Committee Members Legal Costs – can you reimburse them? There are a number of very strict requirements that have to be adhered to for a Body Corporate to lawfully pay the legal costs of one or more of its committee members.

The recent QCAT decision of Pead v Chambers & Anor (No. 2) [2021] QCATA 3 illustrates how difficult it can be to get it right.

The Pead case arose out of a disagreement between the Body Corporate and the operator of the “Miami Rice” Restaurant in the building. The restaurant occupier was using the carpark associated with the restaurant lot as a store room. Three Committee Members, including Pead, went down to the car park area, one armed with a hammer, to dismantle the storage cage.

As expected a flurry of litigation ensued. That included peace and good behaviour orders from the Magistrates Court. The question that ultimately came before QCAT was whether the 3 Committee Members were entitled to have their legal expenses paid by the Body Corporate.

The Committee had passed authorizing motions for those expenses to be paid.  There were questions however as to whether the Committee Members were acting with the authority of the Body Corporate and in the Body Corporate’s best interests.

There were also lingering, but ultimately irrelevant, questions in relation to exactly who did what and when, particularly in the events leading up to the peace and good behaviour orders being made against the Committee Members.

In an extensive judgement QCATA Member Roney QC pulled apart the Adjudicator’s decision, which had invalidated the Committee’s reimbursement resolutions.  The Adjudicator below had ultimately determined that reimbursement of legal costs to the Committee Members was  not within the Body Corporate’s power, as it does not fall within one of the authorised heads of expenditure; from either the administrative fund or sinking fund.

Member Roney QC identified an entirely separate issue, which neither the parties nor the Adjudicator had addressed. That issue was the ability of the Committee to vote upon expending Body Corporate funds to reimburse Committee Member expenses. In particular, whether those motions would be a decision on a “restricted issue” for the Committee.

Committees are not allowed to make decisions on restricted issues.

Under section 52(1)(f) of the Standard Module, a decision to pay remuneration, allowances or expenses to a member of the Committee is a restricted issue for the Committee unless an exception under section 53 applies.

Under section 53 a decision to pay remuneration, allowances or expenses to a member of the Committee is not a restricted issue if the decision is made by Ordinary Resolution of the Body Corporate (stating the full amount of the remuneration, allowances or expenses and the reasons the expenses were incurred) and an explanatory schedule stating full details and the remuneration, allowances or expenses accompanies the relevant voting paper.

The second exception in section 53 is if the decision to pay expenses to a Member of the Committee is for an amount of not more than $50 incurred by the Committee Member in attending a Committee Meeting. That reimbursement must also not result in the Committee Member receiving more than $300 for meeting attendance expenses within a 12 month period.

As the reimbursement resolutions had been made by the Committee, the resolutions were void because they were on a restricted issue, and thus beyond the Committees power to make.

Accordingly, the first and perhaps most important point when seeking reimbursement of Committee Member legal or other expenses,  is that unless they fit within one of the specific exceptions to the restricted issues rule in section 53, approval to reimburse those expenses can only be given at a general meeting.

Some other issues that can be extracted from Member Roney QC’s reasons include:

1. ensuring that the Committee Member is, when the expenses are incurred, acting in their capacity as a Committee Member (and not for example in their personal capacity);

 

2. ensuring that when the Committee Member is acting in their capacity as a Committee Member, they have the authority of the Body Corporate to do so (in other words what the Committee Member is doing has been previously authorised by Committee Resolution or a resolution passed at a general meeting, or at worse case they are discharging a specific statutory function under the Act or the applicable Module); and

 

3. Committee Members should only take action where that is consistent with their statutory duties and as authorised, and not instead of, or in preference to, another lawful appropriate process – for example in the Pead case, using the By-Law enforcement process rather than a hammer.

 

Member Roney QC also examined situations in which Committee Members were authorised by the Committee to act in certain ways, but no formal meeting of the Committee or Body Corporate had taken place.  The Member was supportive of the proposition that decisions may sometimes be taken informally, and Committee Members can therefore act on the strength of those informal decisions.

In the writer’s view recognising such “Clayton’s decisions” of a Committee as binding is a slippery slope.  The legislation mandates that a decision of the Body Corporate can only come about through the conduct of a meeting process, whether a General Meeting, Committee Meeting or votes outside either of them.  Those processes are mandated in the statute so that determining whether a decision has actually been made (which binds the body corporate) is a relatively easy thing to check.

The circumstances in which individual Committee Members may make decisions on behalf of the Body Corporate are very limited. Further, there is no legislative recognition of informally conducted meetings.  Reliance on informal decisions should be avoided in all but the most extreme cases.

While not the subject of the decision, some other practical points include:

1. where the expenses are legal costs, the Committee Members should use a different Solicitor to the Body Corporate, and preferably each have their own Solicitor; and
2. Committee Members should not rely upon the Body Corporate’s insurance policy to come to their aid (to pay their legal expenses).

If you have a Committee Member reimbursement question Stratum Legal can help.

 

This article was contributed by Michael Kleinschmidt – Stratum Legal.

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