Owners Corporation decision making
Are there rules or processes for dealing with conflicts of interests between owners?
A recent ACAT decision about conflict of interest, Gracie v Units Plan 3411, has significant implications for OC decision making. This is a significant development in the law governing OCs in the ACT. ACAT dealt at length with the meaning of conflict of interest at paragraph 25.
The most important point that ACAT made is that it is not enough to confess to a conflict of interest but that conflicts have to be addressed and managed. The elephant cannot be silent in the room.
All OC decision making involves smaller or larger conflicts of interest. EC and OC members have different interests in almost all decisions. Resident owners and non-resident owners have significantly different stakes in maintenance, landscaping and common utilities (water and communications especially). Members who potentially benefit more from decisions than others have conflicts of interest. Those conflicts must now be spelt out and addressed.
In general owners who derive particular benefit from a decision should not participate in the making of the decision to the extent of stating their conflict and leaving the room. This may require Chairs to exercise a firm control over a meeting and demand acknowledgement of conflicts and adherence to proper behaviour.
Other owners can challenge decisions at ACAT on the grounds that the continued participation of highly conflicted individuals led to ‘unreasonable influence’ on decisions.
Do the words of all motions at an annual or special general meeting have to be in the agenda sent to all owners?
Most owners would be alarmed to learn that in both Brudenall & UP202 (UT 28/2015) and UP68 & Haughey, ACAT stated that Section 3.7 of Schedule 3 of the UT(M)A requires that only the texts of unopposed or unanimous motions need to be included in the agenda and that no other section requires that special or ordinary motions be included in the agenda.
In neither case did ACAT even suggest that it was unlawful or improper to include the text of all motions in the agenda. Both written decisions drew attention to the requirement for notice under Section 3.6 of Schedule 3 and that that notice should make clear the scope of the meeting.
Consequently it is near unanimous practice across the ACT that the text of all motions is included in the agenda provided to all owners to ensure there are no misapprehensions about the scope of the meeting.
However it would be preferable if the UT(M)A was clear that the text of all substantive motions were required to be included in the agenda. OCN will raise this matter in discussion about further refinements to the UT(M)A.
Can a motion requiring a special resolution vote be raised from the floor at a general meeting without notification?
In Units Plan 68 v Haughey, the Respondent contended that it is quite proper for resolution that requires a special resolution to be raised from the floor of a general meeting without any prior notice. ACAT did not have to decide that matter in the context of that case but it made observations the text of a special resolution does not have to be notified to owners 14 days prior to the meeting.
Is an OC member entitled to vote at an AGM or special general meeting if they owe any money to the OC?
In Executive Committee Units Plan 930 v Capital Strata Management and Miliano and Others (unreported) ACAT affirmed that if an OC member owes any money to the OC they are not entitled to vote on any resolution at an AGM or special general meeting.
If members of an OC seek a special general meeting under section 3.5 of Schedule 3 of the UTMA, do all the signatories have to be fully financial at the time they sign the request for the meeting?
In Executive Committee Units Plan 930 and Capital Strata Management and Miliano and Others ACAT concluded that Subsection 2 of Section 3.5 means that if a signatory is not fully financial at the time they sign a petition seeking a special general meeting, their signature does not count towards achieving at least 1/4 of the total unit entitlement in the units plan. “It is not sufficient that they may become entitled to vote by paying outstanding amounts some time before the general meeting that is held as a result of their request.”
Isn’t it valid to amend any resolution put before an AGM anyway the meeting agrees?
It never was actually, but ACAT drew attention to this in Brudenhall and UP202.
“Secondly, it is well established that at a meeting a motion may be amended only to the extent that it remains within the scope of the motion of which notice was given.”
Logically if the resolution notified to owners is that the OC do X but the resolution agreed after amendment is that the OC do Y instead, notice of the resolution is not properly given and the resolution would be invalid. So the matter should be held over to a special general meeting and proper notice given.
Do proxies count towards a quorum?
In Butt and UP 1725 ACAT decided that proxies do count towards the making of a quorum. Section 3.9(1) of Schedule 3 of the UT(M)A provides that:
(1) A motion may be considered at a general meeting of an owners corporation with 3 or more members only if there is present:
(a) a quorum (a standard quorum) made up by people entitled to vote (on the motion) in relation to not less than ½ the total number of units; or
(b) a quorum (a reduced quorum) made up under subsection (2).
ACAT decided that the use of the words “in relation to” leads to the conclusion that the provision means not the people physically present but the number of entitlements to vote that are present. Therefore proxies (ie entitlements to vote) do count towards the quorum.
ACAT concluded this interpretation is reinforced because “Paragraph 3.31.(4) specifically provides in relation to absentee votes that such votes do not count “for the purposes of making up a quorum. “If the same approach was intended to be taken in relation to proxies, similar legislative provision would have been made.”
Can you give your proxy to someone who is not a member of your OC?
In the case of Anne K Brown v Units Plan 2737, ACAT concluded that because Sub-section 115(3) (now Schedule 3 3.26 of the Unit Titles (Management) Act) excludes only two types of person (the strata manager or a service contractor) from being appointed a proxy, it therefore allows anyone else to hold a proxy.
Can an OC exclude certain people from accepting proxies?
ACAT concluded in Anne K Brown v Units Plan 2737 that an OC’s power to approve the proxy form (Schedule 3 3.26 of the Unit Titles (Management) Act does not include a power to change the Act. So as the Act only prohibits the strata manager or a service contractor from being appointed a proxy, an OC can go no further than that.
Can an OC stop proxies from voting on certain motions at AGMs?
ACAT concluded in Anne K Brown v Units Plan 2737 that an owner may in writing place restrictions on what motions and how their proxy holder may vote but that, as the Act does not limit what motions a proxy may vote on, an OC cannot change the Act or the scope of the proxy given by the owner.
Is an absentee vote handed to the Chair as an owner leaves an annual general meeting or special general meeting a valid vote?
In Green v Units Plan 199, ACAT found that an absentee vote has to be registered before the start of the meeting as required by Section 3.31 of Schedule 3 to the UTM Act.
The reasoning in this decision would not appear to make a proxy vote, even a directed proxy vote, given to the Chair or another attendee during the meeting, invalid, so long as the provisions of Section 3.26 of Schedule 3 relating to proxies are adhered to.
EC members should be aware of this and ensure that owners, who have to leave a meeting that is going longer than expected, are correctly advised how to register their vote for the remainder of the motions.
Is a new Rule invalid if the resolution making it refers to the wrong set of default Rules or Articles?
It could be.
In Forman v UP312 ACAT agreed to amend the text of the special resolution already passed by the OC to refer to the set of default Articles that were actually in operation at the time.
It should be noted that the Articles or Rules adopted at the commencement of an OC remain in force until amended by the OC. So if an OC was incorporated under the 1970 Act, its Articles are the default 1970 Articles as amended by the OC from time to time. Likewise the 2001 Articles still apply to an OC incorporated while that Act was in operation and so on. The new Act does not amend the Articles or Rules in effect in each OC.
So to reduce the likelihood of challenge to any new Articles or Rules it is important to make sure you are amending the Articles or Rules that are actually in force in your OC.
If a motion is passed unopposed, can it be overturned later by a special resolution?
Section 3.14 of Schedule 3 to the UT(M) Act provides as follows:
(1) Decisions at general meetings must be made by ordinary resolution, unless this Act requires otherwise.
(2) If, at a general meeting, an owners corporation makes a resolution of a particular kind (that is, an ordinary, special, unopposed or unanimous resolution), a resolution of the same kind at a general meeting is required to amend or revoke the earlier resolution, unless this Act requires otherwise.
In Green v Units Plan 199, ACAT found that a motion passed unopposed, when it only needed to be passed by special resolution, could be overturned by a special resolution. That is, a special resolution was required to validly pass the original resolution so a special resolution was required to validly rescind it and the fact that the original resolution was passed unopposed was purely incidental.
EC members need to give consideration to what level of resolution is required to give effect to any motion and make sure that the Minutes correctly reflect the type of resolution and the votes recorded. (Note that there are some cases where a resolution of a certain kind may be reversed by a lesser class of resolution – see for example section 22 of the Act.)
Should resolutions be put to a general meeting even though they have been lost on absentee votes?
It is proper meeting practice and fair to all parties to formally put to the meeting all resolutions that are notified in the Agenda and absentee voting papers and that the outcome (votes for and against) is formally recorded in the Minutes.
In the case of Kilcullen v UP13 in 2006 the Small Claims Court found that the then deadlock provisions of the Unit Titles Act could not be called upon because the resolution was not formally put to the general meeting because a view was formed that it had already been lost.
This case then suggests that, unless a motion that may well have been already lost was formally put at a general meeting, owners could not take the benefit of S129 of the UT(M)A and challenge the decision. Hence it is always incumbent on ECs to ensure that general meetings are conducted so as to ensure that the rights of all members of the OC are protected.
Is laying a new floor covering, particularly a hard floor, an erection or alteration that requires approval by an annual general meeting?
In Nolan v UP369 ACAT decided that:
“the removal of carpets and the installation of a floating bamboo floor is not an erection or alteration to the structure as provided in default rule 4(1)(a) in Schedule 4 of the UTMA and it does not require OC approval.”
“Structure”, “alter”, “alteration”, “erect” or “erection” are not defined in the UTMA. Regulation 23 of the Building (General) Regulations 2008 deals with substantial alteration. Subclause (2) provides that neither refitting a building nor replacing the internal elements of the building is an alteration of the building unless the layout and function of the internal spaces of the building have changed.
So the Tribunal looked at case law and interstate legislation in relation to ‘structural alteration’. In all cases the Courts concluded that a ‘structural alteration’ required at the least penetration of a concrete slab, but more likely the addition of doors or windows or the change of load bearing walls.
Following from this logic, it would be reasonable to conclude that refurbishing an existing fixture, fitting or structure would not require approval of an AGM unless it involved substantial alteration.
Does an owner have to seek approval from the OC or EC if the owner assumes, based on previous practice, that the approval will be forthcoming?
In UP116 v Nicholson, ACAT was quite clear that part of the functions of the OC or EC is to enforce the rules. If there is a rule that an owner must seek approval for something then an owner’s expectation that permission will be granted does not remove the requirement that permission needs to be sought as required by the rule.
If an owner objects to a neighbour’s proposal to erect or alter a structure, does that mean the proposer can be refused the right to bring the matter to a general meeting of the OC in accordance with the default Rules?
In Nolan v UP 369 ACAT did not decide the case in favor of the applicant on this basis but said the owner proposing the alteration should have the opportunity to put the proposal to a general meeting and other owners then have the opportunity to vote on it,
This decision supports the reasoning in Kilcullen above.
Can an owner say that, as their alteration and addition plans have been approved under the Planning and Development Act, any objection by owners under Article 4 is unreasonable?
In Bonasea v UP421 noted that the plans had been approved subject to the OC giving approval for the work, so the approval was conditional. But ACAT also noted that Rule 4 is a mandatory Rule and that the owner had to have either the approval of the OC or the approval of ACAT.
If an owner gets Planning and Development Act approval and the OC has published no Rules or Guidelines as to what they will approve, any objection under Article 4 are inherently unreasonable?
In Bonasea v UP421, ACAT decided that line of reasoning would make default Rule 4 or however the OC had adjusted the Rule to suit itself purposeless. ACAT concluded the existence of Rule 4 amounts to a planning rule for the OC. It is a mandatory Rule that all owners have agreed to abide by and works cannot commence without it being adhered to.
Can an owner commence building works without approval and apply forensic blackmail against other owners to approve the finalisation of the work?
In Bonasea v UP421, ACAT dismissed this tactic very firmly on the basis that it is not permissible to commence alteration or additions without the express permission of the OC or an order of ACAT. In this case neither had occurred.