Be Careful with your Proxies!

03 October 13

In June this year, I wrote an article headed “Proxy Farming”, which set out the relevant restrictions on caretakers using proxies to vote on motions which confer a “material benefit” on the caretaker (such as a top-up or variation of the caretaking agreement). As part of that article, I touched upon the issue of caretakers using another person (e.g. spouse, family member, friendly owner) to hold proxies on behalf of owners and use them in a way which confers a material benefit on the caretaker.


The relevant section of the Strata Schemes Management Act 1996 (‘SSMA’), schedule 2, section 11 (7A), simply provides: “A vote by a proxy who is a caretaker, an on-site residential property manager or a strata managing agent is invalid if it would obtain or assist in obtaining a pecuniary interest for, or confer or assist in conferring any other material benefit on, the proxy.”


Unlike the Queensland legislation (which does not have an equivalent section because of the restrictions on the number of proxies which may be held), the SSMA does not define ‘associates’ of the caretaker. Accordingly, there is no express prohibition on an associate or related party of the caretaker exercising proxies to the caretaker’s benefit (presumably, however, the restriction would apply to officeholders or shareholders in the case of a corporate caretaker). As alluded to in my earlier article, the risk of such proxies being declared invalid lies in the common law doctrine of agency.


In a matter I was recently involved, a CTTT strata schemes adjudicator accepted that if the proxy holder was acting as an agent of the caretaker, the proxies would be captured by the prohibition in the SSMA and, therefore, invalid. In fact, the adjudicator actually went as far in his decision to re write schedule 2, section 11 (7A) of the SSMA as follows: “A vote by a proxy who is a caretaker, an on-site residential property manager or a strata managing agent [or by a proxy who is an agent of a caretaker, an on-site residential property manager or a strata managing agent] is invalid if it would obtain or assist in obtaining a pecuniary interest for, or confer or assist in conferring any other material benefit on, the proxy.” [Emphasis added]


The important question then is, in what circumstances will a proxy be deemed an agent of the caretaker?


An agent, by definition, is anyone who acts for or on behalf of someone else (as opposed to acting in their own interests). Accordingly, regardless of who holds the proxies and how they are solicited and collected, if it can be established the proxy holder is using the proxies to vote under the direction of the caretaker, such proxies could be declared invalid. The difficulty for a person seeking to contest the proxies, however, is establishing such agency relationship exists in situations where the proxy holder has solicited/collected the proxies and is acting under discreet instructions from the caretaker. Further, it would make it even more difficult to establish an agency relationship if the proxy holder is also a lot owner and so has a personal interest in the outcome of the motion.


Nonetheless, it appears the only way to fully overcome any risk would be to ensure owners direct the proxy holder (on the proxy form) how to vote on the particular motion – essentially turning the proxy into a voting paper. Moreover, a neutral party (such as the Secretary or Chairperson) could be given the proxy, rather than someone associated (in any way) with the caretaker. The proxy holder, whoever it may be, will be required to vote in accordance with the owner’s instructions on the proxy form.


All this begs the question why the New South Wales legislature has persisted with the current proxy model for so long. As stated in my earlier article, the fight for proxies on important issues affecting the caretaker (and strata scheme more generally) can be the root cause of a lot of resentment within the building. Perhaps it is time for New South Wales to move to the Queensland system of voting papers so owners can have their say simply by circling “yes” or “no” on the voting form and returning it to the secretary or returning officer before the meeting. It seems fundamental that absentee owners should have the right to have their say without the risk of their proxy being declared invalid.

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