Although the body corporate legislation sets out how certain decisions can be made, sometimes a decision will be made that does not comply with the legislation. For example, if a committee has a spending limit of $5,000, what happens if the committee authorises expenditure for $12,000? Clearly, that is unlawful, because it should have been decided by a body corporate at a general meeting, and because the expenditure was over $10,000 there should have been two quotes.
However, the body corporate can decide to ratify this expenditure. Ratification is when a body corporate authorises what would have otherwise been an unauthorised decision. Legislation does not govern ratification: it falls to centuries of judge-made common law. So what are the requirements for a body corporate to ratify an unlawful committee decision? There are generally five requirements:
1. the committee must have purported to act for the body corporate in making the decision;
2. the body corporate must have been in existence;
3. the body corporate must have been legally capable of doing the act;
4. the body corporate, at the time of ratification, must have full knowledge of all material facts and circumstances relating to the committee’s act; and
5. ratification must be effected within a reasonable time.
The first requirement means the committee must have acted on behalf of the body corporate when making the decision. An example would be hiring a gardener to look after the common property. An example that would not satisfy this element is if a committee member approached a gardener without letting them know that the gardener would be working for the body corporate.
The second requirement is not really relevant to a body corporate, as a body corporate must of course exist first. This is because the law of ratification is old and can apply in many contexts, such as corporations law.
The third requirement is important. A body corporate can only ratify a committee’s unlawful decision if the body corporate could have lawfully made that decision. Assume the committee spent $12,000 on a gardener, then sought to have that ratified at a general meeting. The committee puts up one quote. Can the body corporate ratify this? Absolutely not: as the expenditure is over $10,000, there must be at least two quotes. The motion would be invalid, so the body corporate cannot ratify it. A solution would be for the committee to present two quotes.
This is an incredibly important point. It may be that the body corporate does not ratify an action, and the body corporate has no obligation to ratify. What happens to the committee? In that case, the committee will have acted unlawfully. If the committee caused the body corporate to expend money and it was not ratified, then the body corporate can sue the committee. Committee members who act unlawfully can be sued to recover any money spent by them and they should expect to be sued in these situations.
The fourth requirement is that the body corporate have all knowledge of all material facts and circumstances. For example, it is insufficient for the committee to tell the body corporate that a gardener will be appointed to mow the common property. When did this occur? How much was it for? When will the gardener do the work? Why did the committee take this action? What are the full terms of the agreement? Everything must be made known. The committee cannot hide any embarrassing information.
The fifth requirement is that ratification, if sought, be done within a reasonable time. We have had matters where a committee member has had effective control of the scheme and used body corporate funds to enrich themselves when the committee had no power to do so. This only came out five to ten years after the fact. When the other lot owners found out and tried to recover this, the committee member sought to ratify their conduct. This was not brought within a reasonable time, as it was clear that the committee member had no intention of ever asking for the body corporate’s authorisation.
Committees should always act within the body corporate legislation. If it does not, the body corporate has no obligation to ratify the committee’s conduct. This means the committee may be personally liable for any expenditure they incur without authorisation. “Seeking forgiveness” instead of permission is dangerous for a committee. Body corporate laws are not lax: they are strict.
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.