Conflict of Interest in Strata – What is it?

Most people have heard of the term “conflict of interest” and have a general idea what this means in business. However; the term is used for a specific set of circumstances when it comes to Bodies Corporate.

Whether or not a conflict of interest exists for a Body Corporate member, we firstly need to apply the circumstance to the type of decision that is being made by the Body Corporate. These are either General Meeting or Committee Meeting Decisions.

General Meeting Decisions
The first and simplest decision type we can explain relates to general meeting decision. These are decisions usually made at the Annual General Meeting, but can also occur at an Extraordinary General Meeting. In both cases, voting involves all eligible owners and the legislation does not define any decision making of this type to be a conflict of interest, regardless of any lot owner benefiting from the decision being made.

To be clear, even if a lot owner puts forward a motion to approve an agreement or quote for themselves or a company they have an interest in to directly or indirectly perform work, they can still vote on the motion to approve their own terms. It is all eligible voting owners who decide on the motion outcome after consider the terms put forward to them with the meeting materials, including the owner with the direct interest.

The owner that has put forward the motion for approval, still needs to pay their portion of the cost via levies. Any service agreements in place are required to be disclosed when offering a lot for sale and diligence should be exercised prior to purchase to ensure future obligations are known and to your satisfaction.

Committee Decisions
Now for the decision making type where there can be a conflict of interest. This is when decisions are made by the Committee and a member of the Committee puts forward a matter for approval which they have a direct or indirect interest via association. If this is the case, they must firstly disclose their direct or indirect interest in the matter to be decided – even if they didn’t put the matter forward themselves.

The legislation states that disclosure is required when “the interest could conflict with the appropriate performance of the members duties about the consideration of the issue”. But what does this mean?

In a common sense view, if the Committee member is going to benefit (or suffer a loss) either financially, professionally, personally or otherwise due to the matter being decided, they are not entitled to vote on the matter. Examples of matters being decided which should be disclosed and no vote permitted are;

1. contractors to be engaged who are associates
2. improvements to their lot
3. pet approvals
4. by-law contraventions when they are respondents
5. you get the general idea!

Now if proxies are involved, there are further rules. Effectively you can’t vote with a proxy of a member that has a conflict of interest or give your proxy to someone else to vote on a matter which you have a conflict of interest. These are just a couple of extra rules in place to ensure the person with the conflict of interest cannot use other means to influence a decision they have an interest in.

Summary
General Meetings do not preclude voting on matters where there is a direct or indirect interest by an owner, but it’s a good idea to be upfront with your interest anyway just so there aren’t any misconceptions. For Committee meetings, because you or another member has an interest in a matter, it doesn’t mean you shouldn’t put it forward, particularly if it could be a good idea for the Body Corporate. You just need to declare your interest and not vote, either directly or via proxy.

This article was contributed by Grant Mifsud – Partner, Archers the Strata Professionals