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

Important Changes to NSW Levy Recovery

The owners corporation is responsible for recovering unpaid contributions levied against owners. The Strata Schemes Management Act 2015 (the Act) came into force after 30 November 2016 and introduced some important changes to the levy recovery process.
Pursuant to section 86 of the Act the owners corporation must not commence legal proceedings to recover an unpaid contribution unless it has first provided the defaulting owner with 21 days notice of the action. When recovering contributions the owners corporation must firstly issue a letter of demand to the owner which takes into account the 21 day notice period.
A letter of demand must also include specific information which is prescribed by the Act and the Strata Schemes Management Regulations 2016 (the Regulations). The letter of demand must set out:

  1. The amount of the contribution, interest or expenses sought to be recovered;
  2. The recovery action proposed;
  3. The date the amount was due to be paid;
  4. Whether a payment plan may be entered into; and
  5. Any other action that may be taken to arrange for payment of the amount.

It is important that any letter of demand meets the requirements of the Act to avoid delays or unnecessary costs incurred by commencing proceeding without taking the important preliminary steps.
As part of the recent changes to NSW levy recovery the owners corporation can now commence proceedings in the NSW Civil and Administrative Tribunal or the in a Court of competent jurisdiction. The Tribunal cannot enforce judgments once orders have been made. Therefore if levy recovering proceedings are commenced in the Tribunal the order will have to be filed in the Court of competent jurisdiction before enforcement proceedings can commence. The jurisdiction of the Court is determined by the amount of the claim. Amounts up to $100,000 fall within the jurisdiction of the Local Court.

If you require any assistance or have any questions on the above, please contact Kerin Benson Lawyers on (02) 8706 7060 or email 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

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

 

Using Bankruptcy Proceedings in Levy Recovery: What happens if the debtor pays down the debt?

Once judgment has been granted in a levy recovery matter the Owners Corporation should seriously consider applying for the issue of a bankruptcy notice.

When is a bankruptcy notice possible?

To obtain a bankruptcy notice in levy recovery matters the judgment debt must be over $5,000 and the lot owner(s) must be individuals (not companies).

Why a bankruptcy notice?

A bankruptcy notice is the first step in being able to commence proceedings to bankrupt someone. After it is served, the debtor has 21 days within which to come to a payment arrangement with the Owners Corporation, pay the amount claimed or to apply to have it set aside. If they do not do any of these things they have committed an act of bankruptcy and the Owners Corporation can file a creditor’s petition seeking a sequestration order (this is the technical name for a bankruptcy order).

A bankruptcy notice is an extremely powerful tool in debt recovery especially when the debt relates to strata levies. The reason being is that the debtor lot owner has something valuable that they want to protect; their apartment. If a sequestration order is made and a trustee appointed to the debtor’s bankrupt estate, one of the first things the trustee will do is to consider whether there are any assets such as a unit that can be sold to pay out creditors.

What happens if the debtor pays down the judgment debt after the act of bankruptcy?

This is one of the most common questions we are asked. Quite simply, if a debt of over $5,000 is owed to the Owners Corporation when the act of bankruptcy is committed (i.e. 21 days after the bankruptcy notice is served) then as long as the debt is liquidated (such as a strata levy) it can be the basis of a creditor’s petition and the bankruptcy proceedings can be initiated.

This is helpful as due to the time between filing a claim for the debt and judgment being awarded often other levies have fallen due and payable. Provided these levies were due and payable before the act of bankruptcy they can be added to any amount outstanding under the judgment debt (including the post judgment interest). Often a debtor will pay down the amount owed under the judgment debt to under the $5,000 mark and not realise that other levies that are due and payable can also be claimed as part of the debt in a creditor’s petition.

For assistance with levy recovery action please contact Kerin Benson Lawyers on these details:

Kerin Benson Lawyers

Allison Benson

Email: allison@kerinbensonlawyers.com.au or enquiries@kerinbensonlawyers.com.au

Date: 22 July 2014

 

Meeting Notices: Why it is vital to get the timing right

When recovering strata levies or defending an application by a lot owner in respect of the validity of a meeting, it is essential that you have good processes in place and can demonstrate that you have followed these processes when sending meeting notices and levy notices.

In a relatively recent NSW case, the Supreme Court was critical of an Owners Corporation who had commenced levy recovery proceedings against a debtor lot owner. The lot owner was successful on a number of points. Although a NSW case the principles also apply in the ACT.

What happened?

The Owners Corporation sent notices for a general meeting out to lot owners by post on Tuesday 17 January. The general meeting was held on 30 January and at this meeting a special levy was raised. The lot owner fell into arrears. When the Owners Corporation took action to recover the strata levies the lot owner challenged the validity of the 30 January meeting on the basis that inadequate notice of the meeting had been provided.

The Court determined that the Owners Corporation, to prove a meeting notice was sent, must be able to satisfy the Court that:

  1. the meeting notice was correct;
  2. the notice was placed in to an envelope;
  3. the envelope was properly addressed;
  4. the correct postage was paid for the envelope; and
  5. the envelope was physically deposited in a mailbox or post office.

The Court found Clause 32 of Schedule 3 of the Strata Schemes Management Act 1996 (NSW) required at least seven clear days’ notice of a general meeting must be provided. This time frame excludes the postal service rule under the Interpretation Act 1987 (NSW) which deems service to be effected on the fourth working day after the notice was posted. What this means is that the meeting notice was deemed served on Monday 23 January (the fourth working day after the notice was posted). With seven days’ notice required the meeting could not validly have been held until 31 January. Therefore the special levy was invalid.

What do I need to do to ensure the meeting is validly held?

  • Be aware of the postal rule. The date of deemed service is the fourth working day after the notice is posted (s32 Interpretation Act 1987 (NSW) & s160 Evidence Act 2011 (ACT))
  • Make sure that the notice period for the meeting is strictly adhered to. In NSW this is 7 clear days’ notice (Schedule 2, cl 32) and in the ACT this is 14 or 21 days’ notice depending on the motion (Schedule 3, cl 3.6); and
  • Keep a record of the date the notices were sent, who sent them and that your office processes were adhered to.

Kerin Benson Lawyers

Author: Allison Benson

Email: allison@kerinbensonlawyers.com.au

Date: 15 July 2014