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Owners Corporation Act 2006: The Latest Changes

The most recent reworkings of the Owners Corporations Act 2006 have just come into force.

On 24 August 2011 “Authorised Version No. 006” came into effect replacing “Authorised Version No. 005” which had represented the law since 1 January 2011 only to be replaced just over a week later, on 1 September 2011, by “Authorised Version No. 007”. Accompanying this article is a table showing the superseded sections of the Act alongside the more significant new sections now in force.

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Introduction
The most recent reworkings of the Owners Corporations Act 2006 have just come into force. On 24 August
2011 “Authorised Version No. 006” came into effect replacing “Authorised Version No. 005” which had
represented the law since 1 January 2011 only to be replaced just over a week later, on 1 September 2011,
by “Authorised Version No. 007”. Accompanying this article is a table showing the superseded sections of
the Act alongside the more significant new sections now in force.
From “Authorised Version No. 005” to “Authorised Version No. 006”
The major elements of this reworking were the results of the Consumer Acts Amendment Act 2011
receiving the Royal assent on 19 August 2011 which have changed the law in a number of respects, in one
instance introducing a significant and contentious development.
Amongst the insignificant changes are the adding of the missing word “or” at the end of s6(a)(ii), a provision
to ensure that delegations are not invalidated simply because there is now a new s11 in the Act, and
changing the name of the institute of accountants referred to in s35.
Section 11 - Management of the owners corporation and the power to delegate
First amongst the significant changes is the substitution of a new s11 which is now explicitly described as
dealing with the management of the owners corporation and the power to delegate.
Subsection 11(1) states that, “An owners corporation is to be managed by or under the direction of the lot
owners.” Just in case lot owners jump to the conclusion that they now risk some form of corporate-style
liability, s11(6) makes it clear that s11(1) does not impose any fiduciary or directors duties on the lot owners
in managing or directing the owners corporation. Indeed for added reassurance the second note to the new
s11 points to the owners corporation's duties set out in s5.
Subsection 11(2) echoes the previous s11 in setting out the parties to whom the owners Corporation may
delegate any of its powers and functions by instrument or - and here a new addition - by resolution at a
general meeting.
Subsection 11(3) reiterates the text which had previously been featured in brackets in the old s11
prohibiting the delegation of any power or function requiring a unanimous or special resolution or the
delegation of the power itself. Once again this new subsection adds the delegation of a power or function
that requires a resolution as a general meeting to those requiring either unanimous or special resolutions.
Subsection 11(4) stipulates that any delegation made by resolution under the terms of the new s11(2) “…is
only effective if it is recorded in the minutes of the general meeting.”
Subsection 11(5) seeks to square the circle by providing that, if there is no delegation in force made under
s11(2), the committee “…is delegated all powers and functions that may be exercised by the owners
Corporation…” apart from matters which have to be determined at a general meeting under s82 and those
powers and functions set out in s11(3).
Section 101 – Functions and powers of the committee
Senior Member Vassie in Martin & Ors v Owners Corporation 431576 (Civil Claims) [2009] VCAT 2699
pointed out the inconsistency between the old s11 and the old s101, saying:
“If, as section 101(1) seems to provide, a committee has all the powers and functions that
an owners corporation may delegate under section 11, whether or not those powers or
functions have actually been delegated, there would seem never to be a need for an
owners corporation specifically, by an instrument, to delegate those powers or functions.”
[at paragraph 23]
Now the revised s101 ties in with s11 and sets out that, subject to the rules of the owners Corporation, the
committee has all the powers and functions that are delegated to it either by or under s11 rather than “…the
powers and functions that may be delegated…” as was previously the case.
Section 87(1) & Section 138A – Proxies and the power to make rules regarding proxies
The revision to s87(1) simply inserts a note signposting the brand-new provision in s138A. Now, under
s138A, owners corporations have the power to make a rule that restricts the voting rights of anyone who
has been appointed as a proxy to represent a lot owner on the committee if that would-be proxy has not
been elected or co-opted to the committee.
I
n cases where such a rule is made, the consent of the majority of the members of the committee may be
required to allow the proxy to vote, although s138A(3) explicitly states that such consent must not be
unreasonably withheld.
Section 135 – Addresses of absent owners
An absent lot owner is now obliged to provide an Australian mailing address to the owners corporation for
service of notices, thereby helping to overcome the dilemma faced by most managers in attempting to serve
notices on lot owners who have supplied overseas addresses.
Given VCAT’s increasing insistence upon proper service of notices, the new s135(2) provides alternative
ways of accomplishing service by either posting the notice to the lot owner’s last known Australian address
or, if no such address is known (or a notice sent to that Australian address is returned), then by any other
manner of service that VCAT considers appropriate.
Section 163(1A) & Section 165(1)(ba) – Who may apply to VCAT in relation to a dispute, and what
orders can VCAT make
Without doubt the most significant and controversial amendment is s163(1A) which allows a lot owner to
apply to VCAT to resolve an owners corporations dispute. In order to hammer home the point, the
accompanying note states that the subsection, “… clarifies that the rule in Foss v Harbottle (1843) 67 ER
189 does not apply to owners corporation disputes.”
Section 163(1A) has its counterpart in s165(1)(ba) which allows VCAT to authorise “…a lot owner to
institute, prosecute, defend or discontinue specified proceedings on behalf of the owners corporation”.
The rule in Foss v Harbottle is the legal principle stipulating that, where a wrong is done to a corporation,
any claim to redress that wrong should - except in certain circumstances - be pursued by the corporation
itself and not by one of its shareholders. The decision to overturn the application of this rule to owners
corporations is all the more surprising because the rule is one of the bedrock principles of corporations law
that has stood the test of the last 168 years.
The rule has been applied recently in two significant VCAT decisions. Firstly, by Senior Member Vassie in
Wynden Pty Ltd & Ors v Owners Corporation PS 431248H & Anor (Civil Claims) [2010] VCAT 1683, and
secondly by Senior Member Megay in Camilleri & Ors v Oldroyd & Ors (Owners Corporation) [2011] VCAT
279. In both cases the Senior Members decided that individual lot owners should not be able to usurp the
role of the owners corporation when it came to taking legal action in VCAT.
The Assistant Treasurer, the Hon. G. K. Rich-Phillips, when pressing for this amendment in the second
reading of the Consumer Acts Amendment Bill 2011, was very bullish in his criticism of the rule and also in
his implicit criticism of owners corporation managers, saying that:
“In particular, a lot owner should be free to pursue any claim that can be characterised as
an owners corporation dispute…This is especially the case where an owners corporation,
or its agents or employees, is managing the property in a manner that may be contrary to
the interests of the lot owners as a whole.” [Hansard, 30 June 2011 at page 2336]
What appears to have escaped the notice of the Assistant Treasurer and other Victorian politicians is the
inconsistency pointed out by Senior Member Megay if an individual lot owner were to be allowed to apply to
VCAT on behalf of an owners corporation to resolve an owners corporation dispute when she said:
“The fact that the OC Act requires an owners corporation to have the authority of a special
resolution before commencing litigation (other than for outstanding fees) is to me an
indication that there was intended to be some restriction on the ability to litigate owners
corporation disputes in order to avoid vexatious or inconsequential proceedings which
might not be to the benefit of lot owners as a whole.” [at paragraph 42]
The potential of s163(1A) to allow one lot owner to bypass all the other lot owners in a property in pursuing
legal action on behalf of the owners corporation has potentially very serious consequences. Because such
action would be taken on behalf of the owners corporation, the costs of any such action would fall on the
owners corporation as a whole. Those costs would have to be recovered from all the lot owners in
accordance with their lot liability even though they had no opportunity to vote on whether such action should
be taken in the first place.
Section 163(1A) also has potentially even more serious consequences for owners corporation managers
who are now likely to face a slew of actions being taken against them in VCAT by one or two disgruntled lot
owners in a property who are claiming to act on behalf of the owners corporation as a whole.
From “Authorised Version No. 006” to “Authorised Version No. 007”
“Authorised Version No. 007” brings into play the amendments and insertions of the Consumer Affairs
Legislation Amendment Act 2010 (as modified by the Consumer Affairs Legislation Amendment (Reform)
Act 2010) in respect of s109 of the Owners Corporations Act 2006 concerning notice of committee
meetings. Now notice of committee meetings must be given at least three business days before the
meeting and the notice itself – in addition to setting out the time and place of the meeting and the agenda -
has to set out the minutes of the committee’s previous meeting and a statement that a member of the
committee who is a lot owner may appoint a proxy for the purpose of the meeting.
The Future
This latest amendments to the Owners Corporations Act 2006 may have provided some useful benefits
particularly in respect of the delegation of an owners corporation’s powers and functions, the management
of proxies, notice of committee meetings and in the arrangements for service of notices on lot owners.
However the iceberg in this ocean is s163(1A) and it remains to be seen what will be the impact of allowing
a lot owner to apply to VCAT to resolve what that lot owner claims to be an owners corporations dispute.
Please note that this article does not constitute legal advice but, should you have any comments in relation
to this article, or if you require assistance with any matter concerned with the Owners Corporations Act
2006, please do not hesitate to contact Jenny Wang or Lindsay Crofton of Berrigan Doube Lawyers on (03)
9600 2577.