An act or decision of an owners corporation is not necessarily rendered invalid if it is done in breach of the Owners Corporation Act 2006 (Vic) (‘OC Act’). This decision reinforces the purposive construction of the Act is to give effect to the decisions of owners corporations and allow a framework for lot owners to participate in that process.

Facts

As is often the case, at the inaugural general meeting for the relevant subdivision on 15 December 2017 – attended only by the developer, the maintenance contractor and an owners corporation manager – the OC manager was appointed for five years, and the maintenance contractor for ten years.

By October 2018, several lot owners had become dissatisfied with aspects of the manager’s performance. A ballot was arranged purporting to terminate the manager, which passed by a majority. However the manager asserted the ballot (and therefore the purported revocation of its appointment) was void and refused to return the books and records. The proceeding was commenced to recover the books and records.

The effect of, and remedy for, the breaches of the OC Act

The manager alleged the ballot was issued in breach of the notice provisions, failed to achieve a quorum and incorrectly named the manager. VCAT accepted there were breaches of the OC Act but did not find this rendered the ballot void, nor that the resolution to terminate was ineffective.

An action done in breach of a provision of the OC Act does not automatically render it void. Rather, VCAT recognised that a breach may be serious or trifling and is to be examined in its own context to determine what remedy, if any, is fair.

Ultimately, VCAT considered no purpose would be served in ordering a new vote because the OC clearly wanted to terminate the manager and it was likely the same result would be achieved.

Calculation of a quorum

The manager sent fee notices just prior to the ballot opening, meaning 35 lots were in arrears at the time of polling, which disentitled them from voting (s94(1)). As only 6 votes in the ballot counted, the manager contended a quorum had not been achieved.

Section 77 of the OC Act provides that a quorum for a general meeting is at least 50% of the total votes or 50% of total lot entitlement. VCAT construed s77 as providing two tests: where 50% of total votes are received or, if 50% of the total votes are not available (for example, due to lots being non-financial), then whether at least 50% of the total lot entitlements are available: Owners Corporation SP37049J v Central North Holdings Pty Ltd [2011] VCAT 2301 at [20]. This construction permits a non-financial owner to be counted for the purposes of lot entitlements, but not to vote.

VCAT applied the alternate lot entitlement test under s77 in this case and determined a quorum had been achieved in the ballot on the basis of 66% of total lot entitlements being part of the ballot, and the vote passing 6 to 0.

Ratification

In order for a resolution to be ratified, the incompetent decision must have been one the owners corporation had the power to make. Section 119(6) of the Act gives the owners corporation power to revoke the appointment of a manager at any time. VCAT accepted the resolution made by ballot (to the extent a quorum was not reached) was ratified at the AGM on 8 February 2019, implicitly at the SGM on 17 April 2019, and at the VCAT hearing.

Manager’s obligation to return records

The manager is the custodian of the OC’s books and records, and any duty to return them on demand is immediate, unless the contract has been terminated which extends the time for compliance to 28 days: s127.

Take away's

This decision confirms an act done in breach of the OC Act is not automatically void, and provides guidance about the considerations applied by VCAT in relation to determining what remedies, if any, are appropriate for infractions of the OC Act.

Further information / assistance regarding the issues raised in this article is available from Fabienne Loncar, Partner, Christopher Philactides, Senior Associate, or your usual contact at Moray & Agnew.