The Power of an Executive Committee to Settle Proceedings on behalf of the Owners Corporation

In the case of The Owners- Strata Plan No 57164 v Yau [2016] recently decided in the Supreme Court of NSW, an Owners Corporation attempted to argue that a decision of the executive committee to settle proceedings was invalid, on the basis that the executive committee meeting at which the decision was made was not properly convened.

History

Briefly, the history of the case is as follows:

  1. The owners of a commercial lot in the scheme (the Yaus) asserted that the Owners Corporation was responsible for maintaining a grease arrestor and kitchen exhaust system located on common property.
  2. The Owners Corporation resolved in general meeting, pursuant to section 62(3) of the Strata Schemes Management Act 1996 (“Act”) that it was inappropriate to maintain, renew, replace or replace that equipment.
  3. The Yaus commenced proceedings against the Owners Corporation seeking, among other things, damages for breach by the Owners Corporation of its duty to repair and maintain common property.
  4. On 13 August 2013 an executive committee meeting took place at which an offer of settlement made by the Yaus was discussed. At that meeting, a majority of executive committee members voted in favour of instructing a barrister to settle the matter in accordance with the Yaus’ offer.
  5. On 14 August 2013 consent orders were entered into, via which the Owners Corporation was ordered to:
    • pass a special resolution at a general meeting of the Owners Corporation revoking the resolutions referred to in paragraph 2 above; and
    • pay to the Yaus the sum of $285,000 as damages.
  6.  The special resolution referred to in paragraph 5 above was never passed. In fact, the Owners Corporation passed a special resolution on 17 June 2014 that it “disagrees with the decision of the Executive Committee made on 13 August 2013 to settle the case” and “disagrees with the terms of the “Consent Orders””.

The Present Case

In the present case, the Owners Corporation sought to set aside the orders of 14 August 2013 on the basis that the Owners Corporation was not bound by the settlement agreement. The Owners Corporation ran the argument that the barrister engaged by the Owners Corporation did not have the authority to make the settlement agreement on behalf of the Owners Corporation because:

  1. The meeting of the executive committee at which the barrister was instructed to settle the proceedings was not held in accordance with the requirements of clause 6 of schedule 3 to the Act. This is because the executive committee did not give to the lot owners the required 72 hours’ notice of the meeting.
  2. The executive committee did not have the authority to instruct the barrister to settle the proceedings because parts of the agreement involved matters reserved for the Owners Corporation in general meeting. Other parts involved expenditure which the executive committee was precluded from spending pursuant to section 80A of the Act, i.e. the payment of damages was not provided for in the Owners Corporation’s annual budget.

The Owners Corporation was unsuccessful on both points and the application was dismissed.

The Judge noted that:

  1. The Act does not state that an executive committee meeting held contrary to the requirements of clause 6 of schedule 3 to the Act is invalid, or that decisions made at such a meeting are invalid or of no force or effect. Further, there is no apparent legislative purpose to invalidate a resolution of the executive committee solely for this reason. As a result, despite the fact that 72 hours’ notice of the meeting was not provided, the decision made to settle the proceedings was valid. However, in certain circumstances such a decision could be overturned pursuant to section 153 of the Act.
  2. Pursuant to section 21 of the Act, the executive committee had the power to make a decision on behalf of the Owners Corporation. In instructing the barrister to settle the matter, the execution committee was exercising that power, and was not exercising a power required to be exercised by the Owners Corporation in general meeting.
  3. Despite the fact the Owners Corporation did not specially resolve to approve the settlement agreement, the subsequent conduct of the Owners Corporation was an effective ratification of that agreement: namely, the Owners Corporation paid damages to the Yaus and undertook works in accordance with the settlement agreement.

Take Away

If an executive committee meeting is held contrary to the requirements of the Act, it does not necessarily follow that decisions made at that meeting are invalid. The following issues will be relevant in determining whether or not a decision will be overturned:

  1. The fact that a decision is required to be made urgently, i.e. within the 72 hour notice period.
  2. The fact that the Owners Corporation subsequently ratifies the decision, whether by resolution in general meeting or by conduct.
  3. The fact that the decision made at the executive committee meeting is, pursuant to the Act, within the power of the executive committee to make.

The information contained in this article is not legal advice. This article is intended to provide general information in summary form only. You should not rely on the content of this article as legal advice If you would advice specific to you and your situation, please contact us.

Posted in LCOR