By way of two debt applications, the applicant community title corporation (the applicant) sought the recovery of unpaid levies and associated collection expenses owed by the respondent lot owners pursuant to section 37 of the Community Titles Act 2001 (CT Act). The respondents did not contest that they owed the levies, but argued that some or all of the collection and legal expenses incurred during the recovery process were not recoverable under section 37 of the CT Act as they were “not reasonable expenses, reasonably incurred”, as per the “double reasonableness” test for the recovery of enforcement expenses set out In The Matter of Ruling Tribunal Section 31 of the Unit Titles (Management) Act 2011 (Civil Dispute) [2017] ACAT 56 (the ruling tribunal decision).

The applicant claimed section 37 expenses for both matters, including hearing fees and counsel fees, well in excess of $18,000.

The applicant sought to show that the respondents owed the levies, had failed to pay the levies, had entered into several installment arrangements but failed to comply with them, and that the costs incurred in trying to recover those levies through debt collection processes and the Tribunal had, accordingly, been reasonable costs, reasonably incurred.

In reply, the respondents argued that the section 37 expenses were not reasonably incurred because it was not necessary to take legal steps to recover the debts.

At the time of the hearing, section 37 of the CT Act was in substance the same as section 31 of the Unit Titles (Management) Act 2011 (UTM Act). Section 31 of the UTM Act provides for the recovery of legal professional costs and disbursements, company title searches, filing fees and administrative costs and disbursements incurred, including in enforcement proceedings in the Magistrates Court, provided those expenses met the ‘double reasonableness test’– that is, that:

it was reasonable for the owners’ corporation to incur expenses of the type … and the amount of each component of the expenses sought is reasonable.

The parties agreed that the same test should be applied to section 37.

The Tribunal noted that section 31 of the UTM Act has since been amended by section 116 of the Courts and Other Justice Legislation Amendment Act 2018 to expressly provide that an “expense includes … a legal expense relating to a proceeding in the ACAT”. A note was also added to section 48 of the ACT Civil and Administrative Tribunal Act 2008 to make it clear this is an exception to the usual practice that costs are not recoverable in the Tribunal. The Explanatory Statement to the Bill provided that the purpose of these amendments is to:

clarify that the recovery of an expense by an owners’ corporation for a units plan can include a reasonable legal expense reasonably incurred in ACAT proceedings (an associated amendment has been made to the Unit Titles (Management) Act 2011.)

It was not clear why amendments had been made to the UTM Act and not the CT Act but the Tribunal was of the view that the reasoning of the ruling tribunal decision in relation to section 31 clearly applied, by analogy, to section 37 of the CT Act. The ‘double reasonableness’ test was therefore adopted.

In the usual course, counsel would not be expected to appear on a debt recovery matter but given the serious allegations made against the manager and solicitor it was appropriate that the parties be allowed counsel to defend their reputations. Had the allegations been less serious, the Tribunal may well have considered otherwise. Further the costs incurred by counsel in this case were not disproportionate to the costs that would have been incurred by a solicitor.

On any view, the legal expenses claimed were considerable and it was quite extraordinary that two claims to recover cumulative levies of less than $1,000, on initial applications (including section of 37 expenses) claiming less than $3,000 cumulatively, have resulted in expenses approaching $19,000. The costs were not self-evidentially unnecessary or excessive, having regard to the kind of allegations made by the respondents, the detailed chronology and documentation submitted to address them, and the fact the expenses were incurred in the context of a one and a half day hearing of two contested applications. But the costs are indicative of why the justice system is often seen as out of reach of ordinary people. The threat of these kinds of costs orders is one of the reasons why tribunals are usually either no-cost, or subject to a broad prohibition on the engagement of fee-charging lawyers or agents without leave. A claim for unpaid fees under the UTM Act or the CT Act is subject to neither limitation, and nor are they limited to scale costs or costs recoverable on a party-party basis. The consequences of this, for good or ill, are evident in this case.

The Tribunal was concerned that some of the preparation costs were likely incurred more for the purpose of defending the reputation of the applicant’s manager and solicitor than being ‘required’ to recover the levies, but from a practical perspective, the way the respondents ran their case made the two aspects inseparable.

This is one of those unfortunate cases where relatively small debts have become very large debts as a consequence of collection and legal expenses. The costs are, arguably, completely disproportionate the debt itself, but I am not convinced that they are disproportionate to the work undertaken to collect that debt.

Hence, the actions of the applicant corporation could not, in all the circumstances, and particularly in the context of the respondents’ consistently avoidant conduct, be said to be unreasonable. The recovery action was justified. The expenses were reasonable and reasonably incurred.