was authorised to use body corporate funds in the manner that obtained the best return for the members of the body corporate, without discussion on what the best return might be. Davy is an example of the more severe penalties that can befall a committee member for behaving badly.
The appeal against the conviction was dismissed and the application for leave to appeal against his sentence was refused.[14]
The Victorian Legislative Position
In Victoria, the Owners Corporations Act 2006 (Vic) is not as complex as the Queensland legislation, but it does differentiate between the regulation of 2-lot or smaller schemes and larger schemes.[15]
Electing a committee is only required for an owners’ corporation that affects at least 13 lots, however, smaller owners’ corporations may elect a committee.[16]
Section 117 of the Act imposes three duties on committee members in Victoria; namely a committee member must
a) act honestly and in good faith in the performance of his or her functions; and
b) exercise due care and diligence in the performance of his or her functions; and
c) not make improper use of his or her position as a member to gain, directly or indirectly, an advantage for himself or herself or any other person.[17]
Section 117 (b) imposes a duty on committee members that is not materially distinct to that imposed on company directors under s180(1) of the Corporations Act;[18] imposing a similar standard of care on committee members.[19] This exposes committees to liability if they act negligently when breaching the Owners Corporations Act.[20] Victorian courts and tribunals appear to have taken the view that there is no material distinction between two sections with both imposing similar standards of care.[21]
Indeed, the provision of s 117 (3) goes further than the corresponding s 182 of the Corporations Act as it is wider in referring to both ‘direct and indirect’ gain.
There are no specific penalties for breaches of committee members’ duties in Victoria.[22] However, committee members are exposed for being sued in tort for breach of statutory duties or for a breach of fiduciary duties.[23] S 118 provides for an immunity for committee members that act in good faith.[24]
Giurina v Deak & Ors [2018] VSC 409
This case is part of the third Victorian Civil and Administrative Tribunal (VCAT) hearing into Giurina’s conduct while on the committee of a residential development. Giurina sought leave to appeal both interim and final orders made by VCAT. He also argued for a stay in proceedings as he was litigating issues in another Tribunal consecutively that were similar to the issues before this VCAT.[25] This was his fourth stay attempt in respect of the third VCAT proceeding and the matters arising from it.
The original and subsequent proceedings related to of Giurina’s conduct while he was the manager of the Owner’s Corporation. At the time he was the manager, he did not have the fee simple of a lot in the development, but he was the co-executor of his grandmother’s estate which included a lot.[26] Over seven years as manager: Giurina mixed trust money with his own funds, failed to account separately for the money held by him for the Owners corporation, failed to pay the levy for the lot of which he was a co-executor with his mother and despite requiring other owners to do so and failed to disclose to the other lot owners the court proceedings issued against the before settling those proceedings without approval from the applicants.[27] In addition, Giurina held himself out as an ‘Australian Lawyer’ to the Owner’s Corporation and VCAT despite not having a practising certificate.[28]
Upon discovery of Giurina’s bad behaviour as manager, the committee terminated the management agreement and Giurina was replaced by a new strata manager.
The three VCAT proceedings were initiated by Giurina in an attempt to overturn his dismissal and regain his management role.
VCAT dismissed Giurina’s stay application. Of the six grounds of appeal in these proceedings, Giurina had no real prospect of success on any grounds. The case is an example of a vexatious litigant pursing a body corporate for their legitimate exercise of powers.
This case is an example of a strata manager behaving badly, being removed legitimately, then pursuing the committee and the Owner’s Corporation for that dismissal. The VCAT proceedings did not consider whether Giurina’s stay application was an abuse of process, despite it being his fourth.[29] Giurina v Deak illustrates the issues faced by a committee when removing a manager for potentially breaching a statutory or fiduciary duty. There are no specific penalties in the Act for a breach, rather, it is for the Tribunal to decide.
Another issue is the lack of funds at the disposal of a committee, limiting the chance to pursue members for breaches through the law. Often the only realistic penalty is for the body corporate to remove a member from the committee. As in this case, that then exposes the committee and the owner’s corporation to potential litigation from the removed member.
If Giurina had been acting as a director of a company, his actions would have warranted severer penalties than simply being removed from his position. While there are significant issues with imposing the same duties on committee members as on directors, there is a need for improvement in the law to dissuade committee members from behaving badly.
The ACT Legislative Position
In the ACT committee members and managers each have a code of conduct they must comply with under the Unit Titles (Management) Act 2011 (UTM Act). The code is similar to the Queensland Code. The UTM Act applies to bodies corporate of unit plans and their executive committees. The UTM Act deals only with unit plans that contain units, common property and unit subsidiaries.
The ACT Code requires members of the executive committee:
1. to commit to acquiring an understanding of the ACT and a good understanding of the code;[30]
2. to act honestly and fairly in exercising their function;[31]
3. to exercise reasonable care and diligence their functions;[32]
4. to act in the best interests of the owners’ corporation in exercising their functions, unless it is unlawful to do so;[33]
5. to take reasonable steps to ensure that they comply with the Act, including the code, when exercising their functions;[34]
6. not to cause a nuisance on the land or otherwise behave in a way that unreasonably affects a person’s lawful use or enjoyment of a unit or common property;[35]
7. not to engage in unconscionable conduct;[36]and
8. to disclose to the executive committee any conflict of interest they may have in a matter before the committee.[37]
The ACT Code differs from Queensland in clause 3, in requiring a duty of reasonable care and diligence. This clause could be interpreted similarly to s 117(b) of the Victorian legislation in requiring a duty like that imposed on corporate directors.[38] The other material difference is prohibiting committee members from engaging in unconscionable conduct.[39] The ACT Code provides some examples in clause 7 that indicate a similar duty as set out in s 117 (c) in the Owners Corporations Act 2006 (Vic).
Similarly to Victoria, the UTM Act does not impose penalties for breaches of the Code.[40] Committee members are exposed to the same risks as committee members in Victoria, however, the standard for immunity is different. Committee members in the ACT cannot be held civilly liable for conduct engaged in ‘honestly and without recklessness’ in the exercise or purported exercise of a function under the UTM Act.[41] This standard means that committee members are unlikely to be exposed to significant liability as a consequence of breaching the ACT Code.[42]
The UTM Act also imposes a series of operational and technical obligations on the committees.[43] These obligations are administrative in nature; for example, keeping minutes and records. For breaching the obligations under the UTM Act, the committee members are liable for a fine up to 20 penalty units, which equates to $3,000.[44]
Mitchell & Ors v The Owners – Units Plan No 3940 (Unit Titles) [2018] ACAT 86
In Mitchell, the applicant was a residential unit owner of a mixed-use building in Kingston. Mitchell sought orders from ACAT that a decision of the executive committee, which had the effect of approving storage cages to be built over car spaces in the unit plan for a commercial tenant, who occupied part of a ground floor commercial unit and trades as a pub, known as the Dock, be overturned, held void for irregularity, and /or that the resolution be repealed following a merits review by ACAT.
Essentially the primary contention was that there had been serious breaches of the conditions of the development consent, and the crown lease for the Dockside mixed use development at 25-35 East Lake Parade Kingston and these alleged breaches came about because of the alleged “repurposing of mandated carparking” in the basement carpark and that such actions require development approval from ACTPLA.[45]
The inaugural resolutions provided that;
“A unit owner shall not except in accordance with the written permission given by the Executive Committee and in accordance with the provisions of any law in force in the Territory applicable in the circumstances erect or alter any structure in or on his unit.
In relation to a commercial unit, any structural erection or alteration will be permitted as long as the erection or alteration is within the boundary of the unit and is in accordance with any law in force in the Territory applicable in the circumstances.”[46]
The Dock requested the Executive Committee approve the installation of a refrigerator condenser and a shed, which would cover two of the five carparking allocated to the commercial units. The meeting did not approve the installation of the refrigerator but did approve the installation of a colour bond shed.
The owners of the Dock sought and received a certificate of occupancy for the shed. The owners of the Dock did not seek development approval for the erection of the shed in the carpark and this is what the Mitchells argue is the deficiency in the planning application.
A house rule was subsequently adopted that provided that “Car spaces must not be used as storage areas unless approved by the Executive Committee (car parking resolution).”
In the ACT we have a leasehold land tenure system. The crown lease over the title to a unit is called a Form 4 and this document sets out the uses for the unit and its subsidiaries. In this case the use for the Dock units included relevantly “a restaurant, a drink establishment and carpark”[47].
Under the Unit Titles Act 2001 a unit in a unit plan includes any subsidiary as shown in the plan. The units had a total of five car park subsidiaries and no storage subsidiaries. This was a somewhat unusual and frustrating aspect of the design of the unit plan.
The definition of carpark means the use of the parcel of land specifically allocated for the parking or (sic) motor vehicles.
The Applicants contend that having regard to the definition of car park the use of a car park for storage is a breach of the purpose clause and therefore a breach of the crown lease.
The Applicants argue that this means the executive committee cannot authorise through a resolution or otherwise, because it is beyond their power to authorise an action that would breach the development approval/crown lease terms.
In the ACT a purpose clause for a unit can be amended however a development consent is required and such an application can only be made following an unopposed resolution being passed authorising the request for a change of purpose.
It was agreed by all parties that this had not occurred in this instance. The Mitchells wrote to Access Canberra advising of the alleged breach and requesting they intervene. At one stage a control order was issued to the Dock requiring that it seek development approval for the change of use.
The EC sought advice as to whether a DA was required and received the following in response from the planning authority;
“There are two schools of thought on this. But the outcome has remained the same. Collectively we’ve decided that irrespective of whether it’s a technical breach, it remains a practical solution that supports jobs and vibrancy in that development and has no associated harms or risks. Therefore no further action will be taken and no DA will be required.”[48]
Despite this response which the applicants did not accept the Applicants seek to have the relevant resolutions determined void for irregularity or alternatively overturned on a merits review.
The tribunal member then had to consider whether it had any jurisdiction to make a declaration that a development application should be sought by the Dock as a precondition to the executive committee approving any use of the carpark. The difficulty with this being that the Tribunal was being asked to do a collateral review of an administrative decision, in the absence of the decision maker, in a jurisdiction where it has no apparent authority to do so.
The Tribunal member held that to the extent there is a breach of the crown lease by a lessor or tenant, that is a matter for the regulatory authorities. The regulatory authority has indicated that no enforcement action needs to be taken. That is currently a valid administrative decision. As Justice Wilcox stated most forcefully in R Balfour; ex parte Parkes Rural Distributions Pty Ltd;
It is now accepted that, however apparent the defect may be, an administrative decision remains good in law unless and until it is declared to be invalid by a court of competent jurisdiction.[49]
The Tribunal is not a court of competent jurisdiction. That means the most the Tribunal can do is to make a determination that the motions were invalid.
The Tribunal was not satisfied that the relevant motions were void for irregularity due to an oversight or mistake about the need for development approval.
The Tribunal also considered whether it could overturn the decision following a merits review of the resolution.
The concept of a merits review in the Unit Titles jurisdiction is a review by the Tribunal to determine the correct and/or preferable decision of the owners corporation by way of issuing an order either amending or repealing a resolution. See Section 129 (1) (f) of the Unit Titles (Management) Act 2011. In this circumstance the Tribunal member held that is was satisfied that the decision was the correct and preferable decision and declined to overturn the approval resolution.
In this matter although the Tribunal understood the applicant’s concern’s and objections to the structures as a result of planning laws being avoided or overlooked and the impact with respect to the noise, visual amenity and the issues associated with car parking and that the storage was something of an “eyesore” the Tribunal held there were countervailing considerations. Namely the structure was approved, it had been there for some time, there had been attempts to minimise noise and the impact on the business if it was removed would be the business would be forced to close. The Tribunal member accepted that while the “floodgates” argument was a valid one, the resolutions made it clear the approvals were exceptions and not precedents.
Accordingly, the Tribunal member was satisfied that the correct and preferable decision was to approve the shed.
Bonansea v the Owners – Units Plan no 421 (Unit Titles) [2019] ACAT 10
Bonansea is a recent decision from the ACT Administrative Tribunal (ACAT) which has interesting implications for how we determine what actions taken by an owners corporation are unreasonable.
In this case, the applicant was the owner of Unit 5. Unit 5 was one of eight units in the form of separated townhouses built to a compatible design. The applicant had attempted on three occasions to move a motion for approval of proposed renovations and extensions on Unit 5. On each attempt, all members of the owners corporation (save for the applicant) voted against the motion.
The applicant then sought relief through ACAT by applying for an order under section 129(1)(f) of the Unit Titles (Management) Act 2011 (UTM ACT) giving effect to the final motion that the applicant moved for renovation and extension approval.
Under section 129(1)(f) of the UTM Act, a Tribunal may give effect to an unsuccessful motion if they are satisfied after a merits review of the motion that opposition to it was unreasonable.
In approaching the merits review, the Tribunal made reference to previous cases summarising the operation of section 129(1)(g), including Uren & Anor v The Owners – Units Plan 396, Nash v The Owners – Units Plan 2413 & Ors, and Rampala v The Owners – Units Plan 1330.
With reference to these precedents, the Tribunal determined that the merits review was a two-step process: firstly, the Tribunal was required to determine what the correct and/or preferable decision was in these circumstances, and then they needed to determine whether opposition to the motion was ‘unreasonable.’
Addressing the first step, determining the ‘correct or preferable decision’ requires drawing a distinction between the two obligations. As noted in Re De Brett Investments Pty Ltd and Australian Fisheries Management Authority and 4 Seas Pty Ltd (party joined) (2004) 82 ALD 163 at 194: “The Tribunal may conclude that there is only one decision that is correct on the facts it has found on the evidence and according to the law that it must apply… In other circumstances, it may conclude that more than one decision may correctly be made. If that is so, the role of the Tribunal is to determine which decision is the preferable decision and so the correct and preferable decision.
In this case, the Tribunal clearly found that the proposed works did not comply with Article 4 of the Owner’s Corporation Rules, which required a unit owner to seek express permission of the owners corporation by resolution not opposed by 2 or more members to erect or alter any structure on the unit of the common property. Given that the applicant’s motion failed, there was only one ‘correct’ decision to be made by the Tribunal, which was that the applicant cannot carry out the proposed works. The applicant’s only potential source of relief would come from a finding by the Tribunal that the opposition to their motion was unreasonable.
The Tribunal followed the test set in Ainsworth v Albrecht [2016] HCA 40 to determine whether the opposition to the motion was unreasonable. The Tribunal noted that this is not a subjective test of the intentions of the unit owners who opposed the resolution, but rather an objective test taking into account all relevant circumstances at the time when the decision was made.
The Tribunal was required to focus on whether the opposition to the motion was unreasonable, and not whether the owners corporation had acted reasonably in refusing to give approval. It is the Tribunal role to first identify the grounds of opposition and then consider whether or not those grounds were “a rational basis for opposition.”[50]
The Tribunal considered that there could be many factors which would qualify as a rational basis on which to oppose a motion, including the use and enjoyment of the units or common property and other impacts on amenity. Notably, a unit owner is not acting unreasonably by merely “failing to act sympathetically or altruistically”[51] towards an applicant. While the proposed works or motion may have some benefit to the applicant, it may also have some detriment to those who oppose it. The parties in opposition are not required to sacrifice their own interests, be it commercial or personal, in order to accommodate the other unit owner.
Ultimately, the Tribunal found that there were many reasons why the unit owners had opposed the motion, and none of those reasons were found to be unreasonable. The applicant’s unwillingness to consult with the unit owners regarding the proposed works (indeed, at the time of the hearing, the applicant had already begun authorised demolition) was that only action that the Tribunal deemed unreasonable.
Accordingly, the application was dismissed.
SDNM Pty Limited v The Owners - Units Plan 3908
This is a recent case where the Applicant, a commercial unit owner in a Kingston mixed use development adjacent to the mixed use development where the Dock is located, sought orders to void certain resolutions relating to split levies in the Units Plan.
The Application was made to request that ACAT issue orders pursuant to section 129 (1)(e)(ii) that certain resolutions that the owners corporation was seeking to pass were void for irregularity.
In particular that the resolutions that sought to split levies on a basis other than the division of the unit entitlement in reliance upon a prior unopposed resolution from 2016, could not be passed as an ordinary motion.
The Applicant had objected to the motions but they were stated as having been passed.
The Applicant was successful in its application and the respondent’s submission that the Tribunal conduct a merits review of the motion and determine whether the objection by the Application was reasonable was not required to be addressed as part of the Application.
This case and the subsequent matter, where the Owners have held another meeting purporting to pass a resolution that has been opposed by the Applicant is now set for a hearing on the 5 April 2019 in response to the owners corporation’s request for a merits review and a decision that the objection of the application to the motion is unreasonable.
The further hearing in this matter will be demonstrative of how far the Tribunal is willing to go in terms of involving itself in the financial matters of the owners corporation, addressing alleged bad behaviour and/or incompetence of body corporate committees.
Lessons from the Cases
In the Victorian and Queensland cases cited, a significant issue was the breach of trust by a committee member/strata manager in terms of accessing funds for their own financial benefit.
The lack of oversight by the remaining committee members and or unit holders meant body corporate funds could be misappropriated into personal accounts by both Davy and Giurina.
Another, example of the lack of oversight by other committee member is the case of Villanella.[52]
In that case, Mr Vella managed to be appointed as chair, secretary and treasurer of a body corporate with his powers of attorney becoming committee members. With total control of the committee, Mr Vella was able to protect and advance his own interests to the detriment of the other owners.
Issues clearly arise in committees where members can hold multiple roles within the committee and no – one else is paying any attention. Of relevance is that in both Giurina and Davy the misuse of funds was only discovered some years after the relevant acts.
It may be prudent to have audits conducted annually, or an audit committee being required to be appointed with some specific roles with respect to the finance and risk issues. This could be required for developments of a particular size.
It may also be prudent to reconsider penalties and ramifications for breaches of the statutory duties or code of conduct provisions.
Although the criminal penalties are useful – re Davy, how often these matters progress to the criminal jurisdictions seems limited.
Of the jurisdictions that impose a code of conduct or duties on committee members, only South Australia has pecuniary penalties.[53]
The other jurisdictions do not have specific penalties for breaches of committee members’ duties. Generally, the harshest ramifications that can be imposed by the committee itself is dismissal from the position, which occurred in Giurina.[54] Any other potential ramifications for breaches of duties can only be imposed by a Court or Tribunal, but there is no guidance in legislation as to what the penalty might be.
As a result, there are not really effective deterrents to committee members who are tempted to breach their duties.
In some cases, members who breach statutory duties may expose themselves to personal liability under a tort for breach of statutory duties.[55] However, in Tasmania and Western Australia, there are no statutory duties;[56] while the other jurisdictions include a form of immunity from prosecution.[57]
The lower standard to that for Directors of companies has been implemented for public policy reasons.
Lower standards and no significant ramifications for a breach of a duty have been used to encourage people to stand for a place on a committee.
Changes to the law that expose people to significant personal liability for their actions on a body corporate will act as a disincentive to stand for membership. However, the dynamic of strata title schemes is changing. There is an increasing number of Australians residing in these schemes.[58]
Increasingly, there are large developments that have hundreds of members and include a mix of residential and commercial accommodations.[59] Positions on those committees result in members acquiring significant power and access to substantial funds.
In many ways, these new developments, which are likely to become more common, have bodies corporate that have roles similar to companies. Despite these challenges, as the above cases demonstrate, there is need for reform of the system of good governance for committees.
Potential Future Steps/Conclusion
The current system should be improved. Bodies corporate have little power to deter committees and committee members from behaving badly by either breaching their duties or acting not in the best interests of the body corporate.
There needs to be a greater transparency and understanding of the financials of schemes.
Courts and Tribunals need to have more scope to punish committee members who act self-interestedly or to the detriment of their body corporate.
However, they are restricted in power if an entire committee behaves badly. In addition, while some jurisdictions have changed their approach to encompass the evolving nature of strata schemes, the reforms do not adequately reflect the differences between types of committees.
A potential future step could be legislation that differentiates between committees that oversee the new larger bodies corporate and the traditional schemes. New developments that have hundreds of lots with their bodies corporate impacting the fortunes of hundreds if not thousands of people require different legislation and oversight to traditional schemes.
The committees in these new developments have access to substantial wealth and their decisions affect the fortunes of a very large number of people. Those committees have roles more closely resembling directors of companies than the volunteers of small strata schemes.
Therefore, one can argue they should owe duties to their bodies corporate members similar to those owed by directors to their shareholders. This increased duty could provide an adequate deterrent for committee members who are tempted to breach their duties or act self-interestedly. However, the legislation should still contain exceptions and immunities to encourage members to apply for positions on the committee.
It might be prudent to consider payment for members of committees and independent professionals who can be called upon to assist committees with governance issues or as independent committee members.
Making committee members more aware of their responsibilities, along with the methods to dismiss and discipline other members who are not properly fulfilling their role would improve self-governance.
The role of strata managers in assisting owners to put pressure on a recalcitrant committee should also not be ignored. Often, the role of strata managers isn’t understood by owners, who don’t realise that the strata manager needs to act on instructions from their Owners Corporation.
Ideally, the strata manager is the trusted advisor, who committee members can rely on to navigate the complexities of managing a strata titled property. Perhaps if more strata managers felt confident in terminating their engagement when committees refused to adhere to their obligations, there would be a change in attitude amongst some committees.
That increased awareness may lead to earlier detection of bad behaviour and steps being taken to remove that person from their position before the Courts or Tribunals need to be involved.
Governance is an important topic in the context of a strata committee. Implementing good processes and practises in a strata committee leads to good governance – ideally, each strata committee would have their own process for dealing with conflicts, a set of measurable goals for each year and a commitment to work with a spirit of teamwork and co-operation to achieve the best possible outcome for all of the owners.
CITATIONS
[1] B. Cowley and S Knight; Duties of Board and Committee Members; Thompson Reuters, Sydney, 2018; p. 432
[2] Qld Code, cl 1
[3] Qld Code, cl 2(1)
[4] Qld Code, cl 2 (2)
[5] Qld Code, cl 3
[6] Qld Code, cl 4
[7] Qld Code, cl 5
[8] Qld Code, cl 6
[9] BCCMA, S100(5)
[10] La Place [2011] QBCCMCmr 163
[11] R v Davy [2017] QCA 312
[12] Ibid. 108
[13] R v Davy [2017] QCA 312, 3.
[14] Ibid, 160.
[15] Owners Corporations Act 2006(Vic) s 7
[16] Owners Corporations Act 2006 (Vic) s 100.
[17] Owners Corporations Act 2006 (Vic) s 117.
[18] Corporations Act 2001 (Cth), s180(1).
[19] Giurina v Owners Corp No 1579 [2012] VSC 466, [80].
[20] B. Cowley and S Knight; Duties of Board and Committee Members; Thompson Reuters, Sydney, 2018; p.439
[21] Giurina v Owners Corp No 1579 [2012] VSC 466, [80].
[22] B. Cowley and S Knight; Duties of Board and Committee Members; Thompson Reuters, Sydney, 2018; p.439.
[23] Ibid, p. 439.
[24] Owners Corporations Act 2006 (Vic) s 118.
[25] Giurina v Deak & Ors [2018] VSC 409.
[26] Ibid, 97.
[27] Ibid.
[28] Ibid.
[29] Ibid, 56.
[30] Unit Titles (Management) Act 2011 (ACT), Sch 1 Cl 1.
[31] Ibid, cl 2.
[32] Unit Titles (Management) Act 2011 (ACT) schedule 1 Code of Conduct, cl 3.
[33] Ibid, cl 4.
[34] Ibid, cl 5.
[35] Ibid, cl 6.
[36] Ibid, cl 7.
[37] Ibid.cl 7.
[38] B. Cowley and S Knight; Duties of Board and Committee Members; Thompson Reuters, Sydney, 2018; p.441.
[39] Ibid, p 441.
[40] Ibid, p. 441.
[41] Unit Titles (Management) Act 2011 (ACT) s 47.
[42] B. Cowley and S Knight; Duties of Board and Committee Members; Thompson Reuters, Sydney, 2018; p.442.
[43] B. Cowley and S Knight; Duties of Board and Committee Members; Thompson Reuters, Sydney, 2018; p.442.
[44] Legislation Act 2001 (ACT) s 133.
[45] Mitchell & Ors v the Owners – Units Plan 3940 (Unit Titles) [2018] ACAT 86,[10-11]
[46] Ibid. [5]
[47] Ibid [8]
[48] Mitchell & Ors v the Owners – Units Plan 3940 (Unit Titles) [2018] ACAT 86,[56]
[49] Ibid,[36]
[50] Ainsworth v Albrecht [2016] HCA 40 [56]-[57].
[51] Ibid [57].
[52] Villanella [2017] QBCCM Cmr 248.
[53] B. Cowley and S Knight; Duties of Board and Committee Members; Thompson Reuters, Sydney page 446
[54] Giurina v Deak & Ors [2018] VSC 409.
[55] B. Cowley and S Knight; Duties of Board and Committee Members; Thompson Reuters, Sydney 450
[56] Ibid 447
[57] ibid 452
[58] Ibid 427
[59] ibid 427