Conflicts of Interest in Strata

By November 26, 2020Legal Issues

Actual and perceived conflicts of interests can lead to difficult situations in a body corporate.

As a result of a conflict of interest, an unsuitable or overly expensive provider may be given a contract or decisions could be made which yield a positive result for someone but not the body corporate as a whole.

You might have a general idea of what a ‘conflict of interest’ is in a business setting but the term is used in a more specific set of circumstances in strata decision making.

What is a ‘conflict of interest’ in strata?

A committee member has a conflict of interest if they have an interest in a matter before the committee that could conflict with the appropriate performance of their duties to the body corporate in considering it.

In simpler terms – a conflict of interest means a person involved has links to an outside provider, either professionally, financially or due to a family relationship and this link may (or may not) compromise the body corporate’s decision making and the result thereof.

Importantly, even if there is an established conflict of interest this may not matter depending on the circumstances and type of decisions being made.

General Meeting Decisions

For general meeting decisions (AGM’s and EGM’s) which typically involve all eligible owners, the legislation does not define any decision making of this type to be a conflict of interest, regardless if any lot owner will benefit from the decision being made.

So for this type of decision, even if a lot owner puts forward a motion to approve an agreement or quote for themselves or a company they have a direct or indirect interest in, they can still vote on the motion to approve their own terms.

Committee Decisions

When decisions are made by the Committee, if a member of the Committee puts forward a matter for approval which they have a direct or indirect interest via association then by law they must firstly disclose their direct or indirect interest in the matter to be decided.

This applies 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”

In simpler terms – if the Committee member will benefit either financially, professionally, personally or otherwise due to the matter being decided, they are not entitled to vote on the matter.

Proxy Votes

There are also rules to ensure a person with a conflict of interest cannot use other means to influence a decision they have an interest in.

The rules mean 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.

Spouses and Family on the Same Committee

While not required by law, it is highly recommended not to have two committee members who are close relatives or related by marriage. To avoid conflict, one should offer to be part of a working committee group, while the other takes on decision-making responsibilities.

A Conflict of Interest is Not Necessarily a Bad Thing

Just because a committee member has a conflict of interest does not necessarily mean committees should automatically not consider a motion put forward by said committee member

For example, say a committee member has a brother with a cleaning company and puts forward a motion to for the body corporate to engage that company’s services.

Yes, there is a conflict of interest, but it might be the case that the service provider, whilst linked to a committee member, still offers attractive prices and great service and would still be a completely valid choice of service provider that works in the interests of the whole body corporate.

Declaring/Disputing Conflicts of Interest

The only person that can declare a conflict of interest is the person supposed to have the conflict, not other committee members.

If you believe a committee member has a conflict of interest but they deny it and insist on voting, you can lodge an application with the Office of the Commissioner for Body Corporate and Community Management, firstly for conciliation and then adjudication.

You may also apply to go direct to adjudication but must state a valid reason for doing so.

Before lodging an application ensure you have actual evidence of the potential conflict of interest not just speculation and hearsay.  Be careful of throwing unproven accusations around that could be interpreted as defamatory and may open yourself up to legal action.

Conclusion

You can vote on matters at a general meeting even when there is a direct or indirect conflict of interest by an owner but to avoid misconceptions it is best to be upfront with your interest anyway.

For Committee meetings, if you or another member has a conflict of 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.

Avoiding conflict of interests means your building will be run by people who do not have ulterior motives and who will make decisions in everyone’s best interests rather than their own.

If you have any further questions relating to conflicts of interest in strata do not hesitate to contact one of our friendly body corporate managers for an obligation-free chat.

The information contained in this article is general advice only.

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