Committee Liability

Whether it is about personalities, poor legislation, or a combination of both, Bodies Corporate appear to generate a disproportionate amount of time and cost in litigation through our Court system. This includes the Tenancy Tribunal (up to $50,000), District Court, High Court and beyond to the Court of Appeal and Supreme Court.

Increasingly, there are examples of upset owners unable or unwilling to accept the decision of the majority of a Body Corporate, and this has led to increasing litigation. On a number of occasions this may extend to the issue of proceedings against generally unpaid lay Committee Members. The security blanket which Committees have looked to in responding to litigation is the Office Bearer’s Liability cover which most Body Corporates put in place.

Unfortunately, an insurance policy does not necessarily mean, nor guarantee, the insurer will immediately step up and take over a claim, no matter how vexatious or poorly constructed. This response from Insurers creates an unreasonable impost on owners who generally will have been acting in the best interests of the majority of the Body Corporates, as they perceive it.

The Courts have made it clear in the Guardian Retail Holdings case that a committee, if sued, cannot automatically call on the Body Corporate and its solicitors to represent them jointly and meet the committee costs – this applies even if the interest of the Body Corporate and the Committee appear to be completely aligned. The Guardian decision does emphasise the importance of having appropriate Office Bearer’s Liability cover in place. It also illustrates the need for owners to be very aware matters which can give rise to a claim must be notified as soon as those matters are identified, and importantly, prior to renewal of cover for a future period. Insurers may well consider a failure to disclose a disgruntled owner’s threats as being a material event, subsequently disqualifying the Committee from looking to the insurer should proceedings be issued against the Committee.

Instances where litigation against Body Corporates and Committee Members has been instigated is often a response to the stresses generated where a Body Corporate is grappling with design and construction failings.  The large sums of money involved, and the strong views and perceptions of individual parties, have driven this.

Singh v BBCL and Committee 207650

In a recent decision, the High Court has clarified and made clear that “The Committee Members, and indeed the Body Corporate Secretary, has no liability to individual owners in the Body Corporate in the absence of a clear assumption from the Committee of personal responsibility.” In this recent case an aggrieved owner had been involved in multiple claims and cases with her Body Corporate concerning cost allocations and management of a leaky-home repair contract under Section 74 scheme when a defects settlement, achieved many years before, proved woefully inadequate to cover repair costs.

After exhausting all claims against the Body Corporate, the aggrieved owner moved her sights to the Body Corporate Secretary and a number of current and former Committee Members (but oddly, not all). The Committee had acted prudently in its decision-making and ensured all decisions were made either at General Meetings of the Body Corporate or ratified at General Meetings. This made it clear to the Court there was no assumption of personal responsibility by the committee or Secretary to the aggrieved owner, and the decisions the owner took issue with were, in reality, the same decisions the Body Corporate had previously been successful in defending.

The Committee in the Singh case were protected by an indemnity from the Body Corporate contained in a Section 74 Court Order, which authorised the Body Corporate to proceed with the repairs to the complex. As such, the Body Corporate was able, and required, to fund the litigation defence which ran into many tens of thousands of dollars. But for the Section 74 scheme, individual committee members would, upon the insurer initially declining cover, have been required to fund their own defence pending the outcome of the proceedings.   As the aggrieved owner was ultimately bankrupted, this would likely have left the individual committee members significantly out of pocket. The insurer maintained the committee had not been complete in its disclosure before placing cover and suggested the previous insurer, at the time the possibility of proceedings was intimated, could be responsible. Both insurers declined to step up. This overlapping failure to accept responsibility resulted in neither insurer responding to the Committee’s request for acceptance of liability under the Officer Bearer’s Liability cover.

The Ultimate Outcomes

The Court’s decision in Singh v Boutique Body Corporates Limited & Ors [2019] NZHC 1707 sends out two clear messages:

  1. Bodies Corporate should take care in ensuring adequate liability cover exists for Committees.
  2. Committee Members and the Body Corporate should exercise real prudence when notifying prospective insurers of potential claims or liabilities known at the time the policy is put in place, or a circumstance giving rise to a potential claim arises.
  3. Committees should make it plain to owners that they are acting as the Body Corporate Committee and not assuming personal responsibility for any individual owners.
  4. The simple practical solution for committees appears to be for all major decisions which have the potential to be the subject of dissension be made at a General Meeting or ratified by a later General Meeting.
  5. A committee decision validly ratified by a General Meeting has the same legal effect as if the original decision was simply that of the General Meeting.

Moving Forward

BBCL has previously advocated for a provision in the Act for the Body Corporate to be able to indemnify Committee Members. To date this has fallen on deaf ears with both MBIE and government, whilst the legal profession has tended to suggest Office Bearer’s Liability is the panacea. Unfortunately, experience has illustrated the major insurers exhibit considerable reluctance to step in and pick up liability in the early stages of many claims. This can place huge undue pressures on lay volunteer owners who generally act in good faith. Frequently, claims brought by owners against Committees have little or no merit, and on multiple occasions have simply been vexatious tools to attempt to intimidate the Committee into a course of action advocated by the aggrieved minority owner.