VIC: Challenging proxy misuse and committee misconduct in an owners corporation

This article discusses committee misconduct and misuse of proxies in a Victoria strata scheme and the options owners have to challenge it.

Question: What can owners do if the committee fails to report properly, misuses proxies, and claims an insurance funded legal defence?

Our committee does not report to owners as required under the Owners Corporations Act 2006 (the Act), allowing committee members to pursue their own agendas. Due to actions by our committee, some owners have circulated defamatory statements about past committee members.

Is there a limit on the number of proxies one person can hold? At the AGM, the chairperson submitted four proxies to retain their role.

When owners take action, the chairperson and committee members apply for legal defence to be paid through the owners corporation’s insurance, even where it has been proven they did not act honestly and in good faith.

What options do owners have in these circumstances?

Answer: There are fundamental matters that should not be making it past the strata manager.

Living and participating in a strata community is a unique experience in that almost all actions and engagements are through the lens of people. As with any walk of life, it is wise to be careful with what one says, and to make sure there is no risk in being alleged as being defamatory in spoken or written remarks. Not only for legal reasons, but also with the future in mind, owner turnover rate is low (generally speaking), and co-owners will likely stay as just that, co-owners, for a long period of time. Winding back months or years of aggression, anger, and adversarial relationships is difficult. And it’s probably fair to say that very few of us, probably nobody in fact, will reach the end of their days wishing they had spent MORE of their precious time arguing about their strata property with fellow owners. Quite the opposite, I suspect.

For this question, I will assume that the best ‘first step’ of attempting reasonable and rational dialogue and conversation has been tried in good faith, and fallen over.

Within the Act, there is no scope for an owners corporation to judge or otherwise assess the potential defamatory nature of what is said by other owners. Having said that, committee members hold a unique position within the Act, per the duties prescribed in s117;

117 Duties of members of committees and sub-committees

1. A member of a committee or sub-committee of an owners corporation must, in the performance of the member’s functions—
   1. act honestly and in good faith; and
   2. exercise due care and diligence; and
   3. act in the interests of the owners corporation.

2. A member of a committee or sub-committee of an owners corporation must not make improper use of the member’s position to gain, directly or indirectly, an advantage for the member or for any other person.

If a committee member is felt not to be acting within those statutory obligations as they are required to, then the aggrieved party may wish to lodge a complaint via the prescribed formal complaint form. However, the Grievance Committee (drawn from the committee) is the arbiter in this process and arguably cannot effectively judge its own member’s behaviour as the respondent. Therefore, you may need to consider a VCAT application, potentially seeking an order regarding actions taken in the name of the committee and the owners corporation, and/or requesting the appointment of an administrator if there is an argument that the owners corporation has become dysfunctional.

Alternatively, private legal action may be worth consideration. The NSW case of Raynor v Murray from 2019 is probably the most prominent example of a successful action.

In terms of the failure for the committee to report to the AGM, this also can be remedied by an application to VCAT, but before that you may wish to highlight the non-compliance to the strata manager, who should be in a position to advise the committee as a whole (not just the chair or a singular member) of their obligations, covered under section 115.

115 Committee to report

The committee must present a report of its activities and the activities of any of its sub-committees to the annual general meeting of the owners corporation.

To the proxies. Changes to the Act that came into force as of 1 December 2021. Section 89C, D and E of the Act now lays out the laws concerning how proxies function. S89D goes to your specific query;

89D Restriction on number of lot owners on behalf of whom a proxy may vote on a resolution

1. A person must not vote as a proxy on a resolution at a meeting of the owners corporation—
   1. on behalf of more than one lot owner—if there are 20 or less occupiable lots on the plan of subdivision; or
   2. on behalf of more than 5% of the lot owners—if there are more than 20 occupiable lots on the plan of subdivision.

2. Subsection (1) does not apply if—
   1. the lot owners for whom the person is authorised to vote on behalf of are members of that person’s family; or
   2. the person votes as a proxy in the prescribed circumstances.

Subsections 1(a)(b) apply here. Without knowing the total lot count, it’s unclear whether 4 proxies are acceptable within that section of the legislation. As a first step in the legislation, I would again raise this with the manager. However, if the matter is not addressed immediately, I would strongly consider an application to VCAT seeking to set aside the AGM/SGM appointment of that committee if it was unlawfully elected.

While the prospect of a professional defence funded by the insurance policy can be daunting, there are several factors to take into account. The insurer’s appetite to defend actions that don’t pose a monetary/damages risk to the owners corporation may be limited. Still, the tribunal may refuse to permit legal representation for parties, depending on the matter at hand.

Circling back to an earlier point, there are fundamentally matters within this context that should not be making it past the strata manager – i.e. a proper election, and proper representation of the committee and use of committee position. There may be value in meeting with the manager in person to raise these concerns directly.

Alex McCormick
SOCM
alex@socm.com.au
P: 03 9495 0005

This post appears in Strata News #780.

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Read next:

• VIC: When AGM minutes are wrong, what are the strata manager’s obligations?
• VIC: Q&A Dealing with Problem Committee Members
• NAT: Unfair contracts, consumer protection and the impact on lot owners

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