26 Apr Legal Concerns Over Proposed Strata Office Bearers Liability Exclusion

Legal Concerns Over Proposed Strata Office Bearers Liability Exclusion

Among the various proposed changes to strata laws currently being mooted in NSW, the recommendation to add an exclusion of personal liability clause has the potential to cause considerable confusion and ongoing difficulties for both office bearers and others involved in strata title schemes. In a doubtless well-meaning attempt to encourage more people to volunteer their time on executive committees, Recommendation 1.3 of the NSW Government’s Strata & Community Title Position Paper proposes adding an exclusion of personal liability clause to the Strata Schemes Management Act 1996 for those executive committee members who ‘act in good faith for the purpose of executing their functions under the Act’.

Yet there are considerable problems and dangers inevitably associated with such a change. An unintended consequence of this sort of recommendation is that office bearers might well assume that they are immune from all liability. This is certainly not the case. Office bearers’ exposures to personal liability will continue to arise, with defence costs also being an unavoidable reality in this complex space. The need for continuing insurance coverage and education of office bearers, executive committees and all involved in strata scheme governance remains unaffected – and perhaps even heightened – by the proposed recommendation.

The role of Office Bearers

Arguably the busiest roles in the strata scheme environment, the office bearers on an executive committee have a challenging range of duties to perform. Comprising the chair, the secretary and the treasurer, the office bearers on the executive committee are the heartbeat of the owners corporation, organising meetings, overseeing all correspondence between themselves and others, issuing statutory notices and certificates as required, dealing with monies flowing to the owners corporation and generally dealing with the day-to-day running of the strata scheme. Communication is key. Being central to all core communications, office bearers must tread very carefully in terms of their personal involvement in all strata discussions, representations and proposals. And this is sometimes easier said than done.

Removing barriers for Volunteers

At first glance, the proposed clause seems like an incentive for people to volunteer their time on the executive committee of an owners corporation (also known as a body corporate). And, to the uninitiated, taking on the role of an office bearer in a strata title context seems like a fairly straightforward proposition. For surely, with some 30% of Australians living or working under strata plan arrangements, potential conflicts and sources of litigation would have been largely sorted out in mediation and the courts by now? The truth of the matter is, however, that total clarity regarding all possible functions, pitfalls and liabilities of executive committee members will unfortunately remain elusive. The unexpected is the daily bread and butter of the office bearer’s role. Put simply, office bearers’ exposures cannot simply be drafted away by a conscientious legislature.

The impact of the proposed legislative changes

The proposed clause provides little more than a false sense of security for existing and potential office bearers. It also heightens confusion for others interacting with office bearers, such as contractors and lot holders, regarding the boundaries of each individual’s responsibility.

Office bearers’ manifold tasks – combined with the often-unanticipated surprises that seem to accompany the phenomenon of people sharing property together – mean that the recommended clause proposing to exclude personal liability for office bearers will fail to do so.
In fact, by wording the amendment as a blanket exclusion wrapped around the feel-good but ultimately ambiguous term ‘good faith’, office bearers might come to hold the misguided belief that they are completely immune from personal exposure to the future wrath of any lot holders, strata managers, contractors and even their own executive committee.

Office Bearers’ exposures

In disputes regarding strata management, lot holder rights, contractor actions, office bearer undertakings, owner corporation duties and so on, exposure to personal liability will continue to be an ever-present possibility for office bearers, depending on the manner in which the Act is interpreted by various courts into the future.

Experience shows that any legislation purporting to completely exclude liability will be forensically scrutinised by the courts. Common law history reminds us that judicial treatment of terms such as ‘good faith’, ‘for the purpose of’ and ‘executing their functions under the Act’ inevitably becomes an exercise in extremely narrow interpretation.
One person’s ‘good faith’ might be construed by others as thoughtlessness, or even malice. Add to this the likelihood that even wins in court can still attract huge defence fees, and it becomes clear that appropriate insurance for office bearers remains crucial, despite the proposed clause.

Cases in point

Idiosyncratic but not uncommon conflicts continue to arise in our clients’ collective experiences. Read on for some real-life examples of the rather murky terrain underpinning strata disputes, which underline the need for continuing insurance coverage and education.

• Two lot holders are dissatisfied with the time taken by the original developer to address a balustrade safety issue, and take the developer to court. The case takes years to progress, and seven executive committee members are then named as defendants in the case, which goes to the Supreme Court. Indemnity is granted, and defence expenses to date stand at $116,000. A Supreme Court decision has been made in favour of the committee members, although an appeal is pending.
• An executive committee member finds himself individually named on an AVO application from a lot owner. He claimed against the policy for expenses in defending the AVO, but it was found that his alleged actions were ‘not within his duties’ as a committee member, and he had his own issues with the lot owner as an individual. Indemnity has been declined.
• An energetic lot owner conducts unauthorised renovations on common property, certain that he has the permission of the executive council and a particular office bearer. The lot owner is ordered to return the area to its previous state in adjudication, but then appeals and makes a cross claim against the office bearer. Thankfully, the case is decided in the office bearer’s favour, and his defence expenses are covered by the policy.
• A chairperson is accused of speaking personally to a prospective purchaser, with negative repercussions. The argument as to whether the office bearer was acting ‘within the course of his duties’ remains unresolved.

• Notification is given by office bearers to unit owners about the need for termite treatment. Despite an obstinate owner not allowing an inspector onto their property, a termite-ridden pergola is discovered. On advice, it is determined the strata may be responsible for the pergola, and it is removed. The owner argues that that they were not notified of the decision, and are demanding a new pergola.

The NSW Government is continuing to consult key stakeholders about the proposed changes. Even if the changes are implemented, no legislation can provide complete exclusion from liability for individuals engaged in strata schemes. CRM Brokers continue to provide peace of mind and effective solutions for the valuable work undertaken by volunteer office bearers on executive committees.

For more information

To find out more about our Office Bearers Insurance, contact us on [email protected] or call us on 1300 880 494.

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