Question: In what situations do committee members need to declare a conflict of interest in a matter and abstain from voting?
Our body corporate has to replace some unit’s windows which are in common walls. These windows are a body corporate maintenance responsibility. They are currently either awning style or fixed panes and have to be replaced as part of a maintenance project.
Some unit owners on the committee would like to have some of their unit windows replaced with more expensive louvres while others want to keep the same styles.
It is a general principle that body corporate maintenance projects replace like for like (or a modern equivalent).
If the committee votes on whether to install louvres, wouldn’t those committee members who want louvres need to declare a conflict of interest in the matter and abstain from voting?
Otherwise, they are voting on an issue in which they can derive a financial benefit by getting the other members of the body corporate to fund upgraded windows in their units.
It seems to me to be a clear conflict of interest.
Answer: A committee member is required to disclose and refrain from voting upon a matter where there is scope for their personal financial or material interests to conflict with their fiduciary obligations to the body corporate
First and foremost, we assume from the question that the Body Corporate will be responsible for payment of the louvre windows. Therefore, the Committee is not approving an improvement to common property by an owner (whereby the owner is responsible for the cost associated with the improvement) however, is approving works to occur to common property and authorising the cost associated with same. As the question states that the matter will be voted on by the Committee, we presume that the expenditure is capable of being authorised by the Committee and therefore have not considered this aspect.
On those assumptions, we provide the below general information for your consideration.
The relevant section dealing with a conflict of interest at Committee level is section 66 of the Standard Module / section 58 of the Accommodation Module. These sections relevantly state [our emphasis]:
- “A member of the committee must disclose to a meeting of the committee the member’s direct or indirect interest in an issue being considered, or about to be considered, by the committee if the interest could conflict with the appropriate performance of the member’s duties about the consideration of the issue.”
- “If a member required under subsection (1) to disclose an interest in an issue is a voting member, the member is not entitled to vote on a motion involving the issue…”
Additionally, we note that the Code of Conduct for Committee Members in Schedule 1A to the Act states that Committee members “must act in the best interests of the body corporate in performing the member’s duties”.
Adjudicators have stated that the term “conflict of interest” is a broad term, generally used in the context of a person voting upon a motion to obtain a material benefit that they would not otherwise be entitled to. The purpose of that section is to prevent a committee member from voting on an issue if their personal interest in the issue could conflict with the appropriate performance of their duty to consider the issue in the interests of the Body Corporate (V Human Space [2007] QBCCMCmr 105 (27 February 2007)).
Alternatively, as described in Grand Pacific Resort [2010] QBCCMCmr 255:
“Put simply, a committee member is required to disclose and refrain from voting upon a matter where there is scope for their personal financial or material interests to conflict with their fiduciary obligations to the body corporate – for example where a committee is a party to a contract with the body corporate or has a beneficial interest in a business that supplies goods or services to the scheme.”
On the limited information provided, we see a potential argument that:
- the installation by the Body Corporate of more expensive louvred windows on Committee members’ lots would provide a direct benefit to those Committee members, as the effect of the motion will be that their lots will receive improvements to the windows rather than the maintenance of the existing windows;
- that personal interest could conflict with the obligation for those Committee members to vote on the motion in such a way that is in the best interests of the body corporate; and
- those Committee members should seriously consider whether they feel their personal interests conflict with the best interests of all owners and declare a conflict of interest at the meeting and abstain from voting on the relevant motion.
If the relevant Committee members do not declare a conflict, and as a result the relevant motion passes, an owner or interested person could apply to the Commissioner’s Office seeking orders invalidating the conflicted Committee members’ votes. However, we do caution that such action is only likely to be of any material benefit if the outcome of the motion would have been different if those conflicted members had abstained from voting.
It goes without saying that there are a number of variables when considering maintenance vs improvement works and conflicts of interest. We would therefore encourage a concerned owner to obtain independent legal advice.
This post appears in the August 2021 edition of The QLD Strata Magazine.
Jessica Cannon & Jessica Stanley Cannon + Co Law E: jessicacannon@cannonlaw.com.au P: (07)55 548 560