A body corporate is designed to allow lot owners at meetings to decide how the body corporate is to be run. Because the only people who can vote are lot owners, it is natural that everyone has an interest in how the body corporate is run when they vote at a general meeting. However, there are times when the interests of the body corporate come first.
The first example is committee meetings. Each voting committee member has a duty to avoid a conflict of interest. If someone at a committee meeting has any direct or indirect interest in anything voted on, that must be disclosed and they must not vote.
But what about a general meeting? There is no statutory obligation to avoid a conflict of interest at a general meeting, but there are still duties to avoid conflicts of interest at a general meeting. Generally, a person must avoid a conflict of interest if they are in a special position of power or influence and if a decision might not be in the best interests of a body corporate.
For example, assume a body corporate has 20 lots, and a company has bought 11 of the lots. The company wants to redevelop the scheme, but they can’t get everyone else to agree. The company thinks that, to make the others want to leave, it will set up a subsidiary company and enter into a caretaking agreement for 10 years with high remuneration. Because the company has 11 out of 20 lots, its votes alone can approve the engagement. The other 9 lot owners then have to pay a lot of extra money to pay the new caretaker, causing financial hardship.
Nothing in the body corporate legislation prevents the company from voting or acting in this way. However, because the company has effective control over the body corporate, and because the body corporate must act for the benefit of all lot owners, then the company has a duty at law, outside of the legislation, to avoid a conflict of interest. The company would then stand in a fiduciary position in relation to the body corporate. It cannot use its control over the body corporate to benefit itself at the expense of the other lot owners.
If you relied only on the body corporate legislation, the above behaviour would be acceptable. However, at general law, it is not. If you run into any questionable behaviour, it is best to seek out legal advice, as the Commissioner’s Office can only tell you what is in the body corporate legislation – it cannot advise you of your general legal rights.
This article is intended as general information only and should not be relied upon as legal advice. For specific legal advice please contact us here.