COMMISSIONER’S OFFICE – CLARIFYING CONFLICT OF INTEREST

The term ‘conflict of interest’ is used widely in a variety of non-body corporate situations. Sometimes confusion surrounding its use in the body corporate context is, therefore, to be expected.

This article will canvas and clarify conflicts of interest under body corporate legislation.

While this article is primarily targeted at community titles schemes regulated by the Body Corporate and Community Management Act 1997 (the BCCM Act) and its associated regulation modules, we will touch briefly on subsidiary bodies corporate under the Building Units and Group Titles Act 1980 (the BUGT Act) and higher-level bodies corporate under the Sanctuary Cove Resort Act 1985 (SCR Act), Integrated Resort Development Act 1987 (IRD Act) and Mixed Use Development Act 1993 (MUD Act).

Conflict of interest under body corporate legislation

Importantly, a conflict of interest can only arise under the Standard Module, Accommodation Module and Commercial Module when voting at the committee level.

A committee member is required to disclose any direct or indirect interest in an issue being considered by the committee if it could conflict with the appropriate performance of the member’s duties.

If a voting member discloses an interest in an issue, they cannot vote on any motions connected with the issue.

The legislation also bars them from using proxies to influence committee decisions where a conflict of interest exists. A proxy holder must not exercise a proxy vote if they are:

• aware that the committee member who gave them the proxy would be required to make a disclosure (in which case, the proxy holder must disclose the member’s interest)
• required to disclose their own interest in an issue.

Very similar conflict of interest requirements can be found in the BUGT Act, MUD Act, IRD Act and SCR Act.

Conflict of interest under the Small Schemes Module

Conflict of interest under the Small Schemes Module differs slightly from the provisions in the other regulation modules discussed above. This is owing to the size of committees under this module, which can be as few as one person or potentially a maximum of two members.

Under the Small Schemes Module, it is possible for the body corporate to authorise a committee member to vote on an issue, despite having a conflict of interest.

Is there an actual conflict?

As outlined above, the fact a committee member has an interest in an issue being considered does not automatically prevent the member from voting on the issue.

The key question should be: does the interest conflict with the appropriate performance of the member’s duties in considering the issue?

Case example: Larnaca Court [2016] QBCCMCmr 369

A motion was proposed to engage the chairperson to retain and instruct a law firm to represent the body corporate in appeal proceedings in the Queensland Civil and Administrative Tribunal (QCAT). The applicants argued that the chairperson should not have voted, as he was “directly involved in the substantive dispute” that was the focus of the initial adjudication application and subsequent appeal.

The adjudicator acknowledged that the chairperson – like any other owner in the scheme – would naturally have an interest in the outcome of the appeal. Critically, the adjudicator remarked that any interest the chairperson had “in the conduct and outcome of the QCAT proceedings was aligned with that of the body corporate as respondent”.

Consequently, it was determined that the chairperson’s interests were not in conflict with his duty to consider the motion. Rather, his interests were consistent with the interests of the body corporate.

Conversely, the votes of the remaining three committee members (who were the appellants, or the representatives of appellants in the QCAT proceedings) were found to be correctly excluded due to conflict of interest. The adjudicator observed that by voting against a motion that “sought to protect the legal rights and interests of the body corporate”, they were voting in their own interests.

As the case example above illustrates, it is imperative to recognise that the existence of an interest in an issue is not necessarily enough to demonstrate that there is a conflict of interest.

Reality testing yourself

If you believe a vote was cast by a committee member with a conflict of interest and you are seeking to lodge an application, there are certain factors to bear in mind.

Relying on a procedural error

Arguably, the most important consideration is whether the voting outcome changed because of the inclusion of the vote in question. If the outcome of the committee’s decision would have been the same – with or without the vote – there’s nothing substantial to be gained by lodging a dispute application if the voting error was your sole focus.

The BCCM Office does not hand out penalties to individuals who vote with a conflict of interest.

You must indicate the outcome you are seeking when you lodge an application – not simply highlight a procedural error.

Consider each motion on its own merit

Having a conflict of interest in a matter does not prevent a committee member from proposing a motion to the committee. The legislation requires the committee to act reasonably when making decisions.

The motion may in fact stand on its own merits and the committee member must abstain from voting if they declare a conflict.

For instance, consider the situation where a committee member proposes that their brother’s pest control business undertakes termite prevention work on common property. It may be in the body corporate’s best interests to engage this provider if:

• the work will be completed at a reduced price; and
• the provider is appropriately qualified to perform the work.

General meeting voting

Contrary to common misconceptions, there is no conflict of interest provision when owners vote at a general meeting. It only applies at committee level.

At the general meeting level, your right to vote is based on lot ownership. If you own one lot, you are entitled to one vote per motion. If you own multiple lots, you are entitled to a corresponding number of votes per motion.

If an owner proposes a motion at a general meeting – for example, seeking approval to install solar panels on a common property roof for the benefit of their lot – they can cast a vote on their own motion. Even though the owner has an interest in the motion, it does not preclude them from voting at a general meeting.

It is important to be mindful that, while a conflict of interest does not apply at the general meeting level, other avenues may be available if your body corporate makes objectively unreasonable decisions.

For instance, if a general meeting motion (benefiting just a few, or even one lot owner) is successful, it raises a question about reasonableness – not conflict of interest. Section 94 of the Act requires the body corporate to act reasonably when making, or not making, a decision.

If you wish to lodge a dispute application with our office on this basis, having first attempted to resolve the matter internally, you must demonstrate why the decision was unreasonable and, if implemented, the detriment of the decision.

Eligibility to be a voting committee member

We are occasionally asked whether someone can be on the committee if they have a conflict of interest. However, conflict of interest is not applicable in this situation.

To be on the committee, an individual must satisfy the eligibility criteria set out in the legislation.

For example, you are not eligible to be a voting committee member if you are an ‘associate’ of a body corporate manager, service contractor or letting agent.

Many relationships fall within the definition of ‘associate’, including:

• marriage, de facto relationship or civil partnership
• parent and child
• employer and employee
• fiduciary relationship
• a relationship in which one person is accustomed or obliged to follow the instructions or wishes of the other person.

For a comprehensive list of the relevant ‘associate’ relationships, you can refer to section 309 of the Act.

You can read about the eligibility criteria in further detail on the BCCM Office website.

Removal for breach of code of conduct

It is worth noting that the code of conduct for committee voting members in the BCCM Act also refers to an obligation on committee members to disclose any conflict of interest in a matter before the committee.

When relying on the code of conduct provision about conflict of interest (as opposed to the general conflict of interest provision under the regulations), the focus shifts to removing committee members.

You can read more on the BCCM Office website about the process prescribed under the legislation for removing committee members based on code of conduct breaches.

Bodies corporate not regulated by the BCCM Act

Higher-level bodies corporate under the SCR Act, IRD Act and MUD Act have a code of conduct for voting members with a similar conflict of interest requirement. As with the code of conduct under the BCCM Act, its main function is the removal of committee members.

There is no equivalent code of conduct for committee members in subsidiary bodies corporate regulated by the BUGT Act.

Nominating representatives for conciliation

We are regularly asked whether a conflict of interest applies when nominating representatives for conciliation. There are no specific legislative provisions about conflict of interest in this situation – ultimately, the final decision about who can attend a conciliation session rests with the conciliator.

It is often the case that the body corporate will be represented by voting committee members (normally two) in a conciliation. Conciliators do not make determinations about whether the representatives selected by the committee have a conflict of interest. Rather, conciliators play a more facilitative role by assisting the parties to reach a good-faith agreement.

Conciliators may, however, employ other strategies where there is a perceived conflict of interest. For instance, conciliators can:

• educate participants about the committee’s duty to make reasonable decisions
• suggest ratifying the decision made in conciliation at a committee meeting or a general meeting
• suggest representation by an additional committee member who does not have a perceived conflict of interest.

The conciliator’s approach will depend on the circumstances of each relevant dispute. You can read more about representation at conciliation in Practice Direction 11 on our website.

We hope that this article has clarified the narrow application of conflict of interest under body corporate legislation. Given the potentially harmful effects of unchecked conflicts of interest within bodies corporate, it is fundamental to be equipped with knowledge of the relevant legislation.

Article Contributed by The Commissioner for Body Corporate and Community Management