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Personal liability for committee members – fact or furphy?

By Frank Higginson01 Jul 2008

An allegation that gets trotted out regularly in body corporate matters is that committee members can be personally liable for incorrect decisions made on their watch.

It is an allegation that can scare committee members into making decisions they might not otherwise make.
The cold hard facts of committee membership are:

  • Each committee member has a statutory responsibility to act reasonably and in the best interests of the scheme as a whole. Naturally, there will always be differences of opinion as to what is in the ‘best interests’, but assuming there is some reasonably held basis for a decision, then there is always a subjective element to any decision that it will be almost impossible to argue was not reasonably held.
  • The duty to act reasonably extends to the enforcement of by-laws. It is usually not reasonable to seek to enforce by-laws where the body corporate has ignored the breach for some time.
  • The duty to act reasonably also means that a committee should not issue breach notices that are incapable of enforcement or to advance ulterior motives.
  • Acting unreasonably inevitably leads to a damaged community and it diminishes the value of your investment and your popularity. It will also inevitably lead to significant legal fees – always check that this is not the reason behind the warning of personal liability.
  • Any responsible body corporate would have officeholders / office bearers insurance in place. This insurance will ordinarily cover all reasonable decisions taken by committee members in their role. Normally it will not cover allegations of defamation.
  • Almost all committee members perform their functions voluntarily. This means that any court is going to have a far higher threshold for liability for volunteer committee members than say, a director of BHP, who is compensated financially for what he or she does.
  • The state government is trying to encourage self management of bodies corporate – having committee members held personally liable is not something that would be an inducement to do so. Government policy is aimed at protecting volunteers.

We think it is very safe to say that suing someone personally in their capacity as a committee member would be a very long and hard road to travel. Leaving aside the difficulty in proving the person acted unreasonably, quantifying the damages would also be very hard.

Take the situation where a number of lots have gardens on common property. Some of the committee members have those gardens, and with knowledge of their conflict of interest, decide not to enforce the by-laws against all owners to seek the removal of the gardens. The committee have not acted reasonably, but what possible loss and damage could flow to other owners of such a nature to warrant the undertaking of expensive and time consuming legal proceedings? We would suggest that there are very few circumstances under body corporate situations where such an absolute conflict of interest would give rise to a right, and/or inclination, on the part of another owner to sue.

It is even more unlikely for a body corporate to be the plaintiff, as commencing proceedings requires a special resolution. Our experience is that bodies corporate are very reluctant plaintiffs unless there are real prospects of success for significant awards of damages.

We have yet to see a case in Queensland under which a committee member was held personally liable for damages arising from not acting properly.

If such an allegation is ever thrown at you, do not be afraid to seek legal advice or even a second opinion.