Put the word “allegedly” before “defamed”, “subject to” and “negligent” and you will get a sense of why using strata funds to pursue legal action is unlikely to be permitted.
For a start, even if the allegations are true, it doesn’t sound like anyone has broken strata laws or by-laws. The recent defamation case in Manly was taken by the chair of a building, acting as an individual, against a resident.
The chair took the financial risk of legal action and he reaped the rewards. Even if you persuaded the committee to finance legal action, the other party could argue that this was an inapproriate use of strata funds.
The only possible exception I can think of is where an individual accused the committee of acting illegally or immorally and those accusations damaged the strata scheme as a whole. But strata committee member A defaming strata committee member B is likely to be seen as a matter for those two members … unless the strata committee decides to publicly take sides through its meeting minutes or other communications with residents.