ACAT Ruling Tribunal Decision: Recovering Costs in Levy Recovery Matters

On 2 August 2017, the ACT Civil and Administrative Tribunal (ACAT) handed down its decision In the Matter of Ruling Tribunal, section 31 of the Unit Titles (Management) Act 2011 (Civil Dispute) [2017] ACAT 56.

This is a long awaited decision which indicates what expenses an owners corporations can recover after suing a lot owner who fails to pay levies. It answers the issues raised by the decision in The Owners – Units Plan No 840 v Richardson [2015] ACAT 77.

In the Ruling Tribunal decision, ACAT held that if it was reasonable for an owners corporation to incur the following expenses (legal professional costs and disbursements incurred in bringing the Tribunal proceedings (e.g. lawyers fees, lawyers photocopying); company title and similar searches incurred in bringing the Tribunal proceedings; filing and hearing fees incurred in bringing the Tribunal proceedings; and administrative costs or disbursements incurred in bringing the Tribunal proceedings (e.g. charges by owners corporation managing agent, collections agency)), and each component of those expenses were reasonable in quantum then an owners corporation could recover those expenses under section 31 of the Unit Titles (Management) Act 2011 (UTMA). Further, the Ruling Tribunal held that legal professional costs and disbursements and administrative costs and disbursements in bringing enforcement proceedings in the ACT Magistrates Court were also costs that could be recovered by an owners corporation in later proceedings under section 31 of the UTMA.

This Ruling Tribunal decision also held that an owners corporation could only recover the following expenses (company title and similar searches incurred in bringing the Tribunal proceedings; filing and hearing fees incurred in bringing the Tribunal proceedings) under section 48 of the ACT Civil and Administrative Tribunal Act 2008 (ACAT Act). That is, the following expenses (legal professional costs and disbursements incurred in bringing the Tribunal proceedings (e.g. lawyers fees, lawyers photocopying); administrative costs or disbursements incurred in bringing the Tribunal proceedings (e.g. charges by owners corporation managing agent, collections agency)) are not recoverable under section 48 of the ACAT Act.

The full decision can be read here.

Call Kerin Benson Lawyers on 02 6140 3270 or email allison@kerinbensonlawyers.com.au or enquiries@kerinbensonlawyers.com.au

Increase in ACAT’s Civil Jurisdiction

From 15 December 2016 the civil dispute jurisdiction of the ACT Civil and Administrative Tribunal (ACAT) has increased from $10,000 to $25,000. This means that owners corporations seeking debt recovery of up to $25,000 may proceed in ACAT rather than in the ACT Magistrates Court, unless a request is made by either party to proceedings to transfer the claim.

The increase in jurisdiction has also ushered in some procedural changes in ACAT.

For claims of $3,000 or less a conference and immediate determination process will be adopted.  This will apply where there is no counterclaim and a contested response has been received.   If there is no resolution at the listed conference, the matter will usually proceed to a hearing on the same day.  It is anticipated that the conference and the determination process will be scheduled weekly on a Friday.

For claims of $15,000 or more, in some circumstances a conference and evaluation process will be utilised.  The process will involve asking parties to submit a case summary and position statement before the preliminary conference.  The preliminary conference will be listed for 2 -3 hours, after a contested response has been received. If the matter does not settle, it will proceed to hearing.

From 15 December 2016, civil disputes where between $10,000 and $25,000 is claimed may be transferred to ACAT from the Magistrates Court.  These matters may be transferred if the court considers the transfer just and makes an order to transfer the matter.  In making an order the Magistrates Court must consider whether there is another proceeding associated with the existing proceeding before the Magistrates Court.  A matter can only be transferred if the hearing has not started and one of the parties applies to have the matter transferred.

The conference and determination approach, and the conference and evaluation approach, appear to be an attempt to streamline complicated or vexed claims. For owners corporations seeking debt recovery, the changes mean that claims under $10,000 will proceed in NCAT, whereas claims between $10,000 and $25,000 may proceed in the Magistrates Court if the appropriate order is made.

Any questions about recovering strata levies?

Call Kerin Benson Lawyers on 02 6140 3270 or email allison@kerinbensonlawyers.com.au or enquiries@kerinbensonlawyers.com.au

ACAT Ruling Tribunal: Section 31 Costs and Expenses

The following article provides an update on our article published 21 March 2016 titled ‘ACT Case note: Recovering costs in levy recovery matters’.

In The Owners – 840 v Richardson [2015] ACAT 77 Member Daniels determined that awarding legal costs in levy recovery proceedings was contrary to the provisions in the ACT Civil and Administrative Tribunal Act 2008 (ACAT Act). Pursuant to section 48 of the ACAT Act the Tribunal can only award costs in limited circumstances. Since Richardson the situation on whether legal costs can be awarded in levy recovery proceedings has been uncertain.

Due to pressure from ourselves and another legal services provider and to resolve the uncertainty the Tribunal established a Ruling Tribunal to determine the question. The hearing, where we appeared through Counsel on behalf of our Owners Corporation clients, was held on Friday 17 February 2017 before Presidential Member McCarthy, President Neate and Senior Member Fergusson.

At the hearing there were no appearances or submissions from any respondent. The Tribunal directed a series of focused questions to Counsel relating to the Tribunal’s power to award legal costs as an expense pursuant to section 31 of the Unit Titles (Management) Act 2011, when expenses are deemed to be incurred and therefore recoverable and the reasonableness of such expenses

Any questions about recovering strata levies?

Call Kerin Benson Lawyers on 02 6140 3270 or email allison@kerinbensonlawyers.com.au or enquiries@kerinbensonlawyers.com.au

ACT Case note: Recovering costs in levy recovery matters

On 20 November 2015 ACAT heard a levy recovery matter and made a decision that has a significant impact on all strata levy recovery matters commenced in ACAT. The case was The Owners – Units Plan 840 V Richardson (Civil Dispute) [2015] ACAT 77.

What was the case about?

The owners corporation sought to recover unpaid strata levies, interest and its expenses of taking the ACAT action under section 31 of the Unit Titles Management Act 2011 ACT (the Act). The costs of a previous ACAT action to recover levies were also claimed.  In the previous ACAT matter default judgment had been awarded. The owners corporation applied for a redirection order in the Magistrates Court, the lot owner applied to set aside the default judgment and stay the redirection order and while the amount under the default judgement was ultimately paid, legal expenses were not.

The owners corporation argued that:

  • as a matter of public policy the Act provides that the costs of recovering levies is to be met by the defaulting lot owner;
  • the expenses incurred under section 31 were for costs incurred for steps ancillary to the failure to pay levies;
  • the steps taken by the owners corporation were necessary and reasonable; and
  • the quantum of the owners corporation’s costs was reasonable.

Section 31 of the Act permits an owners corporation to recover expenses as a debt from the lot owner if in carrying out its functions it incurred an expense or carried out work due to either a wilful or negligent act or omission by a lot owner or occupier or a breach of its rules.

The lot owner argued that there was no need to incur costs as he would have paid the levies if the levy recovery procedure of the owners corporation been followed. He also argued that the costs of the enforcement action should have been argued at the time of the enforcement proceedings.

What was the decision?

ACAT held that section 31 of the Act operates to create a statutory debt which does not require a court or Tribunal to find the money payable and that “[t]he right to recover expenses under section 31 is not an automatic award of indemnity for all costs incurred by an owners corporation”.

To recover costs under section 31 the following criteria must be met:

  • there must be a “default” by the owner or occupier of the unit;
  • as a result of the default the owners corporation took action within its functions;
  • in taking the action the owners corporation incurred an expense;
  • the action taken by the owners corporation was reasonably necessary; and
  • the amount of the expense is reasonable.

The ACAT considered whether section 31 of the Act, which acts to make a lot owner responsible for expenses prior to an order being made, could apply to legal costs incurred in ACAT matters. Section 48 of the ACT Civil and Administrative Tribunal Act 2008 (the ACAT Act) provides that parties in an ACAT matter must bear their own costs unless ACAT makes an order otherwise.

The ACAT held that section 31 of the Act conflicted with section 48 of the ACAT Act. Paragraph 83 of the decision sets out the key finding which was:

“Costs incurred in tribunal proceedings are not recoverable by the owners corporation as a section 31 expense unless they have been ordered to be paid by the Tribunal or the ACAT Act otherwise provides.”

ACAT also held that the word “costs” under section 48 of the ACAT Act should be given its ordinary and natural meaning and should not be limited to legal professional costs and disbursements. Costs were awarded in the matter for some of the owners corporation’s claims.

ACAT also considered section 31 costs in respect of ACT Magistrates Court matters and held that unlike in the tribunal an application for section 31 costs could be made in the same proceedings.

What does this mean?

Costs can be claimed in certain circumstances in ACAT. Applications for legal costs in ACAT should be brought under section 48(2) of the ACAT Act rather than section 31 of the Act.

Claims for legal costs in the ACT Magistrates Court under section 31 can, and should, be made in the levy recovery proceedings.

This decision is currently under appeal and we understand that all levy recovery matters in ACAT have been or will be adjourned until after the appeal is determined.

Note this decision is currently under appeal.

Any questions about recovering strata levies?

Call Kerin Benson Lawyers on 02 6140 3270 or email allison@kerinbensonlawyers.com.au or enquiries@kerinbensonlawyers.com.au

Recovering legal costs in levy recovery actions in the ACT: Good news for owners corporations

Section 31 of the Unit Titles (Management) Act 2011 (ACT) (the Act) enables an owners corporation to recover expenses from a lot owner if such expenses relate to work conducted by the owners corporation because of a wilful or negligent act or omission by an owner or occupier, or because of a breach of the rules of the units plan by an owner or occupier. This provision has been considered in the context of levy recovery proceedings.

The Federal Court’s decision in the case of The Proprietors Units Plan No 52 v Patricia Isobel Gold [1993] FCA 385 held that (the then equivalent of) section 31 of the Act creates a statutory debt, for which the owner is liable as soon as the amount of the owners corporation’s expenditure can be ascertained. The Court held that non-payment of contributions was a clear breach of the rules of the units plan, and the expenditure of costs for legal action taken to recover such contributions was both rendered necessary by the debtor’s failure to pay and considered reasonable in the circumstances. This decision overturned an earlier Supreme Court decision, which had found section 31 did not apply to levy recovery proceedings.

The Federal Court decision was then applied in Hugh Russell Ford v The Owners Units Plan No. 259 [2012] ACAT 59. This is a particularly interesting decision as ACAT (the ACT Civil and Administrative Tribunal) is primarily a non-costs jurisdiction. This means that costs are usually not awarded, subject to very particular circumstances.

However, the Tribunal found that it was empowered to award costs in levy recovery proceedings brought under the Act because of the existence of section 31. Importantly, the costs awarded in this case were reduced due to a lack of “efficient” handling of the proceeding by the owners corporation. This suggests that even though costs can be awarded by the Tribunal, the amount of costs will be subject to the discretion of the Tribunal and the reasonableness of costs incurred will be assessed.

The result of these decisions is good news for owners corporations wishing to recover unpaid contributions from its lot owners. Not only are reasonable legal costs likely to be ordered payable by the debtor, but the possibility of having to pay the debt, interest and legal costs in addition may provide further incentive for the debtor unit owner to pay the debt without the need for court or Tribunal proceedings.

For more information about recovery of unpaid contributions, please contact Allison Benson of our office.

Allison Benson
Legal Practitioner Director
Ph: (02) 4032 7990
E: allison@kerinbensonlawyers.com.au

Is bankruptcy the best option? Considerations when contemplating bankruptcy proceedings against debtor lot owners

Once judgment is obtained against a debtor lot owner, there are various enforcement options that may be canvassed by the owners corporation. If the judgment debt (which includes interest and legal costs) is $5,000 or more, one of the enforcement options open to owners corporations is issuing a bankruptcy notice with a view to commencing bankruptcy proceedings against the debtor lot owner.

If the debtor is subsequently made bankrupt and a trustee in bankruptcy is appointed, it is possible that the trustee in bankruptcy may sell the debtor’s property in order to raise funds to distribute to creditors.

As strata managers would be aware, payment of levies (and any other debt recorded on the section 109 certificate) are usually paid out of the proceeds of settlement when a lot owner sells his or her property. Otherwise, the new owner will be stuck with an obligation to pay the previous owner’s strata debts.

However, in the case of a sale of property by the trustee in bankruptcy, there is no guarantee that debts recorded on the section 109 certificate will be paid automatically from the proceeds of sale. This is because strata levies do not fall within the scope of priority payments (pursuant to section 109 of the Bankruptcy Act 1966) and are not classified as debts owed to a secured creditor. This means that a secured creditor, such as a caveator (someone who has lodged a caveat on the title of the debtor’s property) or a mortgagee (usually a bank) both take priority to owners corporations in order of payment.

Creditors may decide, by special resolution at a creditor’s meeting, that the owners corporation should be given preference in receiving payment above other creditors or classes of creditors, subject to certain statutory priorities set out in the Bankruptcy Act. However, there is no guarantee that the then-available settlement funds will be adequate to pay the whole of the debt owed to the owners corporation.

Prior to commencing bankruptcy proceedings, we recommend conducting a title search on the debtor’s property to ascertain if there are any mortgages and/or caveats registered on title. Further searches of any mortgages and caveats can then be undertaken at minimal cost, to provide the owners corporation with more information as to the pecuniary position of the debtor and to assist in the making of an informed choice when it comes to taking enforcement action.

To discuss bankruptcy proceedings or enforcement options available to owners corporations, please contact either:

Allison Benson –

Legal Practitioner Director
Ph: (02) 4032 7990
E: allison@kerinbensonlawyers.com.au

Angie Rennie – 

Lawyer
Ph: (02) 8706 7060
E: angie@kerinbensonlawyers.com.au

Debt Collectors v Lawyers – When is it time to call in the Legal Professionals?

When seeking to recover unpaid strata levies, it is natural for Owners Corporations to want a fast result with as little money spent as possible. For this reason, many may shy away from enlisting the assistance of lawyers, fearing excessive legal fees will result in more money being spent than saved. But this is not always the case.

Acting as Agent

Debt collectors act as agents for Owners Corporations. This means that Owners Corporations may be held responsible for the actions of their debt collectors. If improper conduct is alleged against the debt collector, the Owners Corporation may quickly find itself embroiled in legal proceedings instigated by the very debtor from whom the Owners Corporation is trying to recover levies.

If Owners Corporations use debt collectors, they should carefully monitor the actions taken by the debt collectors and should familiarise themselves with the Debt Recovery Guidelines. (For more information on the Debt Recovery Guidelines, see our article “Debt Recovery Guidelines: Are You Following Appropriate Procedure?”)

Paying Double?

If debt collectors are unsuccessful in recovering the debt, the Owners Corporation may refer the matter to lawyers for legal action. This means the Owners Corporation may have to pay the debt collector fees for recovery attempts as well as paying legal fees to the lawyers.

Quite often a letter of demand from a law firm carries more weight than a similar letter issued by debt collectors. If lawyers are approached from the outset, Owners Corporations can save money by not paying two different businesses to do the same job. Whereas many debt collection agencies charge commission on successful levy recovery, Kerin Benson Lawyers does not, so Owners Corporations may end up with more money in their pocket.

It’s Complicated

If a debtor disputes a debt, puts forward a settlement offer or wants to negotiate a payment arrangement, there are certain pitfalls that must be avoided to ensure the interests of the Owners Corporation are properly protected. Kerin Benson Lawyers provide Owners Corporations with practical, sound advice on resolving disputes and recovering unpaid levies, ensuring Owners Corporations are legally protected in the event that the debtor defaults or challenges the debt.

For cost-effective, pragmatic advice on debt recovery, please contact:

Allison Benson Angie Rennie
Legal Practitioner Director Lawyer
Ph: (02) 4032 7990 Ph: 02 8706 7060
E: allison@kerinbensonlawyers.com.au E: angie@kerinbensonlawyers.com.au

 

New Debt Collection Guidelines: Are you following the appropriate procedure?

In July 2014, Australian Security Investments Commission (ASIC) and Australian Competition and Consumer Commission (ACCC) jointly released a publication entitled “Debt Collection Guideline: for collectors and creditors” (the Guideline). The Guideline is a timely reminder to Owners Corporations that certain practices must be observed when chasing a recalcitrant debtor for non-payment of levies.

Respect thy debtor

Owners Corporations should ensure any communications with the debtor regarding unpaid levies are made in an appropriate manner and with the debtor only. Owners Corporations should:

  • Ensure contact addresses (e.g. postal address, email address) are current prior to revealing details of the debt by that medium
  • Avoid contacting the debtor at the workplace where possible
  • Not broadcast details of the debt to tenants, co-workers, family or friends of the debtor
  • Respect the debtor and avoid using discriminatory, aggressive or threatening language and/or behaviour towards the debtor

Failure to respect the privacy of the debtor can constitute a breach of the Privacy Act and end up causing more problems for the Owners Corporation. Similarly, aggressive language or unnecessarily frequent contact may be perceived as harassment or coercion.

Documentation is key

Owners Corporations should maintain accurate records in respect of their correspondence and/or attempted communication with the debtor. Records should include:

  • The date, time and location of any discussion, including the names of people present
  • The exact terms of any payment proposal or settlement discussion
  • The date(s) and method(s) by which instalment payments are made to reduce the debt

Honesty is the best policy

Misleading a debtor as to the creditor’s intentions or misrepresenting the potential consequences of non-payment of a debt can constitute misleading conduct and breach Commonwealth consumer protection laws. If a lot owner disputes the debt, Owners Corporations should obtain legal advice.

For assistance with recovering unpaid levies or for more information on debt recovery services, please contact Kerin Benson Lawyers.

Newcastle Sydney
 Ph: (02) 4032 7990  Ph: 02 8706 7060
E: enquiries@kerinbensonlawyers.com.au E: enquiries@kerinbensonlawyers.com.au
Canberra  
 Ph: (02) 6140 7061
E: enquiries@kerinbensonlawyers.com.au