This article addressing the best way to protect yourself when conducting the duties of a strata council member has been supplied by Anthony Quahe, Civic Legal.
The Western Australian State Government has just passed sweeping amendments to the Strata Titles Act 1985 (WA) (Act).
These reforms are likely to come into effect in the next six to twelve months.
These reforms have introduced new duties for strata council members.
Key Points
If you are a council member you should:
- ensure you have complete information
- ensure you make decisions in the strata company’s interests, rather than your own
- consider the duties outlined in the Act when making decisions
- keep written records of what decisions the strata council has made and how
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Breaches of these duties could lead to the removal of council members or make the strata company and/or council members liable for harm caused by the breach of those duties.
Landgate has promoted the reforms by saying that council members will have protection from personal liability if they fail to meet some of these duties:
To encourage people to volunteer for the council, the Act will state that a council member is not liable in any civil proceedings for any act that they do in good faith when performing the role of a council member. (Improved Management: Council members are protected)
However, strata council members should be aware that the protection offered in the legislation is very limited.
What are the new duties of strata council members?i
In the amendments, a council member will be obliged to:
- act honestly, with loyalty and in good faith in the performance of their functions (the duty of good faith); and
- must exercise the degree of due care and diligence that a reasonable person in their position and in the circumstances of the strata company would exercise (the duty of diligence); and
- must not make improper use of the person’s positions to gain an advantage for themselves or someone else or to cause detriment to the strata company.
The duties also include duties to inform the council in writing of any conflicts of interest with the strata company’s interests and must not vote on a matter on which they have a conflict of interest. Merely owning one of the strata lots is not a conflict of interest. Something more is needed, such as being the owner of a subcontractor seeking to work on the common property.
Can a council member be personally liable?ii
A council member may be personally liable unless they can show they acted in ‘good faith’ in exercising their functions.
If they have acted in good faith, then the council member would escape liability, but the strata company could still be liable for any act or omission that occurred in breach of the council member’s duties.
While this appears to offer wide protection to council members from liability, it is quite possible that in many cases where a breach is proven, a council member will not be able to establish that they acted in good faith.
What does good faith mean?
It’s unfortunately quite complicated.
‘Good faith’ is not defined in the Act, which means we need to look to court decisions.
While other states have introduced similar strata legislation, there are no clear decisions on ‘good faith’ in the strata context.
However, there is a similar duty of good faith owed by directors under s.181 of the Corporations Act 2001 (Cth).
The court has interpreted this duty as being an obligation to exercise the director’s powers:
- for the purpose for which they were conferred;
- honestly in the interest of the shareholders as a whole; and
- not arbitrarily or capriciously.iii
….strata council members should be careful to be diligent and conscious of the strata company’s interests.
“
The difficulty here is that these are worded similarly to the duties of strata council members themselves. ‘Good faith’ does not offer much protection if a breach of the duty is already considered to not be acting in good faith.
In the corporations’ context, the Federal Parliament introduced further protection for directors called the ‘business judgment rule’ which introduced a new test for whether a director could be liable. It included acting in good faith and a reasonable belief that the decision is in the best interests of the company. Recent studies have shown that the new defence offered little further protection from liability.
Since the ‘business judgment rule’ was introduced, courts have made different findings about what ‘good faith’ means for corporations.iv
As a result, it is safest to assume that knowing an act is not in the best interests of the company is a failure to act in good faith and that it is not necessary to know it was also illegal or improper.
How should a strata council member act?
With no clear meaning of ‘good faith’, strata council members should be careful to be diligent and conscious of the strata company’s interests.
The best way for strata council members to protect themselves is to always:
- ensure you have complete information and take active steps to inform yourself if you do not believe you have that information;
- ensure you make decisions in the strata company’s interests, rather than your own;
- keep thorough written records as a strata council of what decisions have been made and how; and
- consider the duties outlined in the Act when making any decisions.
This post appears in Strata News #234
You can access a PDF of this article here: Duties of a council member and how to protect yourself from liability.
Please note: this article was provided prior to the proclamation of the new strata title amendments.
Have a question about strata council member duties and personal liability or something to add to the article? Leave a comment below.
For more information please contact:
Anthony Quahe
Managing Principal
Civic Legal
T: 08 9200 4900
E: [email protected]
Disclaimer: This article contains references to and general summaries to the relevant law and do not constitute legal advice. The law may change and circumstances may differ from reader to reader. Therefore, you should seek legal advice for your specific circumstances.
Footnotes:
- i 1S.137 of the Act
- ii S.141 of the Act
- iii Australian Metropolitan Life Assurance Co Ltd v Ure (1923) 33 CLR 199 at 206.
- iv See e.g. United Petroleum Australia Pty Ltd & Ors v Herbert Smith Freehills & Anor [2018] VSC 347 at [630]-[639].
Read next:
- WA: Reforms to WA Strata Legislation – As a Lot Owner, Should I Care?
- WA: New Strata Reforms Make Solar For Strata Easy and Safe
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I am new on council of owners on a committee of 7. Two of the committee members have been on council for a while – one a chair until last year for a number of years and the other a chair currently. They have referred to themselves as ‘committee of two’ in correspondence though there has always been 7 members, however others would often be excluded from correspondence. There is even confirmation in writing to third parties that they are withhold information from new council members who are keen to be updated. What are the options for dealing with council members like that? Would the strata company be liable for their actions if their decisions are not authorised by council of owners as a group?
Hi Emily
We have dealt with a similar situation here: Question: I’m on the strata council of owners in WA with three others. They are making decisions without including me in the correspondence. It is a very dysfunctional COO. What should I do?
We currently have a strata council member who is constantly emailing the strata company who have asked the other council members to speak to her in relation to her conduct as they believe she is harassing them consistently.
The council’s concern is that if this doesn’t cease we will have to find a new strata company [even though the current one is very average], however we are all finding it extremely difficult to deal with this council member.
What are our legal options?
Hi Sarah
Civic Legal has responded to your question here:
WA: The State Administrative Tribunal and Strata Disputes
Given strata companies are required to be governed by councils (elected members acting in concert) the opportunity for an individual council member to be liable should be nil as they have no personal authority.
A strata manager, facilities manager or contractor which acts on instructions from an individual who happens to be a counci member is enabling the council member to exercise authority unlawfully unless the instruction correlates with a minuted decision of a meeting of the council when a quorom existed.
Hi, I’m trying to gather an understanding about the Strata Companies &/or Strata Managers liability when it comes to poor maintenance of common property which results in unsafe and hazardous situations.
My sister has recently reported a rusted drain cover in the common driveway just outside her villa. It is bent and twisted and poking above ground level. After 2 late night shifts she has tripped over the protruding drain cover and taken falls. She has reported this to the Strata Manager who has provided little response in having the hazard fixed.
Do we speak to a lawyer about this because we have been considering a claim for personal injuries as a result of this hazard. Thanks
Hi Shane
We have received this response from Civic Legal:
As the drain cover is on common property, the strata company has the duty of care to ensure that it does not present a hazard to all people who may walk near it. It is possible that the strata manager may have a duty of care too.
If a person suffers an injury as a result of such a hazard, that person may well have a claim in damages against the strata company or the strata manager. You may indeed wish to consult a lawyer. However, it may well not be worth it if the injury is relatively minor.
Disclaimer: This response is of a general nature only and is not to be taken as legal advice. You should seek legal advice for your specific circumstances.
Does the new Amendment cover Council of Owners for slander or defamation
Hi Shashi
We have received the following comment from Anthony Quahe, Civic Legal:
The amendments were made to the Strata Titles Act. Defamation law is covered by the Defamation Act. It is too early to tell how the two areas of law will interact with each other. It should not be assumed by any council members that these amendments will necessarily help them raise a defence. The reason is that a defendant can only use defences available to him or her under defamation law, not the Strata Titles Act. One can imagine that a defendant might first raise defences under defamation law but at the same time seek to be indemnified by the strata company, on the grounds that they acted in good faith and honesty in discharging their duties.
Disclaimer: This comment contains references to and general summaries of the relevant law and does not constitute legal advice. The law may change and circumstances may differ from reader to reader. Therefore, you should seek legal advice for your specific circumstances.
In your response here, what onus does ‘to be indemnified by the Strata company’ put on the Strata company and does a strata company automatically have indemnity cover for this under the Strata Titles Act?
Hi Teresa,
We have received this response from Civic Legal:
An indemnity by a strata company would arise either under the by-laws or else by agreement. There is no onus on the strata company to indemnify the council member. However, there are practical consequences with not giving an indemnity when it is appropriate to do so. For example, lot owners might be reluctant to serve as council members if the policy is not indemnify.
The Act does not expressly require strata companies to extend indemnity to council members with respect to defamation.
Disclaimer: This response is of a general nature only and is not to be taken as legal advice. You should seek legal advice for your specific circumstances.
Hi Danny
The wording is correct. Council members are people not experts.
If it is shown (proved) the council members acts in good faith them that council members is not held personally liable and the strata company becomes liable instead. This is why there would normally be Office Bearer’s cover included in the annual strata company insurance policy.
Is there an error in the paragraph “A council member may be personally liable unless they can show they acted in ‘good faith’ in exercising their functions. If they have acted in good faith, then the strata company can be liable for any act or omission that occurred in breach of their duties.”. Should it be ….then the strata company cannot be liable….
Hi Danny
We have received the following response from Civic Legal:
We can confirm that there is not an error in the article. The strata company may still be liable for the council member’s breach of duties, even if the council member is not found to be.
In order to make this clearer, we have rephrased this sentence in the article.
Disclaimer: This comment contains references to and general summaries of the relevant law and does not constitute legal advice. The law may change and circumstances may differ from reader to reader. Therefore, you should seek legal advice for your specific circumstances.