By the Newsletter team
Conflict, unfortunately, has a distinct habit of arising in social settings. The setting of a Home Owners’ Association (“HOA”) is no different.
In a previous article, we looked at the fiduciary duties of HOA executives. In this article, we look at remedies for a breach of those fiduciary duties. When members believe that there has been a breach, they have three avenues open to them. First, they may claim their rights that arise from governance documentation. Second, they may seek alternative dispute resolution. Last, if the HOA is a company, they may gain relief in terms of the new Companies Act.
When there has been a breach of the fiduciary duty by an executive, the quickest and most direct intervention is to pursue a member’s rights through the internal governance structures of the HOA, those being the constitution or the memorandum of incorporation.
For example, members can arrange to be elected onto the board of executives of the HOA in order to uphold the fiduciary duties themselves. If the HOA is a company or if the constitution of a common law HOA allows it, members may also vote to remove executives from the board at a general meeting. In this way a change of membership in the executive body can address the problem and ensure that the fiduciary duty owed to the HOA is upheld.
In other cases the governance documentation the constitution or the memorandum of incorporation, may provide for alternative dispute resolution. And, less usually, it may be necessary to amend the terms of the governance documentation to provide for a system that will reduce the risk of breaches of fiduciary duties.
Relief in terms of the new Companies Act
The new Companies Act has introduced a range of different remedies for those who feel they have been prejudiced by the actions of HOA directors. There is the formation of the Companies Tribunal and the Companies and Intellectual Property Commission.
These authorities have the power to settle disputes between members and HOA executives. Proceedings before the tribunal are considerably less formal than those in front of a court – they’re cheaper and faster too. But, nonetheless, they exist to provide a process by which an independent adjudicator can determine the merits of the dispute and find for one of the parties to the dispute.
In serious cases, such as where a executive knowingly provided false information with a fraudulent purpose to members, the Act punishes this conduct with a criminal sanction, that being possible imprisonment.
Alternative dispute resolution
Perhaps the most common means of resolving disputes between a member and an HOA executive is through alternative dispute resolution (ADR). There are three parts to ADR – negotiation, mediation and arbitration.
Negotiation is a discussion between the parties concerned aimed at reaching agreement. Mediation involves a third-party neutral person working with the parties so as to find a mutually agreeable solution. Arbitration sees the involvement of an independent third party who makes a decision after hearing an argument from both sides.
In particularly serious cases, or those of great complexity, a member will always have the right to turn to the High Court for relief. The breach of a fiduciary duty by an executive is a breach of contract above all else. However, as we have seen, a costly court battle is no longer necessary to protect the members’ rights. Established alternatives exist to resolve disputes. Their use is to be encouraged.
Article reference: Paddocks Press: Volume 7, Issue 6, Page 3
To keep up to date with what is really going on in HOAs, consider doing the Home Owners’ Association Management course. Next course starts, 6 August 2012. For more information please contact Emma on 021 447 4130 or email@example.com
This article is published under the Creative Commons Attribution license.