Whether committee members' appointment should be revoked because of breach of statutory duty or of fiduciary duty - Owners Corporations Act 2006 ss 11(6), 117

Whether lease properly executed - Owners Corporations Act 2006 ss 10,11, 21.

Peter Alexander, Owners Corporation No. 1 PS 328461J

Stokes v Alexander (Owners Corporations) [2017] VCAT 514

1. Pykes View Estate is a subdivision of land at Pykes View Road Myrniong that overlooks Pykes Creek reservoir. Plan of subdivision PS 328461 J describes the land and delineates 11 lots and common property. Owners Corporation No 1 PS 328461J affects the land and has the statutory obligations under the Owners Corporations Act 2006 ("the Act") to maintain common property. Lots numbered 1 to 10 are each approximately one acre in area. Some, but not all, of those lots have been built upon. The eleventh lot, numbered S3, is 19.54 hectares in area (approximately 48 acres), as shown on the plan of subdivision.
2. Each of the three applicants, David Stokes, Darren Galley and Shayne Jones, is an owner of one of the one-acre lots. The first respondent Peter Alexander owns lot S3 as well as four other lots. The owners corporation is the second respondent.
3. Lot S3 is so numbered because it was land intended for a further subdivision as a third stage in the development of the estate. That development has not occurred. It is vacant land, except for a small structure upon it which the parties have variously called a gazebo, a pergola or a rotunda.
4. The disputes in the proceeding relate to a lease[1] of lot S3 by Mr Alexander to the owners corporation, entered into after there was a special resolution of the members to enter into the lease. The three applicants did not want the lease and voted against the motion, put to the members by ballot, which became a special resolution and authorised the owners corporation to enter into the lease. They have applied to the Tribunal for orders declaring the special resolution invalid and the lease void.
5. The owners corporation has a committee whose members are Mr Alexander and two other lot owners, Robert (Bob) Chiswell and Lance Whitelock. The applicants also seek orders revoking their appointment as committee members.
6. The following table sets out:
   • (a) The units of lot entitlement and lot liability allocated in the plan of subdivision;
   • (b) The name of each lot owner;[2]
   • (c) The year in which each became the owner of the lot; and
   • (d) Whether that owner is an applicant or a respondent.

Lot S3

1. When this proceeding began, Vincenzo (Vince) Caligiuri was one of the applicants. He has sold lot 3. The Tribunal gave him leave to withdraw as an applicant and he ceased to be a party.[3] Hence the asterisk in the above table.

1. The lot liability for lot S3 is 1000 units out of 2000, compared with 100 units for each other lot. The rationale for that apportionment of lot liability seems to have been the prospect of a further subdivision of lot S3 into another 10 lots during the third stage of the estate's development.
2. At a time when the owner of lot S3 was Laurie O'Hanlon, the members of the owners corporation had made an informal agreement that despite the apportionment of lot liability shown on the plan of subdivision the owner of lot S3 should bear only 1/11th share of maintenance costs and other owners corporation expenses and the owners of the other 10 lots should also bear 1/11th share each. Their agreement, which the parties to this proceeding have referred to as the "gentlemen's agreement", was documented from time to time in meetings of the owners corporation. The minutes of the 2012, 2013 and 2014 annual general meetings documented it as follows:

Members had previously discussed this matter and considered it was inequitable that the owner of Lot S3 be required to contribute in accordance with lot liability.

Members had previously approved a motion that the owner of Lot S3 was only required to contribute as if the lot had 100 and not 1000 points of liability.

IT WAS RESOLVED that the owner of Lot S3 is only required to contribute to the Owners Corporation as if the lot had 100 and not 1000 points of lot liability resulting in all lots bearing the same proportion of costs of the Owners Corporation and the Manager is instructed to issue fee notices accordingly.

So the "gentlemen's agreement" continued after Mr Alexander became the owner of lot S3.

1. A consequence of the bringing of this proceeding is that the "gentlemen's agreement" has come to an end, and that Mr Alexander's share of owners corporation expenses is 70% (14/20th), not 5/11th. Owners corporation fees and charges have been and will be set accordingly.

Features of the Estate: the Reserve and the Dams Area

1. The common property shown on the plan of subdivision is vacant land. Its area, as shown on the plan, is 1.974 hectares: approximately 5 acres. Lots 1 to 10 are clustered around it. There is an entrance to the common property at Pykes View Road and an exit from it at lot S3.
2. Between the western edge of the estate and the reservoir is land owned by the Shire of Moorabool and called Pykes Creek Reservoir Reserve. In 2004 the Shire of Moorabool granted a written licence to the owners corporation to occupy the reserve. The licence is not controversial. All the lot owners approve of it. Because of the licence each lot owner is able to walk down to the reservoir through the reserve and has an unimpeded view of the reservoir from his or her lot. The fee payable under the licence is $14,000.00 per year. The licence imposes obligations on the owners corporation to maintain the reserve so that it is free from vermin and by regular mowing, and to provide public liability insurance cover for at least $10 million. The owners corporation has met those obligations.
3. Lot S3 is to the south-west of the other lots. There are two dams within lot S3. They are beyond the southern boundary of lot 8 with lot S3 and the south-western boundaries of lots 9 and 10 with lot S3. The area between the northern edges of the two dams and those three boundaries is what the parties to this proceeding have called "the dams area." The gazebo is within the dams area.
4. Until late 2013 all the lot owners held a mistaken belief that the dams area was part of the common property. Some of the owners from time to time had gone onto the dams area and had used it for recreational purposes. Others had not. That mistaken belief had also led Mr Alexander to believe that the owners corporation public liability insurance cover for common property applied to the dams area. It did not.
5. In late 2013 Mr Stokes, upon checking his documents for the purchase of his lot, realised that the dams area was not common property but was part of lot S3 owned by Mr Alexander. He told Kirsty Grumont, who was then an owner of lot 1. He also told Mr Chiswell. He did not tell Mr Alexander.

1. On 25 March 2014 there was a meeting of the owners corporation's committee. At the time the members of the committee were Mr Alexander, Mr Stokes, Mr Chiswell, Mr Whitelock and Kirsty Grumont.
2. At the committee meeting Mr Stokes said that he had learned that the dams area was not common property but was part of lot S3. Mr Alexander was incensed that Mr Stokes had made that announcement at the meeting but had not told him earlier.
3. Mr Stokes' announcement at the committee meeting, and Mr Alexander's reaction to it, opened a deep fault line in the owners corporation. On one side of the divide were the three applicants (Mr Stokes, Mr Galley and Ms Jones), Mr Caligiuri and probably Ms Grumont. On the other side of the divide were Mr Alexander, Mr Chiswell and Mr Whitelock. For any poll of members based upon lot entitlement, Mr Alexander's vote would prevail, and for any poll for a special resolution[4] Mr Alexander's vote would prevail if both Mr Whitelock and Mr Chiswell voted the same way as he.
4. Mr Alexander's first action in response to the news that he was the owner of the dams area as part of lot S3 was to authorise the manager to write to the other lot owners to inform them that they no longer had any right to enter onto the dams area. The manager wrote accordingly on 1 April 2014.[5]
5. On 16 April 2014 there was a special general meeting of members of the owners corporation. Mr Alexander presented a written statement[6] in which he expressed his displeasure that Mr Stokes had not told him until the date of the committee meeting on 25 March 2014 that the dams area was not common property and had left him exposed to public liability risks from use of the dams area. The only resolutions of significance at the special general meeting were that Mr Alexander, Mr Chiswell and Mr Whitelock were elected as a new committee (so that Mr Stokes was displaced from the committee) and that the owners corporation delegated to them all the powers that it might properly delegate to a committee.
6. On 9 July 2014 Mr Alexander purchased lot 1 from Ms Grumont. With that purchase he had become owner of the last of the lots that the table in paragraph 6 above describes him as owning. From that date, for any poll for a special resolution Mr Alexander's vote would prevail if either Mr Chiswell or Mr Whitelock voted the same way as he.
7. The 2014 annual general meeting took place on 6 November 2014.
   • (i) Mr Whitelock on behalf of the committee presented[7] a number of options as to what the owners corporation might do about the dams area. One option was for the owners corporation to take a lease of lot S3 from Mr Alexander, which Mr Alexander was prepared to grant for a rental of $6,000.00 per year, so that the members of the owners corporation could continue to use the dams area if they wished, although they would have to extend to the dams area the owners corporation's public liability cover. A second option was to alter the plan of subdivision so that lot S3 was excised from the estate. A third option was to do nothing, in which case Mr Alexander would have the right, as owner of lot S3, to exclude all others from the dams area.
   • (ii) Mr Whitelock argued for the first option. Whether there was any consensus reached about adopting the first option is a matter of dispute. The minutes of the annual general meeting,[8] prepared by the manager, recorded that "[t]he majority of members advised they wished to have access to lot S3." Each of the applicants swore that he or she did not need or want to have access to lot S3 and did not want the owners corporation to take a lease of it,[9] and had said so at the meeting.
   • (iii) The members resolved to form a sub-committee to consider, and endeavour to reach agreement with Mr Alexander about, the terms of proposed lease. The four members appointed to the sub-committee were Mr Whitelock, Mr Chiswell, Mr Galley and Mr Stokes. Mr Alexander gave evidence, and the applicants did not dispute, that the idea of forming a sub-committee for those purposes was his idea.
8. The sub-committee met twice. It did not achieve anything. Mr Galley and Mr Stokes took the stance that they were against the entry into any lease and maintained that Ms Jones and Mr Caligiuri were against it too.

1. The manager of the owners corporation arranged a postal ballot of members upon a motion for the owners corporation to take a lease from Mr Alexander of lot S3. The motion was for a special resolution, as is required before an owners corporation may obtain a lease of any land.[10] A copy of the proposed lease accompanied the notice of ballot sent to the members on 31 March 2015.[11] Attached to the draft lease was a copy of an aerial photograph of the estate with a hatched area of it, which corresponded to the dams area, marked "A".
2. The postal ballot closed on 17 April 2015. The result was a special resolution to enter into the lease. The result was achieved because Mr Alexander, Mr Chiswell and Mr Whitelock all voted in favour. Each of the applicants voted against.
3. The lease was expressed to be for a term of five years. By it, the owners corporation covenanted (or promised):
   • (i) to pay rent of $6,000.00 per year;
   • (ii) to insure, including by way of public liability insurance cover;
   • (iii) to maintain the demised premises as if they formed part of the common property, "except for the area marked 'A' on the attached plan which shall be the responsibility of the owner";
   • (iv) to pay outgoings, excluding Council rates, as if the demised premises formed part of the common property;
   • (v) to pay, at the end of the lease, a 50% share of
     • temporary fencing;
     • standard pool fencing; and
     • surveying costs in relation to lot S3 and all land adjoining it.
4. Apparently there was a drafting error in the wording of the covenant I have numbered (iii). No doubt the intention was to require the owners corporation to keep the dams area in repair. That would have been achieved by marking "A" on the aerial photograph all the land comprising lot S3 except the dams area. But what was marked "A" on the aerial photograph was the dams area itself, with the consequence that the owners corporation was covenanting to maintain the whole of lot S3 except the dams area.
5. On 22 July 2015 the applicants began this proceeding. In the "History of Dispute" attached to their application they alleged that Mr Alexander had used his lot entitlements "to force through the lease" for his own benefit and at financial risk to the other lot owners. They sought a declaration that the lease was "null and void."
6. Whether the applicants, when they began this proceeding, were aware of the ramifications of the drafting error is unclear. One matter of which they were aware, and have emphasised in the proceeding, is (as Mr Alexander and Mr Whitelock have admitted) that at all material times Mr Whitelock has been an employee of a company of which Mr Alexander is the director. The applicants allege that whatever Mr Whitelock has done as a member of the owners corporation or as a committee member has been done under Mr Alexander's influence.
7. After a compulsory conference held on 24 September 2015, which did not result in a settlement of the proceeding, the owners corporation took action to correct the drafting error.

1. The manager arranged for another postal ballot of members upon a motion to cancel the first lease and to take a different lease of lot S3 from Mr Alexander. Again, a copy of the proposed lease accompanied the notice of ballot, which was sent to members on 14 December 2015.[12] Another copy of the aerial photograph, with the dams area shown by hatching and marked "A", was attached to the draft lease.
2. That second postal ballot closed on 8 January 2016. The result was a special resolution to cancel the first lease and to enter into the second lease. Again, the result was achieved because Mr Alexander, Mr Chiswell and Mr Whitelock voted in favour. The applicants did not vote in favour. They had objections to the way that the question in the ballot was framed, as the question did not give them the option to vote against both leases.
3. I received in evidence an executed copy of the second lease.[13] It was dated 30 June 2016 and was for a term of five years, commencing on that date. By it, the owners corporation covenanted:
   • (i) To pay rent of $6,000.00 per year;

(ii) To insure, including by way of public liability insurance cover;

(iii) To maintain "the hatched area of lot S3 marked 'A' on the attached plan";

(iv) To pay 50% of the owners' legal costs of preparation of the lease; and

(v) To pay, at the end of the lease, 50% of the costs to erect standard rural fencing on the boundary between lot S3 and the common property, where standard rural fencing did not exist at the date of the lease.

1. The second lease had corrected the drafting error, so that the obligation to maintain land was confined to the dams area. The obligations that it imposed on the owners corporation were less onerous than the ones that the first lease had imposed. There was no longer an obligation to pay outgoings or a share of the cost of surveying. The obligation to pay a share of fencing costs was only for standard rural fencing, not for more expensive fencing. On the other hand there was a new obligation to pay a share of legal costs for preparation of the lease.
2. The applicants' objections to the second lease, and to the special resolution that had authorised the owners corporation's entry into it, include the objections they had made to the first lease and to the first special resolution. These were, in substance, that Mr Alexander had voted when he should not have voted because he had a conflict of duty and interest and that the resolution was unfairly prejudicial to them, so the lease and the special resolution should be declared invalid. They were given leave[14] to amend their application so that they could make those same objections to the second lease also. In addition, to the second special resolution and to the second lease they have made what might be called technical objections. They are:
   • (i) The question on the ballot paper for the special resolution was unfair. A "no" vote on that question would have resulted in the first lease remaining on foot. The question should have been framed to allow a "no" vote in relation to any lease.
   • (ii) The owners corporation did not execute the second lease by use of its common seal.
   • (iii) Mr Chiswell and Mr Whitelock each witnessed the document but did not print his full name and address, as required by s 21 of the Act.

1. In the "History of Dispute" attached to their initiating application the applicants alleged that Mr Alexander, by his "abuse of superior lot entitlements," had ousted the previous committee (which had included Mr Stokes) and had replaced it with himself, Mr Chiswell and Mr Whitelock. They also alleged that Mr Alexander controlled the expenditure of owners corporation funds and that they were having difficulty in obtaining a detailed explanation for their expenditure.
2. In their "History of Dispute" the applicants sought orders revoking the appointment of the present committee members and deeming them "not suitable to hold a committee member's position again."
3. The particular complaints about the committee's acts or omissions that the applicants expressed during the hearing were these.
   • (i) The very appointment of those committee members was achieved by Mr Alexander's improper use of his voting power to install himself and two colleagues and exclude Mr Stokes.
   • (ii) There had been an overall increase of the owners corporation's expenditures that had led to members' fees increasing from $27,736.50 in the financial year 2014-2015 to $51,100.00 in both complete financial years thereafter. The committee have never given a satisfactory explanation for these increases.
   • (iii) Financial statements supplied prior to annual general meetings disclosed expenditure for "common area upkeep." In the financial year 2014-2015 the figure given for that expenditure was $11,001.99. That was an amount paid to a maintenance man, Phillip Crowe. The committee were never able to explain the size of the expenditure in that year or in later years because Mr Crowe's invoices made lump sum claims without any detail of work done or hours spent. The committee were negligent in not requiring more detail from Mr Crowe before paying his invoices.
   • (iv) At the 2014 annual general meeting on 6 November 2014 whatever questions the applicants asked about the financial statements were brushed aside or not answered adequately.
   • (v) In the financial year 2015-2016 the owners corporation's expenditure, as shown in the financial statements, included legal fees which it had incurred unnecessarily and were more properly payable by Mr Alexander personally than by the owners corporation.
   • (vi) The committee members did not attend the 2015 annual general meeting, which was held (late) on 24 March 2016: the day before the Easter holidays, inconveniently. Instead, Ms Wilde, solicitor, attended the meeting as their proxy. She was unable to answer any questions about owners corporation expenditure, and so the committee failed to account for that expenditure.

1. In the "History of Dispute" the applicants had also sought an order that would enable them to "retrieve all of the owners corporation monies which have been paid to date for [the] lease." Shortly after the hearing of the proceeding began I pointed out to them that that was a claim which only the owners corporation, not they, could make, and that I would not authorise them to make that claim on behalf of the owners corporation[15] in a proceeding in which they had named the owners corporation as a respondent so that they could seek orders invalidating a special resolution and declaring a lease void. In other words, they could not purport to act on behalf of the owners corporation in the same proceeding in which they were making claims against it as a respondent. Having considered what I had pointed out to them, the applicants announced that they withdrew the claim for recovery of money.

1. The law that has a bearing upon the outcome of this proceeding is a combination of statutory provisions and principles of equity.
2. Section 15 of the Act empowers an owners corporation to obtain a lease of land. It provides:

By special resolution, an owners corporation may obtain a lease or licence over any land (including Crown land) whether or not in the plan.

There is no dispute that, if it made valid resolutions at all, the owners corporation achieved special resolutions to obtain the first lease and then to obtain the second lease instead of the first. The lot entitlements of Mr Alexander, Mr Chiswell and Mr Whitelock combined to surpass 75% of the total lot entitlements.[16]

1. Sections 165(1) of the Act sets out, in a non-exhaustive fashion, VCAT's power to make an order in determining an owners corporation dispute, as this proceeding undoubtedly is.[17] So far as is relevant to this proceeding, it provides:

(1) In determining an owners corporation dispute, VCAT may make any order it considers fair including one or more of the following -

(ba) an order authorising a lot owner to institute, prosecute, defend or discontinue specified proceedings on behalf of the owners corporation;

(d) an order varying any term of a contract or agreement;

(e) an order declaring that a term of a contract or agreement is, or is not, void;

(h) an order appointing (with the person's consent) or revoking the appointment of -

(iii) a member of a committee or subcommittee of the owners corporation;

1. Section 167 of the Act provides (so far as is relevant to the proceeding):

VCAT in making an order must consider the following -

(d) whether a resolution or proposed resolution is oppressive to, unfairly prejudicial to or unfairly discriminates against, a lot owner or lot owners;

1. Statutory duties of committee members. Section 117 of the Act provides:

A member of a committee or sub-committee of an owners corporation -

(a) must act honestly and in good faith in the performance of his or her functions; and

(b) must exercise due care and diligence in the performance of his or her functions; and

(c) must not make improper use of his or her position as a member to gain, directly or indirectly, an advantage for himself or herself or for any other person.

The applicants contend that by enabling the special resolutions and the entry into the first least, then into the second lease, Mr Alexander made improper use of his position to gain an advantage for himself. They also contend that Mr Alexander, Mr Chiswell and Mr Whitelock failed to exercise due care and skill in the performance of their functions and so their appointment as committee members ought to be revoked. Moreover, they contend that Mr Alexander did not act in good faith when he enabled the special resolutions and the leases so there is an additional reason why his appointment as a committee members should be revoked: the absence of good faith.

1. Statutory duties of the owners corporation. Section 5 of the Act provides:

An owners corporation in carrying out its functions and powers -

It is open to the applicants to contend that the owners corporation did not act in good faith when it entered into the leases, and that the leases should be declared void for that reason.

1. Fiduciaries' duties. A person may be may be regarded in equity as a fiduciary if the person is in such a relationship with another that the person has an obligation to act in the interest of that other. While there has never been an accepted definition of a fiduciary relationship, a High Court Justice has indicated how it may be recognised and what are the consequences for the fiduciary:[18]

The accepted fiduciary relationships are sometimes referred to as relationships of trust and confidence or confidential relations viz., trustee and beneficiary, agent and principal, solicitor and client, employee and employer, director and company, and partners. The critical feature of these relationships is that the fiduciary undertakes or agrees to act for or on behalf of in the interests of another person in the exercise of a power or discretion which will affect the interest of that other person in a legal or practical sense. The relationship between the parties is therefore one which gives the fiduciary a special opportunity to exercise the power or discretion to the detriment of that other person who is accordingly vulnerable to abuse by the fiduciary of his position. The expressions "for", "on behalf of" and "in the interests of" signify that the fiduciary acts in a "representative" character in the exercise of his responsibility, to adopt an expression used by the Court of Appeal.

It is partly because the fiduciary's exercise of the power or discretion can adversely affect the interests of the person to whom the duty is owed and because the latter is at the mercy of the former that the fiduciary comes under a duty to exercise his power or discretion in the interests of the person to whom it is owed.

1. A fiduciary fails in his duty to the other person if he enters into a transaction where there is, or is a significant possibility of, a conflict between the duty to the other person and the fiduciary's self-interest.[19] Fiduciaries who enter into transactions with those to whom they owe fiduciary duties "labour under a heavy duty to show the righteousness of the transactions."[20]
2. Although a relationship between a member of an owners corporation's committee and the other lot owners is not in a traditional category of fiduciary relationship, the categories are not closed.[21] A distinguished equity Judge, granting an application for the appointment of an administrator to a body corporate (an earlier counterpart of an owners corporation), stated there had been breaches of "the fiduciary duty which flows from membership of a council of a body corporate"[22] and earlier in the judgement, speaking of members of the council (who had much the same status as members of an owners corporation's committee have), stated:[23]

... It is ... their duty to manage the affairs of the body corporate for the benefit of all the lot owners and that the exercise of any of their powers in circumstances which might suggest a conflict of interest and duty requires them to justify their conduct ... The onus lies on them to prove affirmatively that they have not acted in their own interests or for their own benefit.

While it is fair to say that the breaches of statutory obligations identified in the judgement would have justified the appointment of an administrator whether or not a breach of a fiduciary duty was involved, the case is authority for the proposition that a committee member is in a fiduciary relationship with lot owners and owes them a fiduciary duty. On the other hand, there are the following considerations.

(a) The effect of s 11(6) of the Act appears to be that the mere fact that a lot owner participates in the management of the owners corporation does not give rise to a fiduciary duty. So far as it is presently relevant, s 11 provides:

11 Management of owners corporation and power to delegate

(1) An owners corporation is to be managed by or under the direction of the lot owners.

(6) Subsection (1) does not give rise to any fiduciary duties or directors' duties on the part of lot owners.

See section 5 for duties of an owners corporation.

(b) There is authority that the power of a lot owner to vote at an annual general meeting is not a fiduciary power.[24]

1. Whether or not they can establish a breach of a statutory duty imposed by s 117 or by s 5 of the Act, it is open to the applicants to contend that all three committee members, and in particular Mr Alexander, breached a fiduciary duty to lot owners when they entered into each of the leases, and that the Tribunal ought to declare the leases void for that reason. It is also open to them to contend that because of a breach of a fiduciary duty the Tribunal ought to revoke their appointment as committee members.
2. Fraud on a power. It has long been the law that shareholders in a company who have a majority vote at general meetings of the company cannot use their voting power as a means of securing some personal or particular gain[25] rather than using it in good faith in the interests of the company. Such use of a voting power is regarded as fraud on the minority and, even though the voting power has been exercised validly, a court of equity will provide the minority with a remedy.
3. The Court of Appeal in New South Wales[26] has decided that the equitable principles that enable relief against fraud on a power apply to bodies corporate (owners corporations) and to the voting powers of lot owners. In that case, which I call "the Houghton case", lot owners who held 80% of total lot entitlements erected buildings on common property. The value of the common property, improved by the buildings, was $600,000.00. Those majority lot owners voted at a special general meeting and passed a special resolution that the body corporate should transfer the common property to them in return for a payment of $1.00. The trial Judge decided that it was "an irresistible inference", from those facts, that the resolution was only for the benefit of the majority of lot owners and was a fraud on the minority, and awarded the minority lot owner equitable compensation of $120,000.00. The Court of Appeal decided that, although the special resolution was formally valid because the majority lot owners had the voting power to pass it, the exercise of the power for the purpose of enabling the transfer amounted to equitable fraud and dismissed the appeal. An application to the High Court for special leave to appeal was refused.[27]
4. The expression "equitable fraud" does not necessarily connote conscious dishonesty. [28] The expression describes a breach of an obligation recognised in equity, such as a fiduciary obligation or the improper use of a voting power in the way described above.
5. So it is open to the applicants to contend that, even if Mr Alexander, Mr Chiswell and Mr Whitelock were not in breach of any statutory duty or any fiduciary duty when they voted to pass a special resolution to enter into a lease of lot S3 or when the owners corporation entered into the lease, and even if Mr Alexander was not a fiduciary when he voted, nevertheless the lease was the outcome of the improper exercise of a voting power for Mr Alexander's benefit, not for the owners corporation's benefit, so was a fraud on the minority of lot owners. As a consequence, they may contend, the lease should be declared void and, because the committee had participated in equitable fraud, the appointment of the committee members should be revoked.
6. Incorrect execution of the second lease. Sections 10 and 21 of the Act provide for how an owners corporation may execute a document and how the use of an owners corporation's common seal to execute a document must be witnessed. Section 10 provides:

An owners corporation may in its own name and on behalf of its members execute any document or do anything necessary or convenient to enable it to carry out its functions, powers, rights and obligations, and the document or thing has effect as if executed or done by the members.

An owners corporation executes a document by the use of its common seal.

Section 21, so far as it is relevant, provides:

21 Who must witness the use of the common seal?

(1) The use of the common seal on a document must be witnessed by at least 2 persons who are owners of separate lots and are members of the owners corporation.

(4) Each lot owner or director who witnesses the use of the common seal must record next to the seal that he or she has witnessed the use of the seal by -

(b) printing in full his or her name and address; and

(c) stating that he or she is a lot owner or a director of the corporation that is a lot owner.

1. The attestation clause at the end of the second lease stated that the parties were executing it as a deed. It stated that Mr Alexander signed, sealed and delivered it. It also stated that the common seal of the owners corporation was affixed to it in accordance with the Act. The common seal, however, was not used upon it. Moreover, although two lot owners, Mr Chiswell and Mr Whitelock, signed the document and each printed his name, each did not print his full name or address. Two other persons signed, printed a full name and printed an address, as if they were witnessing the respective signatures of Mr Chiswell and Mr Whitelock. So the second lease exhibited some confusion about what were the legal requirements for its proper execution. During the hearing the applicants took the point that the second lease had not been sealed and witnessed in accordance with the Act, and maintained that it was therefore invalid.
2. A lease is void for the purpose of creating a legal estate unless made by deed_._[29] The second lease purported to have been made by deed but had not been; only one of the parties, Mr Alexander, had executed it under seal. Many written leases required by law to have been made by deed but made irregularly are nevertheless effective because they are regarded in equity as equivalent to an agreement for a lease and may be enforced by the courts accordingly.[30]
3. Section 11 of the Act bears upon the powers of members of an owners corporation committee to execute an agreement on the owners corporation's behalf. So far as is presently relevant, s 11 provides:

11 Management of owners corporation and power to delegate

(1) An owners corporation is to be managed by or under the direction of the lot owners.

(2) Subject to subsection (3), an owners corporation may, by instrument or by resolution at a general meeting, delegate any power or function of the owners corporation to -

(5) If no delegation is in force under subsection (2)(a), the committee of the owners corporation is delegated all powers and functions that may be exercised by the owners corporation, except for -

(a) those powers and functions set out in subsection (3); and

(b) those matters which must be determined at a general meeting under section 82.

1. At the special general meeting held on 16 April 2014, as recorded in the minutes of the meeting,[31] after having appointed Mr Alexander, Mr Chiswell and Mr Whitelock as members of the committee, resolved as follows:

IT WAS RESOLVED that the Owners Corporation delegates by the minutes to the Committee of the Owners Corporation all the powers it may properly delegate pursuant to the provisions of Section 11 of the Owners Corporations Act 2006.

That resolution may have been a specific delegation to the committee, under s 11(2) of the Act, the power to sign documents on behalf of the owners corporation. If it was not, the same delegation would have occurred by virtue of s 11(5).

1. From time to time I have stated above what "it is open to the applicants to contend", as well as what they have explicitly alleged or contended in the "History of Dispute" attached to their application or in any other filed document. The applicants have been self-represented throughout in a proceeding which has involved some degree of legal sophistication and in which the other parties have had very able legal representation. The factual bases for the applicants' claims have been clear enough but were usually[32] not expressed in a way that captured the legal bases for them and gave the respondents fair notice of the legal bases for the claims they had to meet. Until the proceeding eventually came on for hearing before me there had been a regrettable number of adjournments of a hearing, partly because the Tribunal was discharging its obligation to self-represented litigants by endeavouring to capture and express the possible legal bases for their claims.[33]
2. At a directions hearing on 27 August 2015 the Tribunal noted, in the order made on that day, that the applicants had stated that day that a letter from Kliger Partners Lawyers to the owners corporation dated 21 May 2015, and a document filed that day that commenced "Our issue can best be described as follows," fully stated their claim in the proceeding. This letter quoted s 117 of the Act, which imposes statutory duties on committee members, and alleged that the three committee members "have used their position to give an advantage to Mr Alexander at the expense of the [owners corporation]", by its entering into the first lease from Mr Alexander. The other document that commenced "Our issue can best be described as follows" did not really say anything that had not already been said in the "History of Dispute" attached to the application.
3. At another directions hearing on 18 February 2016 the Tribunal ordered that the application was amended so that the applicants "also seek an order ... that the owners corporation hold an [annual general meeting] and that the first respondent (Mr Alexander) is not entitled to legal costs in relation to this proceeding under the terms of the lease." That first order is now unnecessary because the annual general meeting for 2015 has been held, late, in March 2016. The need to consider that second order will arise only if Mr Alexander makes an application for costs after the proceeding has been determined.
4. On 3 May 2016 the Tribunal ordered that the "Points of Claim" were amended as follows:

The Applicants challenge the second ballot which concluded on 8 January 2016 and any lease obligations resultant therefrom and seek to rely, further and in the alternative to s 117 ..., on s 5 [of the Act].

1. So, by the time that the proceeding came on for hearing before me on 16 January 2017, the applicants' "Points of Claim" could be regarded as the original "History of Dispute" as extended or amended in the ways set out in paragraphs 60, 61 and 62 above.
2. In compliance with earlier directions of the Tribunal the owners corporation provided at the hearing a Tribunal book of documents. During the hearing the parties agreed that the various documents to which reference was made during the evidence, and which were contained in the Tribunal book, could be received as a single exhibit, marked "A".[34] Other documents were also received as exhibits during the hearing.
3. The hearing took five days. Mr Chiswell and Mr Whitelock were present throughout, and each gave evidence, as did each of the applicants and Mr Alexander. Although the applicants were seeking orders revoking their appointment as committee members, Mr Chiswell and Mr Whitelock were not parties to the proceeding. In view of the decision I have reached not to revoke the appointment of any committee member, or otherwise to affect the make-up of any future committee, it does not matter that they are not parties to the proceeding.
4. At the hearing the applicants gave their evidence one by one (Mr Galley, then Ms Jones then Mr Stokes) and were cross-examined. Mr Alexander was the next witness. After he had given his evidence in chief Ms Jones, on behalf of the applicants, told me that they did not wish to cross-examine Mr Alexander, explaining that the personal antagonism between him and them was such that they believed that they could not cross-examine him properly. At that point Mr Phillpott of Counsel on behalf of Mr Alexander submitted that I should warn the applicants of the general rule that they were obliged to put to Mr Alexander any matter upon which they proposed to contradict him, so that he had his own opportunity to meet it, and that their failure to do so may be regarded as implying that they accepted his evidence in chief.[35] I did not accept the submission. I told the applicants that I would not hold it against them that they did not cross-examine a witness. As the applicants had already given their evidence it was obvious what parts of Mr Alexander's evidence they disagreed with, and Mr Alexander had every chance to give his own version of disputed events. Moreover, my view of the way in which this Tribunal should conduct a proceeding is that a decision of a self-represented person not to cross-examine a witness on the opposite side should seldom, if ever, be regarded as implying acceptance of the witness's evidence. If the self-represented person is a respondent and the person's evidence includes matters which were not put to the applicant or the applicant's witnesses, the remedy is to allow the applicant a rebutting case, or to re-open the applicant's case.
5. As things happened, Mr Whitelock also was not cross-examined, but Mr Chiswell was. I have not taken an adverse view of the applicants not having cross-examined Mr Alexander or Mr Whitelock.
6. During the hearing I invited the respondents' legal representatives - Mr Phillpott for Mr Alexander, and Ms Wilde (solicitor) for the owners corporation - to include in their final addresses a consideration of whether, independently of any statutory obligations, Mr Alexander had had fiduciary duties towards the applicants and had breached those duties. I did so even though the "Points of Claim", as extended and amended, had not directly raised that question. In their final addresses Mr Phillpott and Ms Wilde took up the invitation and addressed me on the question. Each spoke to a written submission. I reserved my decision.
7. After the hearing had been completed and the Houghton case had come to my attention it occurred to me that it had been open to the applicants to contend that there had been a fraud on the exercise of a voting power and to rely on the equitable principles referred to in paragraphs 50 to 53, above. It seemed to me that the discharge of the Tribunal's obligations to self-represented litigants, and of its obligations to afford procedural fairness to all parties, required that the parties be given an opportunity to make submissions on that question.[36] Accordingly, at a directions hearing on 23 February 2017 I made the following directions:
   1. By 9 March 2017 the applicants may file with the Principal Registrar and serve upon both respondents a submission of law as to whether, on the evidence received in the proceeding, there has been a fraud by either or both respondents upon the exercise of a power, or a fraud upon a minority, in the senses referred to Houghton vs Immer (No. 155) Pty Ltd [1997] NSWSC 608 and if so whether the Tribunal should made [sic] any and which orders. The submission must be confined to matters of law in relation to the evidence given during the hearing and should not attempt to introduce new alleged facts.
   2. Each respondent may file and serve a written submission of law on the matters referred to in paragraph 1 by 23 March 2017.
   3. The Tribunal will give a decision in writing after 23 March 2017.
   4. The costs of today are reserved.
   5. Each party has liberty to apply in the meantime.
8. Each of the respondents filed and served a submission of law on the question identified in the direction. Below I shall discuss each of these submissions. The applicants filed and served a written submission also, but it did not deal at all with that question. Unfortunately, it attempted to re-agitate and enlarge upon a matter which, during the hearing, they had told me that they had decided not to pursue in this proceeding: an application for an order that Mr Alexander should reimburse the owners corporation for money that it paid out. For reasons given in paragraph 39 above it was not feasible for them to make that application as part of this proceeding. Whether it would be feasible for them to make such an application in a later proceeding is a question that I put aside. At all events, to the extent that the applicants' written submissions attempted to re-agitate the matter, I ignored it.

1. Although the oral evidence at the hearing covered a wide range of disputed matters of fact there was really very little factual dispute that was relevant to the issues of the validity of the special resolution that preceded each lease, or to the validity of the lease itself. Documents which evidenced the special resolutions, and the terms of the leases themselves, were to my mind much more important. Nevertheless, I need to make findings about some matters that bear upon those issues.
2. First, I accept the evidence of the applicants that at the 2014 annual general meeting they and Mr Caligiuri each said that he or she did not need or want to have access to the dams area and did not want the owners corporation to enter into a lease that would permit such access, and that the manager's minutes of the meeting wrongly recorded that they did wish to have the access. As the manager evidently misunderstood what they had said it is probable that they had not said it as clearly as they believed that they had. In the minutes of the 2015 annual general meeting the manager included an amendment to the 2014 minutes to record that four members of the owners corporation "strongly opposed entering into any form of lease."[37] There was no evidence that Mr Alexander or any other member opposed the amendment to the previous year's minutes.
3. Secondly, although I make no finding on whether access to the dams area is actually a benefit to the lot owners, I find that access to the dams area was something that could reasonably be regarded as a benefit worth securing for members of the owners corporation, even though the applicants and Mr Caligiuri did not think so. Mr Chiswell purchased his lot 8 in 1999, built a house on it in 2000, used it as a weekender until 2009 and since 2009 has lived there. He always regarded it as a benefit. Before relations between Mr Stokes and Mr Alexander soured, Mr Stokes hosted a housewarming party which took place in his own home and also on the dams area and in the gazebo.
4. Thirdly, I am not persuaded that Mr Whitelock, while making decisions as a committee member or while voting in a ballot, was merely Mr Alexander's puppet or under Mr Alexander's influence. It is natural that he would not want to antagonise a man who is, in effect, his employer, and would hesitate before deciding something or voting for an outcome which was against Mr Alexander's interests. But I am satisfied that he used his own independent judgment when making his presentation at the 2014 annual general meeting in favour of the idea of a lease and when voting in favour of entry into a lease.
5. Fourthly, outside the terms of each of the leases and the consequences that those have for each of the applicants and for the owners corporation, there was no evidence of any intention to do down any of the applicants or to harm them financially. I am satisfied that neither Mr Chiswell or Mr Whitelock had any such intention when they voted for the special resolutions to enter into a lease of lot S3 or when they signed a lease. As for Mr Alexander, the antagonism between him and the applicants, especially Mr Stokes, was a state of affairs that could have led to his having such an intention, but there was no evidence that he did have it. I find that the idea of the forming of a sub-committee to examine the lease proposal was his idea and I accept his explanation that his reason was so that he would not be conflicted in any negotiation of the terms of the lease. In answer to a question from me, he admitted that he gained a financial advantage from the owners corporation's entry into each of the leases. The evidence was also that he has been using lot 1 for a holiday rental business and that access for his customers to the dams area is a marketing advantage for the business. I find that Mr Alexander's motives in pushing for the special resolutions and the leases have been a mixture of a desire to provide a right of access to the dams area for those members of the owners corporation who want to exercise a right, of a desire to protect himself against public liability risks of injury to persons when the right is exercised, and of a desire to make a small financial gain.
6. I turn to the evidence about the owners corporation's financial performance and the information about it that the applicants asked for or that the committee gave.
7. Mr Chiswell has been the longest serving committee member. He has been a committee member and the chairman of the owners corporation at all times material to the proceeding. He was a lot owner long before Mr Alexander bought his first lot and has been a lot owner longer than any other member of the owners corporation except Ms Jones. He was instrumental in developing a ten-year plan for maintenance and improvement of the estate.
8. Ms Jones has been the most vocal of the applicants about lack of financial information from the committee. A good deal of her evidence was directed to the queries she had raised at annual general meetings about the contents of statements of financial performance and the alleged failure of Mr Chiswell and Mr Alexander to answer them satisfactorily. For their part, Mr Chiswell and Mr Alexander gave evidence that whenever she raised a query they answered it as best they could. A legitimate grievance that she expressed to me was that because the committee members did not attend the 2015 annual general meeting held (late) on 24 March 2016 but sent Ms Wilde as their proxy she could not obtain answers at the meeting to questions she had wanted to ask.
9. The queries about the accounts and financial statements of the owners corporation that she mentioned during her evidence were mainly these:
   • (a) why the total levies for members increased from $27,736.50 in 2014-2015 to $51,000.00 in 2015-2016;
   • (b) why the funds which the owners corporation spent on legal fees increased from $5170.23 to $17,771.20 in 2015-2016;
   • (c) whether the funds which the owners corporation spent on "building operations: common area upkeep" were spent only on the five acres of common property or were spent on maintaining the dams area;
   • (d) if these funds were spent on the common property only, why the expense was so high as $11,001.99 in 2014-2015 and $9,631.06 in 2015-2016.
10. To put those queries into context I set out pertinent extracts from the owners corporation's statement of financial performance for the year 2015-2016, as prepared by the manager, Mr Dean of Victoria Body Corporate Services Pty Ltd.[38]

1. From these extracts and from the evidence adduced at the hearing I consider that the answers to the queries are:
   • (a) The increase in levies from $27.736.50 in 2014 - 2015 to $51,000.00 in 2015 - 2016 occurred, and was necessary, precisely because of the increase in expenditure in 2015 - 2016 on insurance, legal fees, plumbing and gate repairs. Whether the increase in expenditure for insurance arose because the insurance policy was extended to cover public liability in respect of lot S3, and for insurance of the gazebo, was something for which the evidence provided no answer.
   • (b) The expenditure of $17,771.20 on legal fees in 2015 - 2016 was a consequence of the preparation of the second lease (the terms of which required the owners corporation to pay for the costs of preparation) and of the owners corporation's defence to this proceeding. There was no evidence of how the amount was calculated. In particular, there was no evidence of whether it included the cost of Ms Wilde's attendance at the annual general meeting on 24 March 2016. While there was no evidence to support the applicants' allegation that that the owners corporation has paid for legal costs which Mr Alexander himself incurred and should have paid for, I must say that I would have expected the cost of Ms Wilde's attendance at the annual general meeting to have been borne by Mr Alexander, Mr Chiswell and Mr Whitelock, for whom she was a proxy, not by the owners corporation.
   • (c) The "building operations: common area upkeep" expenditure was for maintenance and upkeep of the common property only. That is what the manager told Ms Jones at one of the annual general meetings and what I understand Mr Alexander's evidence to have been.
   • (d) The sum spent on maintenance and upkeep of the common property was the total of invoices rendered by the maintenance man, Phillip Crowe. The invoices[39] were not informative about the calculation of the sums claimed in them. Mr Chiswell gave evidence that he received time sheets from Mr Crowe as well as invoices but no time sheets were produced at the hearing. If there is to be any criticism of the committee in this regard, it is only that the committee did not require Mr Crowe to submit more detailed and transparent invoices.
2. An annual general meeting is not the ideal occasion for raising queries about financial statements unless notice has been given beforehand of those queries. I am not satisfied that the applicants have made out their allegations that the committee brushed aside or ignored their requests for information on financial matters. It is probable, I have concluded, that at annual general meetings Mr Chiswell and Mr Alexander imparted more information to Ms Jones than she has given them credit for, but less information than they might have given if she had sought it more efficiently by giving written notice before the meeting.
3. The applicants did not lead any evidence to support their allegation that Mr Alexander has controlled the expenditure of the owners corporation's funds. They have not made out that allegation.

Technical Objections to the Second Special Resolution and the Second Lease

1. The applicants have maintained that the second special resolution achieved by postal ballot, for the owners corporation to enter into the second lease, was flawed because the question on the ballot paper was not expressed in a way that enabled them to vote against the entry into any lease. The question on the ballot paper[40] was:

"The Owners Corporation resolves by special resolution to reverse its decision passed by special resolution by postal ballot that closed on 17 April, 2015 to enter into a lease for Lot S3, and resolves instead to enter into the attached lease for Lot S3 on the terms and conditions contained therein ("the Lease") and authorises the application of the common seal on the Lease"

The applicants say, correctly, that a failure to pass the special resolution would have had the effect of preserving the first lease, which was the last thing they wanted, so there was no way in which they could have voted "no" effectively. Their complaint is understandable but it has no legal significance. The special resolution was achieved, and would have been achieved however the applicants had voted even if they had been given an option of voting against any lease at all. There was no evidence that those members who voted "yes" were confused or misled by the motion and I am quite sure that they were not.

1. The other technical objections were to the mode of execution of the second lease. The owners corporation did not execute it under seal; the common seal was not used on the document. Moreover, Mr Chiswell and Mr Whitelock did not print on the document their full names and addresses. So the lease was not executed in the way required by sections 10 and 21(4) of the Act, and it may lack full legal validity. However, for the reasons that I set out in paragraphs 56, 57 and 58 above, I consider that Mr Chiswell and Mr Whitelock as committee members had a delegated authority to sign the lease on behalf of the owners corporation, and even if the lease lacks full legal validity it is nevertheless effective in equity and it may be enforced as if it were an agreement for a lease.
2. If that conclusion is wrong, there is another answer to the technical objection. Mr Phillpott submitted, correctly in my opinion, that there is no reason why the owners corporation, by virtue of the second special resolution, could not immediately execute another copy of the lease in a way that would meet the requirements of the Act.
3. So I conclude that the technical objections do not assist the applicants. The second lease is effective and has replaced the first lease.

1. The second lease creates the following obligations for the owners corporation and corresponding benefits for Mr Alexander. They remain for the rest of the five-year term, which will end on 29 June 2021.
2. First, the owners corporation must pay Mr Alexander rent of $6,000.00 per year. That appears to be a nominal figure, but why Mr Alexander wanted to stipulate that particular figure has not been explained in this proceeding. Now that the "gentlemen's agreement" has come to an end and all members of the owners corporation must contribute to its expenses by paying fees levied in accordance with lot liability, Mr Alexander is in effect contributing $4,200.00 (70%) of that $6,000.00 himself and each other member of the owners corporation is in effect contributing $300.00.
3. Secondly, the owners corporation must maintain the dams area (but not the rest of lot S3) at its expense. That obligation is a benefit to Mr Alexander because he, the owner of lot S3, does not himself have to pay for maintenance of the dams area. The obligation to maintain the dams area seems to be the matter that is of greatest concern to the applicants. They correctly say that it is not possible to know exactly how much the owners corporation will have to pay in maintenance costs. They fear it will be substantial. There was some vague evidence about the owners corporation having spent money in the past on repair of the gazebo (when all lot owners believed that it was part of the common property). Otherwise there was no evidence of any substantial sum having been spent by anyone on maintenance of the dams area, so there is no reason to suppose that substantial sums for such maintenance will have to be spent in future. I think that the applicants' fears are exaggerated. During his evidence Mr Stokes said that the obligation meant that Mr Alexander could build a swimming pool or a tennis court on the dams area at the owners corporation's cost. That is simply wrong. Capital improvements to land are very different things from maintenance of land. The owners corporation will not have to pay for any improvements to the dams area, only for maintenance of it. Again, whatever may be the sum that the owners corporation has to spend on maintenance of the dams area, Mr Alexander's lot liabilities mean that in effect he will be paying 70% of it himself.
4. Thirdly, the owners corporation has an obligation to take out and pay for public liability insurance for the whole of lot S3, not just for the dams area. A wish to impose that obligation seems to be the matter of greatest concern to Mr Alexander. He gets a benefit from it, by not having to pay for the insurance himself. Again, from the evidence it is not possible to say what additional public liability insurance premium the owners corporation will have to pay as a result of the cover being extended to lot S3. Again, whatever may be the additional premium, Mr Alexander will in effect be paying 70% of it himself.
5. Fourthly, the owners corporation has an obligation to pay 50% of the legal costs of Mr Alexander in relation to the preparation of the lease. It is common for leases to be drawn so as to require the tenant to pay the whole of the legal costs of preparation of the lease, so an obligation to pay 50% only of those costs is not something about which the members of the owners corporation should be aggrieved. The application of lot liability to those costs means that the amount which each applicant has been paying towards them is minimal.
6. Finally, the owners corporation has an obligation at the end of the lease to pay 50% of the cost of erecting standard rural fencing on the boundary between lot S3 and the common property. I imagine that the owners corporation would have that legal obligation anyway, lease or no lease.
7. So, when the provisions of the second lease are viewed in the light of the lot liability attributable to each lot (the "gentlemen's agreement" no longer governing the matter) it can be seen that the financial advantage that Mr Alexander gains from it are minor and that the financial effects of the second lease upon the owners corporation are not as large as they might appear to be if the provisions of it were not viewed in that light. Certainly the financial advantage to Mr Alexander and the financial burden upon the owners corporation are less than they were under the first lease, which obliged the owners corporation to pay all outgoings (excluding council rates) and at the end of the lease to pay 50% of the cost of temporary fencing "of all S3 perimeter", of "surveying of all titles adjoining and including S3", and of the cost of erecting permanent standard pool fencing.

Statutory Duties and Fiduciaries' Duties: Conclusions

1. Statutory duties of committee members: s 117. At the forefront of the applicants' case have been two allegations. One is that Mr Alexander used his voting power "to force through the lease" for his own benefit and to their detriment. The other is that the three committee members, in breach of s 117(c) of the Act, had made improper use of their positions to gain an advantage for Mr Alexander.
2. I accept Mr Phillpott's submission that there is a simple answer to the allegation that Mr Alexander acted in breach of s 117(c). It is that when he voted for the special resolution, and when he executed the second lease, he was not acting in his capacity as a committee member or making use of his position as a committee member. He was voting in his capacity as a lot owner, as a member of the owners corporation, not as a committee member. He executed the second lease, not as a committee member on behalf of the owners corporation, the lessee, but as the opposite party, the lessor.
3. As for Mr Chiswell and Mr Whitelock, when they voted for the special resolution they were also voting in their capacity as lot owners, not as committee members. When they executed the second lease on behalf of the owners corporation, they did so in their capacity as committee members exercising a delegated authority to execute it. But in executing it, in my opinion, they were not making any improper use of their position. On the contrary, the owners corporation having passed a special resolution to enter into the lease, they would have been in breach of their respective duties under s 117 if they had failed or refused to execute it in accordance with their delegated authority and with the members' special resolution.
4. The other duties imposed on committee members by s 117(a) and (b) are to act honestly and in good faith in the performance of their functions, and to exercise due care and diligence in the performance of their functions. Whether the committee members discharged those duties is relevant to the applicants' claim for an order revoking their appointment as committee members. The applicants have not alleged a lack of honesty or good faith in the committee members' performance of their functions generally. They have alleged a lack of due care and diligence in limiting the size of owners corporation expenditure and in explaining its financial statements. The findings I have made about those matters do not make good the allegations of breach of the duty to exercise due care and diligence. They are not a reason for revoking the appointment of any committee member or for imposing any restriction on their continuing to act as committee members.
5. Statutory duties of owners corporation: s 5. An owners corporation has a duty under s 5 to act honestly and in good faith in carrying out its functions and powers. There is no allegation of lack of honesty. The power to enter into the second lease was exercised when Mr Chiswell and Mr Whitelock executed it on behalf of the owners corporation. No lack of good faith by them personally has been proved, or even alleged. That does not mean, however, that the owners corporation carried out its power of execution of the lease in good faith.
6. In my view the issue of whether the owners corporation acted in good faith in that regard is limited to, and overlaps, the issue of whether there was a fraud upon the power to execute the lease. I shall postpone a conclusion on the issue of food faith until I deal below with the issue of possible fraud on the power.
7. Fiduciaries' duties. This case is not the occasion for deciding whether a member of an owners corporation committee has fiduciary duties towards other members of the owners corporation. There is authority to support the proposition that those fiduciary duties exist but it is scant.[41] I propose to assume, in the applicants' favour, that the three committee members had those duties at the time that they voted for the special resolution and at the time that Mr Chiswell and Mr Whitelock executed the second lease on behalf of the owners corporation.
8. As mentioned earlier, lot owners do not owe fiduciary duties to each other, the power of a lot owner to vote is not a fiduciary power, and by virtue of s 11(2) of the Act the requirement that an owners corporation is to be managed by or under the direction of the lot owners does not give rise to any fiduciary duties on their part.[42]
9. As for Mr Alexander, again the answer to the contention that he was in breach of a fiduciary duty when he voted for the special resolution is that he was exercising his right and power as a lot owner to vote, not acting in his capacity as a committee member.
10. As for Mr Chiswell and Mr Whitelock, the same answer applies to their having voted for the special resolution. When they executed the second lease on behalf of the owners corporation they were not acting in their capacity as committee members. The essence of a breach of a fiduciary duty is the allowing of a conflict of duty and interest and a failure to show that the fiduciary is not acting in his own interest or for his own benefit. Neither of those elements is present. Neither Mr Chiswell nor Mr Whitelock had a conflict of duty and interest. They had no interest in the entry into the lease that was different to the interest of any of the applicants. There was no personal benefit that they secured by virtue of the lease enabling access to the dams area (if that is a benefit at all) that was greater than a benefit to any other lot owner. The situation was that they simply had a different view from the applicants' view about whether there was a benefit to be gained from the lease at all.

Respondents' Submissions Concerning Fraud on a Power

1. Mr Phillpott's written submission on behalf of Mr Alexander was principally that the doctrine of fraud on a power had no application to Mr Alexander's voting in the ballot that led to the special resolution because "the ability of a lot owner to vote in the ballot is a right, not a power." In my view it is both, and a lot owner's exercise of his voting power is capable of being a fraud upon the power if used improperly in order to achieve some personal gain rather than in good faith in the interests of the owners corporation. The power in respect of which the doctrine operates in company law is usually a voting power, exercised for the majority's gain (such as by altering the company's constitution) and to the detriment of the minority.
2. Secondly, Mr Phillpot submitted that because Mr Alexander, Mr Chiswell and Mr Whitelock had all given evidence that they voted as they did because they believed that the entry into the lease would achieve benefits for the owners corporation, and that there was no reason not to accept their evidence, a conclusion that either their voting or the entry into the lease was a fraud upon a power is not open. The submission overlooks the circumstance that, as in the Houghton case, such a conclusion may be reached by inference from the features and consequences of the transaction that was entered into when the power was exercised.
3. Thirdly, Mr Phillpott submitted that the facts of this case are far removed from the facts in the Houghton case. Indeed they are. The transaction in the Houghton case was a transfer for an obvious undervalue. In the present case there is room for legitimate argument as to whether the transaction created benefits for the owners corporation that went towards balancing the minor financial advantages that Mr Alexander gained from it.
4. Ms Wilde for the owners corporation submitted that the doctrine of fraud on a power operated, in the context of an owners corporation, when the owners corporation had disposed of part of the common property to an individual lot owner without valuable consideration, and had deprived minority lot owners of a valuable proprietary interest, as a consequence of majority lot owners having exercised their voting power. Otherwise, she submitted, the nature of the Act is that the operation of the doctrine is excluded. She submitted that another decision of the Court of Appeal in New South Wales, which I call the Thoo case, was authority for those propositions. I do not agree that it is.
5. The Thoo case[43] involved a provision, s 62 of the Strata Schemes Management Act 1996 ("the NSW Act"), which governs owners corporations in that State. Like the Victorian Act,[44] the NSW Act requires an owners corporation to maintain and repair common property, but it goes further. It requires an owners corporation to renew or replace any fixtures or fittings comprised in the common property (unlike the Victorian Act which requires only the maintenance and repair of such fixtures and fittings). Then there is an exception.[45] The obligation to maintain, keep in repair, renew or replace does not apply if the owners corporation determines by special resolution that "it is inappropriate to maintain, renew, replace or repair the property" and its decision will not affect the safety of or detract from the appearance of any property. There is no such exception in the Victorian Act.
6. In the Thoo case the owners corporation did determine by special resolution that it was inappropriate to renew or replace (by upgrading) a mechanical exhaust system which serviced most lots. One lot owner, Dr Thoo, challenged the resolution. One of the many grounds of challenge was that the resolution was a fraud on the exercise of a power. The trial Judge found for Dr Thoo on that ground, amongst others. The owners corporation appealed. The appeal was allowed and the trial Judge's decision reversed.
7. One of the arguments for Dr Thoo at the hearing of the appeal was that the exercise of the power to pass the special resolution had the actual or effective result of appropriating for the majority a valuable proprietary right. The argument relied on a High Court authority[46] in the area of company law. The Court of Appeal decided that the case did not involve an appropriation of that land. That, however, was not a decision that there was no fraud on a power because there was no appropriation of a valuable proprietary right. The appeal was not decided on that basis. Rather, the reason why the Court of Appeal decided that the doctrine of fraud on a power had no operation was that the sub-section, s 62(3), which created the exception to the obligation to replace or renew fixtures or fittings to common property, contemplated a possible negative impact upon a minority, because it had the effect of negativing what would otherwise be a breach of duty: "the structure of s 62 leaves very little room for the operation of the doctrine of fraud on the minority."[47]
8. Because there is no comparable section in the Victorian Act there is room within the Act for the operation of the doctrine. What I have to decide is whether its operation in the present case affords the applicants a remedy in the form of a declaration that the second special resolution is invalid or that the second lease is void.

1. The fact that the consequences of Mr Alexander's use of a majority voting power brought about a financial advantage to him and brought about what the applicants have perceived to be disadvantages to them means that the case has warranted close scrutiny of that advantage and of those perceived disadvantages, and has warranted an examination of whether there has been a fraud upon that majority voting power.
2. After that scrutiny and that examination, I have come to the conclusion that there has been no fraud upon the exercise of Mr Alexander's voting power. The features of the case that have weighed favour of that conclusion are there.
   • (i) Unlike the Houghton case, there has been no disposition of common property to majority lot owners for an undervalue or for any value. On the contrary, by the second lease the owners corporation has obtained a proprietary interest in lot S3, as lessee, which it did not previously have. I repeat that I am not saying that there can have been no fraud in a voting power unless it results in an appropriation of common property away from the owners corporation and towards a majority lot owner. I have rejected a submission to that effect. I am saying only that the case lacks the feature of such an appropriation.
   • (ii) In financial terms, when viewed in the light of the ending of the "gentlemen's agreement", the financial advantage that Mr Alexander gains from the lease is minor and the financial disadvantage that the owners corporation suffers is minor too. There is no "irresistible inference", as there was in the Houghton case, of equitable fraud when one looks at the financial consequences to Mr Alexander and to the owners corporation of the entry into the lease.
   • (iii) There has been no evidence of any bad faith on the part of the majority or of any intention on their part to use their voting power in a poll to effect a gain for Mr Alexander or a detriment to the minority. A finding of such bad faith or such an intention could only have based upon inference and I have said why I consider that no such inference can be drawn. For the same reason, having postponed consideration of the issue of whether the owners corporation breached its duty under s 5 of the Act to conduct itself honestly and in good faith, I conclude that it has not breached that duty.
   • (iv) I have been impressed by the fact, as I have found, that it was Mr Alexander's idea that there should be a sub-committee to examine his proposal of a lease of lot S3 and negotiate it with him. He allowed Mr Galley and Mr Stokes to be two of the four members of the sub-committee, despite he and Mr Stokes having fallen out. That was not the action of a man who was seeking to use his voting power "to force through the lease", as the applicants were alleging.
3. For those reasons I conclude that the application of the doctrine of fraud upon a power has not, in the end, assisted the applicants.

Oppressive, Prejudicial or Discriminatory Resolution

1. Section 167(e) of the Act requires VCAT to consider, when making an order to determine an owners corporation dispute, whether a resolution or proposed resolution is oppressive to, unfairly prejudicial to or unfairly discriminates against a lot owner or lot owners.
2. The section does not specifically empower the Tribunal to declare a resolution invalid because it is oppressive, unfairly prejudicial or unfairly discriminatory. It does not give rise to a cause of action for such a declaration. Rather, in my view, it points to factors which the Tribunal is required to weigh in the exercise of its discretion to make or not make such a declaration when a breach of a statutory duty or of some other duty imposed by law has been established.
3. I have decided that there has been no breach of statutory or other duty by Mr Alexander or by the owners corporation. Nevertheless, I do not consider that the special resolution for reversal of the previous special resolution and entry into the second lease was oppressive to, unfairly prejudicial to or unfairly discriminatory against the applicants. It had exactly the same impact upon all lot owners except Mr Alexander. Arguably it was prejudicial to the applicants and to all lot owners except Mr Alexander, because of the obligations that the lease imposed upon the owners corporation, but I accept Ms Wilde's submission that there has been no proof of oppression or proof of unfairness.

1. I propose to indicate what I would have done if I had upheld the applicants' technical objections to the second special resolution and to the second lease. The consequences would not have been that there is no lease at all. It would have been the revival of the first lease.
2. From the standpoint of all members of the owners corporation except Mr Alexander, the terms of the first lease were more objectionable than the terms of the second lease. The terms of the first lease had required the owners corporation to pay all outgoings for lot S3 except Council rates, and at the end of the lease to pay a 50% share of the temporary fencing, pool fencing and surveying costs.
3. In the course of making his oral final address Mr Phillpott for Mr Alexander submitted that if I were to find for the applicants because the entry into the second lease was a breach of a duty I should not declare the lease void but should instead act upon the unique power given by s165(1)(e) of the Act to VCAT to make an order declaring a particular provision of the lease void. In that way, he submitted, I could virtually sever from the lease any provision that I thought objectionable.
4. Making that kind of declaration would not have satisfied the applicants. They sought nothing less than avoidance of the entire lease. Had the first lease fallen for a decision as to whether to declare it void, I would not have declared it void (for the same reason as I have not declared the second lease void) but I would have given serious consideration to declaring void the provisions in the first lease that required the applicants to pay for outgoings, pool fencing and surveying costs.

1. For the above reasons there will be an order that the proceeding is dismissed.
2. I have said that I thought that the applicants' fears of large additional maintenance costs and public liability insurance costs are exaggerated. The lease has a further four years to run. There is no option to renew it. Time will tell whether their fears turn out to have been justified. If they have been, and a resolution is passed to enter into a new lease at the end of the present term, they may be better placed to challenge the resolution and the new lease than they have been to challenge the existing resolution and the existing lease.
3. As to the constitution of the committee, the applicants told me during the hearing that they would be content for either Mr Chiswell or Mr Whitelock, but not both of them, to remain as committee members. By telling me that, they were virtually conceding that each of those gentlemen was a suitable committee member and that their real objection to the committee was Mr Alexander's presence on it. Having listened to and observed the parties for five days, I venture the suggestion that if Ms Jones were to be added to the committee instead of Mr Alexander, so that its members were Mr Chiswell, Mr Whitelock and Ms Jones, its make-up would be less controversial, and relations within the owners corporation might improve.

[1] In fact there were two leases, the second replacing the first. See paragraphs 24-35. The disputes relate to them both.

[2] Some lots are owned jointly with the spouse of the person named in the table. For convenience I refer only to the owner who in some way is involved in the proceeding or in its background history.

[4] If a ballot or poll is taken, a special resolution is one passed by 75% of the total lot entitlements of all the lots affected by the owners corporation: s 96 of the Act.

[6] Exhibit A tab 20 contains the minutes of the special general meeting and Mr Alexander's statement.

[7] The presentation was by powerpoint mode. Exhibit A tab 25 is a hard copy of slides from the powerpoint presentation.

[9] At the 2015 annual general meeting the minutes of the 2014 annual general meeting were amended to record that four members had "strongly opposed entering into any form of lease": exhibit A tab 59.

[15]Section 165(1)(ba) of the Act empowers the Tribunal to make an order authorising a lot owner to institute, prosecute, defend or discontinue a proceeding on behalf of the owners corporation.

[17]The proceeding is a dispute or matter that arises under the Act and affects the owners corporation, and relates to alleged breaches by lot owners of their obligations imposed upon them by the Act, and so is "an owners corporation dispute" as defined in s 162 of the Act.

[18] Mason J in Hospital Products Ltd v United States Surgical Corporation [1984] HCA 64; (1984) 156 CLR 41 at 96-97. Citations have been removed from the passages.

[19] Chan v Zacharia [1984] HCA 36; (1984) 154 CLR 178 at 199.

[20] Maguire v Makaronis [1997] HCA 23; (1997) 188 CLR 449 at 465.

[21] Breen v Williams (1996) 186 CLR 71 at 107.

[22] Else-Mitchell J in Re Steel and ors. and the Conveyancing (Strata Titles) Act 1961 (1968) 88 WN (Pt. 1) (NSW) 467 at 470-471.

[23] (1968) 88 WN (Pt. 1) (NSW) 467 at 470.

[24] Houghton and anor. v Immer (No 155) Pty Ltd [1997] NSWSC 606.

[25] Peters' American Delicacy Company Limited v Heat and ors [1939] HCA 2; (1939) 61 CLR 457 at 511.

[26] Houghton and anor. v Immer (No 155) Pty Ltd [1997] NSWSC 606.

[27] Houghton and anor. v Immer (No 155) Pty Ltd [1998] HCA Trans 273.

[28] Halsbury's Laws of Australia, Vol 12 para [185-875]

[29] Property Law Act 1958, s 52(1).

[30] O'Dwyer v Butts (1952) 69 WN (NSW) 198; on appeal, (1952) 87 CLR 87 CLR 267.

[32] An exception is that in the "History of Dispute" the applicants explicitly alleged "potential breaches of s 117" of the Act: the section that imposes statutory duties of committee members to act honestly and in good faith, etc: see paragraph 44.

[33] Tomasevic v Travaglini [2007] VSC 337, especially at [98]; Neil v Nott [1994] HCA 23; (1994) 121 ALR 148 at 150.

[34] Exhibit A was the Tribunal book except for the documents behind the following tabs: 22, 24, 34, 36, 37, 42, 45, 48, 50-53, 57, 58, 63, 65, 66, 68.

[35] The general rule is known as the rule in Browne v Dunn (1893) 6 R 67.

[41] The authority is discussed in paragraph 48 above.

[43] The Owners Strata Plan 50276 v Thoo [2013] NSWCA 270.

[46] Gambotto v WPC Ltd [1995] HCA 12; (1995) 182 CLR 432.

[47] [2013] NSWCA 270 at [196].