A matter of trust: the fiduciary duties of body corporate committees

31 October 2018

An exploration of how body corporate committee members have a legal responsibility to carry out their duties judiciously – particularly regarding the use of “information”.

The fiduciary duties of a body corporate committee exist at general law and are restated under the Body Corporate and Community Management Act 1997.

According to the statutory duties set out in the code of conduct at Schedule 1A, committee members must exercise their powers and discharge their duties honestly and fairly, and in the best interests of the body corporate.

The code implies an additional duty regarding information. It prohibits committee members who become privy to “information” while executing their committee duties from using this information “unfairly or unreasonably” (including information about an owner).

The principle is improper use of information. A comparable example? Insider trading. Persons receiving confidential information within the scope of fiduciary relationships are required not to use it disloyally or for personal gain.

Owners have a legitimate expectation that the information provided by the committee in relation to any proposal put forward at a general meeting will be full, frank and true. It should not be misleading or deceptive.

How this has played out

In Beachfront Towers [2018] QBCCMCmr 261, the adjudicator heard a lot owner’s complaint that certain motions on the agenda of an extraordinary general meeting were invalid.

While there were numerous allegations, they primarily related to a settlement of QCAT Termination Proceedings and a new caretaking engagement.

No documentation had been presented to owners to substantiate a claim of $300,000 in additional legal costs to continue to defend the QCAT proceedings.

The adjudicator distilled the issues down to the committee’s fiduciary duty about information:

“The committee’s fiduciary duty obliges it to provide material which is substantially full and true in relation to any proposal. However, to substantiate a breach of this duty the applicant would need to demonstrate that voters had been misled in some material fashion by the failure to provide evidence of the figures mentioned in the motion and that their votes and the body corporate’s decision on the motion may be tainted as a result.”

Body corporate committees often put forward explanatory notes with estimates for legal fees to assist owners in making a decision. So, what happens when body corporate committee members do not provide an estimate? Does this mean they have breached their fiduciary duty?

In a recent matter, a Notice of an EGM contained a motion to terminate a caretaking services contract and to engage the body corporate’s solicitors for any legal matters associated with the termination. The committee’s explanatory note to the owners recommended the termination and said “[the body corporate’s solicitors] cannot estimate its likely fees at this time as it does not know the work it will be required to do. However, it will provide estimates when possible.”

The legislative control of body corporate spending is governed by the principle that the body corporate must administer the body corporate assets properly and for the benefit of the owners generally.

Section 150 of the Body Corporate and Community Management Act 1997 deals with arrangements about the spending limitations applying to the body corporate, and spending limitations applying to the committee for the body corporate.

Section 308 of the Legal Profession Act 2007 deals with a law practice’s disclosure of costs to clients. If solicitors are unable to give a reliable estimate of their costs prior to commencing work, they must give a range of estimates of the total legal costs and an explanation of the major variables that will affect the calculation of those costs.

Having asked the body corporate’s solicitors for an estimate, has the committee created a misleading impression? Has the committee unfairly or unreasonably told owners that the solicitors cannot estimate their fees? Of course, it is reasonable to expect that this information will be disclosed.