Gannon v The Owners - Strata Plan No 14403
[2013] NSWSC 1916
•19 December 2013
Supreme Court
New South Wales
Medium Neutral Citation: Gannon v The Owners - Strata Plan No 14403 [2013] NSWSC 1916 Hearing dates: 8 May 2013 Decision date: 19 December 2013 Jurisdiction: Common Law Before: Hall J Decision: (1) Leave to appeal granted but such leave limited to the order sought in paragraph 1(b) of the Amended Summons;
(2) Leave to the parties to file and serve any affidavit evidence and provide further written submissions in respect of the quantum of expenses arising in respect of order 1 above in accordance with an agreed timetable.
Catchwords: STRATA TITLES - appeal from Local Court - order made for unpaid levies "special levies" pursuant to s 76(4) of the Strata Schemes Management Act 1996 (SSM Act) - order made by Local Court for expenses incurred in recovering unpaid levies pursuant to s 80(1) of the SSM Act based on estimate of costs provided by owners corporation's solicitors
GROUND 1 - the Local Court erred in upholding the levy under s 76(4) - special levy validly raised by owners corporation by reason that it was faced with other expenses it could not at once meet from its administrative or sinking fund - evidence before Local Court that owners corporation had been issued with Fire Safety Order by the council - evidence that estimate provided to owners corporation by a consultancy as to cost of complying with the Order - evidence available that the financial position of owners corporation before special levy raised would not be sufficient to meet the cost of the estimate - s 76(4) must be considered in context of the SSM Act including ss 75, 75A and the other subsections of 76 - s 76(4) must be construed in terms of an "estimate" rather than a particular total cost - ground not made out
GROUND 2 - the Local Court erred in awarding expenses under s 80 of the SSM Act - owners corporation was entitled pursuant to s 80 to recover expenses incurred in recovering unpaid levies - evidence before Local Court insufficient to establish the proper quantum of expenses in relation to legal costs - appropriate course is for legal costs to be assessed - parties permitted to file affidavit evidence and submissions as to the quantum of s 80 expenses claimed in the Local CourtLegislation Cited: Legal Profession Act 2004
Local Court Act 2007
Strata Schemes Management Act 1996
Strata Schemes Management Regulation 2010Cases Cited: Branson v Tucker [2012] NSWCA 210
Burrell Socliitors Pty Ltd v Reavill Farm Pty Ltd (No 2) (2011) 16 BPR 31
Catzel v The Owners, Strata Plan 468 [2011] NSWSC 370
Project Blue Sky Inc v Australian Broadcasting Authority (1998) 194 CLR 355
Merrill Lynch International (Australia) Ltd v Commissioner of Taxation (2001) 113 FCR 79
Nilsen Development Laboratories Pty Ltd v The Federal Commissioner of Taxation of the Commonwealth of Australia (1981) 144 CLR 616
The Owners - Strata Plan 36131 v Dimitrou (2009) 74 NSWLR 370
Wilson v State Rail authority [2010] NSWCA 198Category: Principal judgment Parties: Joanne Gannon (Appellant)
The Owners - Strata Plan No 14403 (Respondent)Representation: Counsel:
D Knoll (Appellant)
P Klooster (Respondent)
Solicitors:
In person (Appellant)
Gilbert M. Johnstone & Co (Respondent)
File Number(s): 2012/187028 Decision under appeal
- Date of Decision:
- 2012-12-22 00:00:00
- Before:
- Magistrate Pierce
- File Number(s):
- 2011/312516
Judgment
By Amended Summons filed on 12 November 2012, the appellant appeals to this Court from a judgment entered against her by His Honour Magistrate Pierce on 22 May 2012 in the General Division of the Local Court. The appellant was the defendant and the respondent was the plaintiff in those proceedings.
The appellant seeks the following orders:
(1) The orders of the learned Magistrate be set aside and varied as follows:
(a) To reduce the judgment debt by $31,800; and/or
(b) To reduce the judgment debt by $15,473.82.
(2) Costs as agreed or assessed to be paid to the Plaintiff by the Defendant.
The Amended Summons contains three appeal grounds as follows:
(1) The Court erred in upholding the levy of $600,000 on 23 September 2010 under section 76(4) of the Strata Schemes Management Act 1996 (SSM Act)
(2) The Court erred in awarding as expenses under section 80 of the SSM Act legal costs in the sum of $15,473.92.
(3) The Defendant Owners Corporation did not make a decision to commence proceedings against the Plaintiff pursuant to section [80D] of the SSM Act and so the proceedings were unauthorised and void ab initio.
The appellant relies on her affidavit of 13 March 2013 pursuant to UCPR Rule 50.14 which exhibits all the evidence before the Local Court as well as the transcript to those proceedings.
Section 39(1) of the Local Court Act 2007 (LCA) provides:
"39 Appeals of right
(1) A party to proceedings before the Court sitting in its General Division who is dissatisfied with a judgment or order of the Court may appeal to the Supreme Court, but only on a question of law."
Section 40 of the LCA provides:
"40 Appeals requiring leave
(1) A party to proceedings before the Court sitting in its General Division who is dissatisfied with a judgment or order of the Court on a ground that involves a question of mixed law and fact may appeal to the Supreme Court but only by leave of the Supreme Court."
Background
The respondent is the Owners Corporation under the SSM Act in respect of premises at Kings Cross, Strata Plan 14403, which consists of 21 units. The appellant is the registered proprietor of Lot 15 and Unit 15 in Strata Plan 14403.
The respondent proceeded before the Local Court on Statement of Claim dated 29 September 2011. The respondent sued to recover the following:
Description
Amount
Outstanding levies in relation to Lot 15 and Unit 15 from 1 September 2010 to 31 May 2011
$15,255.16
Expenses incurred in recovering previous outstanding levies pursuant section 80(1) of the SSM Act up to 29 September 2010
$243.90
$15,490.06
Interest at 10% pursuant to s 79 of the SSM Act to 29 September 2011
$990.34
Interest at 10% pursuant to s 79 of the SSM Act on $15,490.06 from 30 September 2011 to 22 May 2012 (236 days at $4.23 per day)
$998.81
Legal costs up to and including completion of hearing (claimed as expenses incurred pursuant section 80(1) of the SSM Act)
$15,473.92
TOTAL
$32,953.13 (plus court costs of $460.00)
The outstanding levies claimed by the respondent comprised (a) periodic contributions to the administrative fund and the sinking fund (ordinary levies) from 1 December 2010 to 31 May 2011 totalling $1,880.05 and (b) what is described as "special levies" due in three $5,300 instalments less payment of $2,524.89 received by the respondent (Exhibit JG-1 p 390).
The respondent relied on the Affidavits of David Terry, Licensed Strata Manager, sworn 19 April 2012 and David Lamb, solicitor, sworn 20 April 2012.
Mr Terry was a Strata Manager employed by G K Strata Management Pty Ltd, a company that was appointed Managing Agent for the respondent on 24 June 2003. Mr Terry produced a number of business records which were exhibited to his affidavit and formed Exhibit DT-1.
Mr Lamb was the solicitor director of law firm Gilbert M Johnson & Co, solicitors acting for the respondent, and produced a number of documents including a Costs Disclosure addressed to the respondent dated 27 March 2012 and tax invoices sent to the respondent from the period 9 December 2011 to 17 April 2012 totalling $2,990.00 which were exhibited to his affidavit and formed Exhibit DL-1.
Mr Lamb's affidavit also provided an estimate of the costs and expenses associated with preparing the respondent's affidavit and for the one day hearing including counsel's fees to be $15,933.92.
The appellant was self-represented in proceedings in the Local Court. The appellant filed a defence on 7 November 2011 and attached to it an affidavit sworn by her on 7 November 2011 which annexed a bundle of documents.
The main contention by the appellant before the Local Court was that the levies were not due and payable because the respondent had failed to comply with the relevant provisions of the SSM Act, and in particular, the "special levy" was not owing because it was excessive, unnecessary and not properly raised.
No objection was taken to the affidavit of the appellant and the matter proceeded on the basis that the appellant was putting the respondent to strict proof that the levies had been raised in compliance with the provisions of the SSM Act.
The learned Magistrate entered judgment in favour of the respondent for the amounts claimed. No reasons were given (Exhibit JG-1 pp 193.42, 196.20).
Facts
The following facts are not in dispute.
On 12 May 2010, the City of Sydney Council (the Council) issued a Fire Safety Order on the respondent (Exhibit JG-1 p 90).
Sometime between 1 April to 21 August 2010, the Executive Committee on behalf of the respondent engaged a consultant, Trevor R Howse & Associates Pty Ltd (the Consultancy) to address the Fire Safety Order (Exhibit JG-1 p 283).
On 28 July 2010, a submission was made to the Council on behalf of the respondent by the Consultancy to modify the Fire Safety Order (Exhibit JG-1 p 90).
On 31 August 2010, the Council agreed to modify the original Fire Safety Order (Exhibit JG-1 p 90).
On 1 September 2010, the Consultancy prepared a list of works (Scope of Works) that needed to be carried out in order for the Fire Safety Order to be satisfied.
The Executive Committee, in consultation with the Consultancy, estimated that $600,000 was required to carry out the Scope of Works (Exhibit JG-1 pp 57, 160).
Mr Terry, in evidence on 22 May 2012, Exhibit JG-1 p 160, gave evidence that the Consultancy had provided the Owners Corporation with "the costings" and a representative from the Consultancy attended the meeting in September 2010 to assist the owners with their decision (at lines 20-26).
On 23 September 2010, a motion was resolved at an Extraordinary General Meeting (the EGM) to acknowledge the Notice of Modification of Fire Order issued by the Council dated 31 August 2010 and determine an additional contribution to the administrative fund under s 76(4) of the SSM Act. The Notice of the EGM contained particulars of the motion in the following terms:
(a) To carry out the works required under Order by the Council and any other remedial work associated with the Order;
(b) The amount to be raised being $600,000;
(c) The number of instalments be six;
(d) The additional contributions being due and payable equally on 1 December 2010, 1 March 2011, 1 June 2011, 1 September 2011, 1 December 2011 and 1 March 2012 (Exhibit JG-1 pp 287-288).
The appellant did not attend the Extraordinary General Meeting.
Statutory Scheme
The SSM Act establishes a statutory scheme for the management of properties governed by strata title.
The regime for the levy of contributions by an owners corporation is set out in Division 2 of Part 3 of the SSM Act.
Three types of levies are specifically identified in Division 2 of Part 3 of the SSM Act - contributions to the administrative fund, the sinking fund and "special levies".
"Ordinary levies" - contributions to the administrative fund and sinking fund
At each annual general meeting an owners corporation must estimate how much money it will need to credit to its administrative fund and sinking fund for actual and expected expenditure on a range of matters: ss 75(1) and (2) of the SSM Act.
When estimating amounts needed to be credited to the administrative fund and the sinking fund the owners corporation must have before it, and take into account, a statement of the existing financial situation of the strata scheme and an estimate of receipts and payments: s 75(3) of the SSM Act.
An owners corporation must determine the amounts to be levied to raise the estimated amount and do so at the same meeting at which those estimated amounts are determined: ss 76(1) and (2).
Schedule 2 of the SSM Act sets out requirements in relation to meetings of owners corporations including notice requirements and other procedural matters. Section 14 of the SSM Act provides that Schedule 2 applies to an owners corporation.
Section 78(1) of the SSM Act provides:
"An owners corporation levies a contribution required to be paid to the administrative fund or sinking fund by an owner of a lot by serving on the owner a written notice of the contribution payable."
However s 78(6) also provides that:
"Regular periodic contributions to the administrative fund and sinking fund of an owners corporation are taken to have been duly levied on an owner of a lot even though notice levying the contributions was not served on the owner."
"Special levies"
Section 76(4) of the SSM Act provides:
"If the owners corporation is subsequently faced with other expenses it cannot at once meet from either fund, it must levy on each owner a contribution to the administrative fund, determined at a general meeting of the owners corporation, in order to meet the expenses." (emphasis added)
As special levies are not "regular periodic contributions to the administrative fund and sinking fund" pursuant to s 78(6), s 78(1) will apply which requires that an owners corporation serve written notice on the owner of the contribution payable.
The term "special levy" is not used in the SSM Act. Nothing turns on the name; the levy raised pursuant to this section will be referred to as a special levy in this judgment.
Ground 1 - The Court erred in upholding the levy of $600,000 on 23 September 2010 under section 76(4) of the SSM Act
The Appellant's Submissions
The Local Court determined that the appellant did not pay levies validly made.
The appellant does not challenge the validly of the ordinary levies made pursuant to s 76(1) of the SSM Act.
However, the appellant claims that the decision of the Local Court to uphold the respondent's claim insofar as it concerned levies raised pursuant to s 76(4) of the SSM Act ("special levies") was infected with legal error and must be set aside.
The appellant argues that before a special levy is resolved by an owners corporation, the owners corporation must be "faced with other expenses it cannot at once meet from either" the administrative or sinking funds and that this prerequisite was not met.
The appellant contends that the only documents which were in evidence before the Local Court that are relevant to the question of whether s 76(4) was complied with are:
(a) Notice for the EGM held on 23 September 2010 with its annexures (Exhibit JG-1 pp 277-286)
(b) Resolution passed as it appears in the Minutes of the EGM dated 28 September 2010 (Exhibit JG-1 pp 287-288).
The appellant contends that none of the documents identify any amount which would constitute an expense with which the owners corporation "faced" and which had to be paid "at once" as at 23 September 2010. The Notice of EGM contained particulars of the motion as extracted above at [26].
The appellant notes that the Defence filed in the Local Court alleged that the figure of $600,000 was "unsubstantiated" and that there was an absence of "independent and competitive quotes".
The appellant submits that the Modified Fire Safety Order dated 31 August 2010 (referred to at [22]), the Scope of Works prepared by the Consultancy (referred to at [23]) and the financial statements from the financial year to date 1 April 2010 to 31 August 2010 (Exhibit JG-1 pp 101-106 - which were not before the Local Court) do not identify any expense to be met by the respondent.
The appellant also notes that on 14 September 2010 at the time Notice of the EGM was given, the respondent had not obtained quotes for the Scope of Works.
The appellant contends that there is no evidence (other than a statement of the amount itself) of the expenses which the respondent had to meet nor was there evidence circulated with the Notice of EGM or reported in the minutes of the EGM which reflected the immediacy requirement.
The submission for the appellant was that:
"...the owners at a general meeting must have before them the quotes so that they can identify the amount of expense, be satisfied that the expense must be met 'at once', compare that expense to the balance of the sinking fund, and then make the necessary determination under subsection 76(4) of the SSM Act... The Defendant Owners Corporation was never in a position to do that. The statutory pre-requisites were not met, and consequently, the passing of a resolution under subsection 76(4) was necessarily invalid" (Outline of Submissions for the Plaintiff at [40]).
Further, and in the alternative, the appellant contends that there must at least have been the relevant evidence before the general meeting and that the only evidence put before the Local Court as to what was before the relevant general meeting was the Minutes of the EGM at Exhibit JG-1 p 287. No evidence, in the appellant's submission, was tendered to the Local Court which would address the evidentiary prerequisites for a resolution under s 76(4) of the SSM Act.
The appellant submits that the absence of necessary evidence constitutes legal error sufficient to uphold this ground of appeal.
The respondent's submissions
The respondent submits that the there are two problems with the appellant's submission:
(a) It is based on an improper interpretation of s 76(4) of the SSM Act; and
(b) Even if the appellant's interpretation were correct, there was evidence before the Local Court to satisfy the requirements being advanced by the appellant under s 76(4)
The respondent referred to the principles of statutory construction enunciated from Project Blue Sky Inc v Australian Broadcasting Authority (1998) 194 CLR 355 at [60]-[71], [78] in Wilson v State Rail authority [2010] NSWCA 198 at [13] and submits that the language used in s 76(4) does not support the restrictive approach taken by the appellant. When each word is given its natural and ordinary meaning, in the respondent's submission, s 76(4) prescribes one situation where a special levy must be raised (ie. where there are insufficient funds in the administrative or sinking fund to meet expenses), but does not prescribe the only situation where a special levy can be raised.
The respondent submits that the SSM Act does not prevent an Owners Corporation from attempting to raise a special levy in another situation. The respondent points to the regime in the SSM Act pursuant to s 14 and schedule 2 which ensures that each lot owner is provided sufficient notice of general meetings and is provided an opportunity to be heard and vote on particular motions at those meetings.
The respondent further submits that the appellant's interpretation of s 76(4) effectively restricts what motions may be considered at general meetings and that this is inconsistent with the overall objects of the SSM Act. The respondent places particular reliance on the phrase "provide for the resolution of disputes" under s 3(b) of the SSM Act. Section 3 provides:
"3 Objects of Act
The objects of this Act are:
(a) to provide for the management of strata schemes..., and
(b) to provide for the resolution of disputes arising in connection with the management of strata schemes"
The respondent submits that there is nothing in the SSM Act or the relevant regulations that prevents a particular owner from placing a motion for consideration at a general meeting, including a motion seeking to raise a special levy. The respondent points to clause 36(1) of Part 2 in Schedule 2 of the SSM Act which provides an express power for any person entitled to vote at a general meeting to request a motion be included in the agenda of the next general meeting.
The respondent notes that s 76(4) is not written in similar terms to s 80D of the SSM Act which creates a mandatory prohibition on an Owners Corporation from taking certain steps (ie. taking legal action) unless certain requirements have been met (ie. a resolution is passed at a general meeting). The phrase "must not" which is included in s 80D does not appear in s 76(4).
In the alternative, the respondent argues that even if the appellant's interpretation of s 76(4) is adopted, there was evidence before the Local Court to establish the evidentiary prerequisites. The respondent relies on the evidence referred to at [19] - [26] above as well as the evidence of Mr Terry to establish that the respondent was faced with an expense (the costs to carry out the Scope of Works) which it lacked the requisite funds to pay for "at once".
The respondent notes that proper notice of the EGM was provided to the appellant as well as levy notices in respect of the special levy raised at the EGM prior to the levy instalment falling due in accordance with the SSM Act.
The respondent notes that the appellant's arguments before the Local Court attempted to establish that the sum of $600,000 was excessive but did not adduce any expert evidence to support that argument.
The respondent notes that to the extent that proposed levies are excessive or unreasonable, the appropriate course of action for an owner to take is to make an application to the Consumer, Trader and Tenancy Tribunal under s 149 of the SSM Act.
In addition, the respondent submits that the question of whether the sum was excessive is not relevant when determining whether the special levy was properly raised in accordance with the SSM Act. At [36] of the Defendant's Submissions, the respondent pointed to the evidence given by Mr Terry in cross-examination that:
"(a) The strata managing agent played no role in estimating the cost of the compliance with the amended fire safety order (Exhibit JG-1 p 158.14)
(b) The estimates were provided to the owners corporation by its engaged consultant Trevor Howse (Exhibit JG-1 p158.14)
(c) a representative of the engaged consultant attended an Executive Committee meeting prior to the September 2010 General Meeting and assisted the Executive Committee [to] formulate the estimate of $600,000 to carry out the works required to comply with the amended fire safety order (Exhibit JG-1 p 160.18-39)
(d) At the General Meeting in September 2010 the owners at that meeting relied on that information in order to assess their financial requirements and they set a Special Levy (Exhibit JG-1 p 158.14)
(e) The structure of the building required changing in order to comply with the fire order which is why it was going to be expensive (Exhibit JG-1 p 163.8-14)
(f) the summary of work carried out in order to comply with the Fire Order as at the date of the hearing (Exhibit JG-1 p 169.1-19)
(g) the works are normal works that one would expect to [be] needed to be done to satisfy a fire order, particularly in light of a building of that age (Exhibit JG-1 p 174.36-44)
(h) An explanation as to why the costs of the proposed works was $600,000 (Exhibit JG-1 p 176.10-49)".
The respondent outlines the financial position and notes that in September 2010 there was a total of $20,760.29 in the administrative and sinking funds and a cash balance of $25,032.21.
The respondent notes that the appellant conceded that neither the SSM Act or relevant regulations set out specific requirements as to particulars to be included in a notice of a General Meeting. The respondent contends that the appellant has provided no authority to support the submission that evidence upon which a decision can be made must be provided to the Owners Corporation nor any authority to support the submission that the resolution passed at the EGM was invalid because no actual costing was provided to those in attendance at that meeting.
Consideration
The contention advanced in the submissions for the appellant was that for the special levy to be imposed it was essential that there was available, before a resolution could be validly adopted, material that established the actual amount of the expense to be incurred. In the Local Court the appellant had contended that there had been an absence of "independent and competitive quotes": Exhibit JG-1, p 14.
The submissions for the appellant sought to support this contention by a process of construction of the provisions of Division 2 - Levy of contributions in the SSM Act.
The provisions of s 76 are to be considered in the context of its companion provisions, including in particular, those contained in ss 75 and 75A.
Section 75(1), in relation to the administrative fund, speaks in terms of an "estimate" of how much money the Owners Corporation will need to credit to the fund for "actual and expected expenditure". Clearly this provision does not require such estimate to have a level of precision that requires quotes of what actual or expected expenditure might be.
Section 75(2) again requires an "estimate" for a sinking fund for "actual and expected expenditure" at the annual general meeting of an owners corporation.
The "Notes" to s 75(2) again speaks of "estimates" of expenditure.
Section 76(4) provides:
"If the owners corporation is subsequently faced with other expenses it cannot at once meet from either fund, it must levy on each owner a contribution to the administrative fund, determined at a general meeting of the owners corporation, in order to meet the expenses."
Section 76(1) speaks of a determination of the owners corporation of amounts to be levied as a contribution to the administrative and the sinking fund "to raise the amounts estimated as needing to be credited to those funds". Again, what is required is an estimate not a calculated precise amount.
The wording of s 76(4) is significant. It speaks of an owners corporation being "subsequently faced with" what is termed "other expenses it cannot at once meet... " etc and imposes an obligation on it to levy on each owner a contribution etc "in order to meet the expenses".
The terms of s 76(4) are quite general. The provision does not speak of a liability for expenses incurred or to be incurred. Hence the phrase "subsequently faced with": which carries the meaning of an owners corporation being confronted with the prospect of expenses which may not be capable of precise calculation in terms of a particular amount or actual cost. Maintenance or capital repairs may be subject to variables that prevent such precise quantification based on quotes from contractors. Consistent with the provisions of ss 75, 75A and 76, the legislature obligation must be construed in terms of an "estimate" rather than a particular total cost, the latter often being incapable of final or absolute calculation.
Accordingly, the appellant's contention to the contrary does not find support in the provisions, properly construed, contained in s 76(4) of the Act.
The evidence before the Local Court (as outlined above at [18]-[27]) establishes that before the "special levy" arose for consideration there had been a history commencing with a Fire Safety Order issued by the Council on 12 May 2010.
The Executive Committee of the respondent engaged a qualified consultant, being the Consultancy referred to at [20] above, to address the original Fire Safety Order.
On 28 July 2010, a representative from the Consultancy made submissions to the Council on behalf of the respondent.
On 31 August 2010, the Council agreed to modify the original Fire Safety Order.
On 1 September 2010, the Consultancy prepared a Scope of Works that needed to be carried out. Some of those works were substantial.
The Executive Committee, in consultation with the Consultancy, made an estimate of $600,000 for carrying out the Scope of Works: see evidence of Mr Terry, Strata Manager.
In that respect, the evidence in cross-examination at T46, 22 May 2012 established that costings had been undertaken:
"Q. So you still stand that there were no estimates put together, by GK Strata Management?
A. That's correct.
Q. So the Owners' Corporation would have had to come up with 600,000 estimate before the extraordinary meeting?
A. No the Owners' Corporation voted to accept the recommendations of its appointed consultant, Trevor Howse, who provided the costs and the representative from their company attended that meeting in September 2010 to assist the owners with their decision.
Q. Sorry, what meeting was that?
A. The extraordinary general meeting.
Q. Trevor Howse was there?
A. No, I don't know if there is a Trevor Howse. That's the name of the organisation.
Q. It's - his representative Jay?
A. No, it was a gentleman by the name of Steven Sard.
Q. Who's from?
A. Trevor Howse.
Q. And along with the estimates and the quote from Trevor
Howse, what were the other two quotes?
A. It wasn't a quote, it was an estimation of the likely cost to satisfy a fire order." (Local Court Transcript at 46)
The evidence established that the appellant was made aware of the estimate of costs that had been made before the Extraordinary General Meeting held on 23 September 2010. In particular in an email to her dated 14 September 2010 the Strata Manager, Ms DiPalma advised the appellant:
"At this stage the $600,000 is an estimate of costs determined by the executive committee. We are seeking a fire consultant to provide 3 proper quotes from contractors for all works" (Exhibit JG-1 p 57).
The evidence established that at the time the Special Levy was raised there was $7,807.23 in the administrative fund and $13,153.60 in the sinking fund, a net cash balance of $20,760.29.
There was no expert evidence, either at the Extraordinary General Meeting or before the Local Court, that established $600,000 as an excessive or an erroneous estimate.
On the construction of s 76(4) to which I have referred, it is clear that the respondent was faced with an expense, being the estimated cost of the Scope of Works, and that it did not have the funds to meet such expense. There was evidence before the Local Court that an Extraordinary General Meeting was properly called (Exhibit JG-1 pp 277-286), and a Resolution was passed properly raising the special levy (Exhibit JG-1 pp 287-288). This ground is therefore not made out.
Ground 2 - The Court erred in awarding as expenses under section 80 of the SSM Act legal costs in the sum of $15,473.92.
Section 80 of the SSM Act provides:
"80 How does an owners corporation recover unpaid contributions and interest?
(1) An owners corporation may recover as a debt a contribution not paid at the end of one month after it becomes due and payable, together with any interest payable and the expenses of the owners corporation incurred in recovering those amounts.
(2) Interest paid or recovered forms part of the fund to which the relevant contribution belongs."
Appellant's submissions
The appellant submits that even if Ground 1 does not succeed, the learned Magistrate made an appealable error by making an award under s 80 of the SSM Act. The appellant referred to the decision in The Owners - Strata Plan 36131 v Dimitrou (2009) 74 NSWLR 370 at [40] and [116] and submits that the respondent had to prove that the expenses were incurred, were incurred reasonably and were reasonable in amount. The appellant submits that there was no evidence before the Local Court that these criteria were met.
The appellant referred to the affidavit of Mr Lamb which exhibited tax invoices and court costs totalling $2,990 and included an estimate of $15,933.92 as the costs and expenses associated with preparing the respondent's affidavit and for the one day hearing including counsel's fees.
Beyond the sum of $2,990, in the appellant's submission, there was no evidence before the Local Court that went any further than an estimate of costs. The appellant further submits that an estimate of costs is not evidence of expenses actually incurred, expenses reasonably incurred, nor of reasonableness of their amount.
The appellant submits that pursuant to s 80 of the SSM Act, the expenses must be incurred, or must have been incurred at the time the order was sought. This need not be an expense that has been paid but an obligation to pay it must already have arisen. The appellant submits that the Local Court made an award without the necessary evidence being before it and therefore fell into legal error.
The appellant referred to Handley AJA remarks in Dimitrou at [132]:
"The owners corporation must be prepared to prove by evidence at the trial that the expenses claimed were reasonable in amount and were reasonably incurred. Its claim to such expenses is in the nature of quantum meruit."
The appellant noted that His Honour then went on to say at [134] - [136] that if the legal expenses cannot be provided before the Court, the owners corporation can still obtain the usual costs order and recover assessed costs but that that is not what happened before the Local Court in this matter.
The appellant also made submissions in relation to the proper construction of the term "incurred" and referred to the taxation cases of Nilsen Development Laboratories Pty Ltd v The Federal Commissioner of Taxation of the Commonwealth of Australia (1981) 144 CLR 616 and Merrill Lynch International (Australia) Ltd v Commissioner of Taxation (2001) 113 FCR 79
The appellant made the further following submissions:
(1) There was a costs disclosure by Gilbert M. Johnstone & Co exhibited to the affidavit of Mr Lamb (Exhibit JG-1 pp 340-343 and 346-348) but no costs agreement before the Local Court. A costs disclosure is not an offer in terms to enter into a costs agreement;
(2) A costs agreement between Gilbert M. Johnstone & Co and Mr Kooster of counsel appears to be exhibited at Exhibit JG1 pp 344-345) but no costs disclosure preceding it by the barrister to the solicitors. Even assuming that the barrister's costs agreement constitutes disclosure under s 310 of the Legal Profession Act 2004 (LPA), it did not comply because it did not contain any estimate of the fees payable to the barrister. Further, the document specifies that it is intended to be a costs agreement under s 322(1)(c) of the LPA and therefore was not in terms the necessary costs disclosure.
(3) Under s 317 of the LPA where there is a failure to make a costs disclosure, a legal practitioner is not entitled to be paid until the relevant costs are assessed. Consequently, there were no fees payable to the barrister in the absence of such an assessment, and there was not evidence of such an assessment before the Local Court.
(4) In the circumstances where there is disclosure but no costs agreement, subsection 319(1)(c) of the LPA provides that the solicitors are entitled to recover "the fair and reasonable value of the legal services provided". Until there is either an assessment by a costs assessor that is registered with the Court or an assessment by the Court, no amount would be recoverable by the solicitors: Burrell Socliitors Pty Ltd v Reavill Farm Pty Ltd (No 2) (2011) 16 BPR 31, 071; Branson v Tucker [2012] NSWCA 210.
(5) The foregoing therefore demonstrates that at the time the Local Court made the order, there was only expenses incurred in the sim of $2,990 which could form the subject matter of an order under s 80 of the SSM Act.
The respondent's submissions
The respondent submits that the evidentiary material relied upon in relation to expenses under s 80 was the affidavit of Mr Lamb and noted that Mr Lamb was not required for cross-examination on his affidavit and there was no contrary evidence raised at the hearing as to the reasonableness of the costs or the reasonableness for them to have been incurred.
In the Defendant's Written Submissions at [45] the respondent outlines that the affidavit of Mr Lamb establishes that:
"(a) On 27 March 2012 Mr Lamb entered into a Costs Agreement with counsel;
(b) On 27 March 2012 Mr Lamb provided a costs disclosure to the [respondent] setting out the estimated costs of completing the matter including disbursements;
(c) Mr Lamb enclosed Tax Invoice for legal services provided prior to 27 March 2012 to date in the sum of $2,990.00, with those legal services being charged in accordance with the Costs Disclosure; and
(d) Mr Lamb provided (as best he could) an estimate of further legal costs incurred to complete that matter. It is submitted that Mr Lamb provided this estimate at a time when the pleadings and evidence was closed and the issues between the parties had crystallised."
The respondent also referred to the decision in Dimitrou where Hodgson JA said at [47] - [48] that when considering the words "together with", s 80 of the SSM Act meant that a claim for expenses, including legal costs, must be made in the same proceedings as the claim for the outstanding contributions.
The respondent submits that its approach is consistent with the procedure outlined by Hodgson JA and that the appellant's submission that the expenses must have actually been incurred is inconsistent with Hodgson JA advocating that a plaintiff provide "the best particulars it can".
The respondent submits that even if the construction of "incurred" relied upon by the appellant by reference to the two taxation cases (see [95] above) is adopted, at the time Mr Lamb's affidavit was sworn, the proceedings were at the final stages and the costs being sought by the respondent had been incurred.
The respondent submits that there was evidence before the Local Court to satisfy the reasonableness of the costs and there was no contrary evidence on that issue, therefore there is no foundation to the appellant's challenge as to the award made under s 80 of the SSM Act.
The respondent also addressed the appellant's submissions in relation to the costs agreements and costs disclosures between Gilbert M Johnstone & Co and counsel.
The respondent submits that there is no requirement for a barrister to provide a costs disclosure to a client pursuant to s 310(2) of the LPA; a barrister must disclose to an instructing solicitor the information necessary for the instructing solicitor to comply with subsection 310(1) of the LPA.
The matters an instructing solicitor is obliged pursuant to s 310(1) of the LPA to disclose to the client are set out in s 309(1)(a), (c) and (d) of the LPA. The respondent submits that so long as there is sufficient information in the Costs Agreement provided by a barrister for an instructing solicitor to inform the client of the matters set out in those subsections, then no costs disclosure from the barrister is required.
The respondent submits that the Costs Agreement provided by counsel to Gilbert M Johnstone & Co contained sufficient detail for the solicitors to comply with s 310(1) of the LPA.
The respondent notes that the appellant seeks to rely on s 317 of the LPA which states that where there is a failure to provide a costs disclosure, a legal practitioner is not entitled to be paid until the relevant legal costs are assessed. In the Defendant's Written Submissions at [55], it was submitted that s 317 does not apply because:
"(a) the barrister was not required to provide a costs disclosure to the respondent pursuant to s 310(1) of the LPA;
(b) the Costs Agreement provided by the barrister provided sufficient information for the instructing solicitor to ascertain an estimate of the barrister's total fees for the matters, especially given the instructing solicitor's knowledge of the matter and experience as a legal practitioner;
(c) the instructing solicitor made a costs disclosure to the respondent in accordance with s 309 of the LPA."
The submission for the respondent was that nothing turns on the alleged failure by Gilbert M Johnstone & Co to enter into a costs agreement with the respondent, that there was evidence before the Magistrate to satisfy the reasonableness of the costs and that there was no contrary evidence in relation to that issue.
Consideration
In my view, the two questions for determination in respect of this ground of appeal are whether:
(1) the costs and expenses had been incurred by the respondent; and
(2) they were reasonable in the requisite senses.
There was no point raised or argued as to whether leave to appeal in relation to costs and expenses raised a question of law or a mixed question of fact and law requiring leave. The issue raised by the appellant concerning the legal costs was essentially a "no evidence" point which arguably raised a question of law. The question of legal costs arises in respect of the principal claim in the Local Court for recovery of unpaid levies which would indicate it is appropriate that I proceed to deal with the issue of legal costs and expenses.
The respondent's submission proceeds on the basis that Mr Lamb had deposed in his affidavit affirmed 20 April 2012 at [7]:
"To the best of my ability, I estimate the total costs and expenses, including Counsel's fees and preparation of the Plaintiff's Affidavit and for a one day hearing with Counsel for this matter will be $15,933.92."
A Costs Disclosure dated 27 March 2012 addressed to the respondent from Gilbert M. Johnstone & Co was exhibited to that affidavit (Exhibit JG-1 pp 340-343). Under "3. Estimate of Costs" it provides (Exhibit JG-1 p 341):
"The following estimate is based on the information available to me/us to date. It is an estimate, not a quotation and subject to change.
Gilbert M Johnstone & Co estimates the cost of the work to determination after a 1 day hearing before a Magistrate to be:
Fees: $9,900
Expenses & Disbursements subject to GST: $6,033.92
TOTAL: $15,933.92.
They may, and probably will, change when more information is available to me/us. The major factors which will affect the estimates are:" (Original emphasis)
The Costs Disclosure does not continue to outline what these "major factors" may be.
Under "10. Costs in court proceedings" it provides (Exhibit JG-1 p 342):
"...
10.2 If you are successful in the litigation the following is the range of costs that may be recovered from the other party. The sums below are merely estimates, but are calculated on the basis that Section 80 of the Strata Schemes Management Act 1996 may allow full recovery of the Owners Corporation's expenses:
10.2.1 prior to hearing: $11,241.92
10.2.2 up to and including a single day's hearing: $15,933.92" (Original emphasis)
The hearing before the learned Magistrate was on 22 May 2012. The evidence establishes that as at two dates prior to the hearing, namely, 27 March 2012 and 20 April 2012, Mr Lamb and/or his firm estimated the costs and expenses associated with the matter as being $15,933.92. Presumably no other relevant information became available between those two dates so as to affect that estimate.
As Hodgson JA remarked in Dimitrou at [37]:
"[expenses of the owners corporation incurred in recovering] contributions would extend to legal costs and disbursements only to the extent that such costs and disbursements are reasonably incurred and reasonable in amount; and the owners corporation claiming such costs and disbursements would have to prove this in order to obtain a judgment for them."
In considering whether the costs recoverable under s 80 of the SSM Act extend to the difference between party/party costs and amounts actually expended, his Honour concluded at [40] that the most appropriate basis in terms of how costs are assessed under statutory provisions was party/party costs on the ordinary basis under s 364 of the Legal Profession Act 2004.
Section 364 provides:
"364 Assessment of costs-costs ordered by court or tribunal
(1) In conducting an assessment of legal costs payable as a result of an order made by a court or tribunal, the costs assessor must consider:
(a) whether or not it was reasonable to carry out the work to which the costs relate, and
(b) whether or not the work was carried out in a reasonable manner, and
(c) what is a fair and reasonable amount of costs for the work concerned.
(2) In considering what is a fair and reasonable amount of legal costs, a costs assessor may have regard to any or all of the following matters:
(a) the skill, labour and responsibility displayed on the part of the Australian legal practitioner or Australian-registered foreign lawyer responsible for the matter,
(b) the complexity, novelty or difficulty of the matter,
(c) the quality of the work done and whether the level of expertise was appropriate to the nature of the work done,
(d) the place where and circumstances in which the legal services were provided,
(e) the time within which the work was required to be done,
(f) the outcome of the matter.
(3) An assessment must be made in accordance with the operation of the rules of the relevant court or tribunal that made the order for costs and any relevant regulations.
(4) If a court or a tribunal has ordered that costs are to be assessed on an indemnity basis, the costs assessor must assess the costs on that basis, having regard to any relevant rules of the court or tribunal and relevant regulations."
During the course of oral submissions, Mr Klooster, on behalf of the respondent indicated that in one sense Mr Lamb's estimate of $15,933.92 was somewhat unclear as to whether those costs were on a party/party or solicitor/client basis. In light of that ambiguity, it is noted that that sum equates to the estimate Mr Lamb's law firm provided to the respondent in its Costs Disclosure under "3. Estimate of Costs" and "10. Costs in court proceedings".
Section 309(1) of the Legal Profession Act 2004 outlines the matters which a law practice must disclose to a client in a Costs Disclosure. The matters referred to include disclosure of (1) the client's rights in respect of various matters (2) an estimate of the total legal costs or range of costs; (3) details of the intervals (if any) at which the client will be billed and (4) avenues that are open to the client in the event of a dispute in relation to legal costs. It is apparent that the information disclosed in a Costs Disclosure is more appropriately considered as relating to the costs as between solicitor and client rather than party/party costs. While I note that the Costs Disclosure under "10. Costs in court proceedings" averts to the fact that the estimates are calculated on the basis that s 80 of the SSM Act purportedly allows for recovery of those costs, I nevertheless find that Mr Lamb's estimate, as disposed to before the learned Magistrate, was on a solicitor/client basis.
As correctly conceded by the respondent, the onus is on the owners corporation to demonstrate that the costs and expenses were reasonable in the requisite senses. While it is noted that the appellant did not cross-examine Mr Lamb in relation to the estimate he provided, given that the respondent bears the onus of proof, the appellant was entitled to put the owners corporation to strict proof during the course of the hearing below. The net effect of that course was that there was no other evidence before the learned Magistrate that could conceivably go to the reasonableness of the expenses in terms of amount or way in which they were incurred.
As the respondent noted in submissions, Hodgson JA later concluded in relation to recovery proceedings where arrears for contributions had been paid after the commencement of those proceedings that:
"[47] In such proceedings, there could be a claim made for all legal costs and expenses up to and including the hearing of the proceedings, with the plaintiff giving the best particulars it can of those costs and expenses at appropriate times. An owners corporation seeking a judgment for expenses would generally need to be in a position to prove, at the hearing of the proceedings, what expenses had been incurred, that such expenses had been reasonably incurred and that the expenses were reasonable. Such proof could extend to the costs of the hearing itself, but not the costs of enforcement of any judgment, which at that stage would be speculative. If, as apparently happened in this case, that proof was not available at the hearing, the owners corporation may have to seek an adjournment to obtain the necessary evidence, which adjournment could of course be refused. Alternatively, as pointed out by Handley AJA, the magistrate could exercise the power under s 353(2) of the Legal Profession Act so that the legal expenses are referred for assessment."
Handley AJA in that decision (at [132]-[136]) noted that the correct construction of s 80(1) did not preclude such costs being assessed pursuant to Division 11 of the LPA. A lot owner facing a claim for recovery of expenses incurred by an owners corporation is defined as a "third party payer" pursuant to s 302A and as such is entitled under s 350(1) to have the costs assessed by a costs assessor provided the appropriate steps are taken before the Court gives judgment.
If those steps are not taken in time (as appears the position in the present case), it will still be open to the Court of its own motion or on the application of either party to refer a claim for legal expenses to a costs assessor. The Court could give an interlocutory judgment in favour of the owners corporation for those expenses as defined in the judgment and exercise the power pursuant to s 353(2) to direct the Manager, Costs Assessment to refer for assessment the legal expenses payable under the that part of the judgment. Final judgment for the legal expenses as assessed can be entered later when the certificate of the costs assessor under s 368 becomes available: Dimitrou at [134].
There is no doubt that the respondent is entitled to the cost of the expenses incurred in recovering unpaid contributions pursuant to s 80(1). However the quantum awarded by the Local Court is not properly supported by the evidence adduced in the hearing below. The estimate provided by Mr Lamb, as noted above, is more accurately considered as being provided on a solicitor/client basis. In my view, a referral for assessment of the legal costs incurred by the respondent pursuant to s 353 of the LPA may be the most appropriate course to take. I note however that such a referral will certainly, and regrettably, increase the costs already incurred in this protracted matter. The preferred course would, of course, be for the parties to reach an agreement on the quantum of expenses pursuant to s 80(1). With that in mind, I will consider further written submissions from the parties in that respect.
I note that the appellant made submissions in relation to the construction of the term "incurred". That issue, as well as the two related questions for consideration in relation to this ground referred to at [109] do not require determination pending further submissions referred to at the end of this judgment.
Ground 3 - The Defendant Owners Corporation did not make a decision to commence proceedings against the Plaintiff pursuant to section 80D of the SSM Act and so the proceedings were unauthorised and void ab initio.
Section 80D of the SSM Act provides:
"80D Legal action to be approved by general meeting
(1) An owners corporation or executive committee of an owners corporation must not seek legal advice or the provision of any other legal services, or initiate legal action, for which any payment may be required unless a resolution is passed at a general meeting of the owners corporation approving the seeking of the advice or services or the taking of that action.
(2) The regulations may make provision for or with respect to exempting any type of legal service or legal action from the operation of this section."
Regulation 15 of the Strata Schemes Management Regulation 2010 (the Regulation) provides:
"15 Exemptions from need for approval for certain legal action
...
(3) The seeking of legal advice, the provision of legal services or the taking of legal action is exempt from the operation of section 80D of the Act if its purpose is to recover unpaid contributions and interest under section 80 of the Act."
The appellant contends that pursuant to s 80D of the SSM, legal action for the recovery of money must be approved by an owners corporation and that there is no evidence of a resolution to commerce proceedings against the appellant nor of a resolution to take recovery action in respect of levy arrears generally.
The respondent submits that when s 80D of the SSM Act is read in conjunction with regulation 15 of the Regulation, the respondent is not required to pass a resolution at a General Meeting where the seeking of legal advice or the taking of legal action is for the purpose of recovering unpaid levy contributions and interest pursuant to s 80 of the Act. The respondent referred to my remarks in Catzel v The Owners, Strata Plan 468 [2011] NSWSC 370 at [53] to support this submission. I accept that submission. Section 80D of the SMM Act and the Regulation are clear in their terms with Regulation 15 plainly providing an exemption to the operation of s 80D which applies in the present case. The appellant, quite correctly, did not press this ground at the hearing.
Accordingly, as no relief is sought it is not necessary to consider whether any question of leave to appeal arises in respect of Ground 3.
I make the following orders:
(1) Leave to appeal granted but such leave limited to the order sought in paragraph 1(b) of the Amended Summons;
(2) Leave to the parties to file and serve any affidavit evidence and provide further written submissions in respect of the quantum of expenses arising in respect of order 1 above in accordance with an agreed timetable.
The only residual issue arising in respect of the relief sought in the Amended Summons is the quantum of referred to in paragraph 1(b) of the Amended Summons. In that respect I will consider the question of the quantum in light of any further evidence and submissions of the parties.
I will then determine the order, if any, to be made in respect of the s 80 expenses ordered by the Local Court.
I will also make any final orders in light of these reasons for judgment.
I will in due course receive submissions on any application for the costs of the present proceedings.
I otherwise grant either party liberty to apply in respect of any further procedural directions.
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Decision last updated: 07 January 2014
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