JANEBA and THE OWNERS OF BULIMBA GROVE VILLA STRATA PLAN 3266
[2020] WASAT 38
•7 APRIL 2020
JURISDICTION : STATE ADMINISTRATIVE TRIBUNAL
ACT: STRATA TITLES ACT 1985 (WA)
CITATION: JANEBA and THE OWNERS OF BULIMBA GROVE VILLA STRATA PLAN 3266 [2020] WASAT 38
MEMBER: MS C BARTON, MEMBER
HEARD: 17 FEBRUARY 2020
DELIVERED : 7 APRIL 2020
FILE NO/S: CC 1495 of 2019
BETWEEN: BEDRICH JANEBA
Applicant
AND
THE OWNERS OF BULIMBA GROVE VILLA STRATA PLAN 3266
Respondent
Catchwords:
Strata scheme - Reserve fund - Special levy for professional legal fees - Validity of special levy - Meaning of contingent expense - Whether contributions levied are excessive - No order for variation of levy
Legislation:
State Administrative Tribunal Rules 2004 (WA)
Strata Titles Act 1985 (WA), s 36, s 36(1), s 36(2), s 36(2)(a), s 42B, s 81(1), s 83(1), s 99(1)
Result:
Application dismissed
Category: B
Representation:
Counsel:
| Applicant | : | In Person |
| Respondent | : | Mr P Monaco |
Solicitors:
| Applicant | : | N/A |
| Respondent | : | GV Lawyers |
Case(s) referred to in decision(s):
Clark and The Owners of Rosneath Farm - Strata Plan 35452 & Ors [2007] WASAT 85
Grenside and The Owners of Upper Eastside Apartments Strata Plan 41133 [2008] WASAT 229
REASONS FOR DECISION OF THE TRIBUNAL:
Introduction
Mr Bedrich Janeba (applicant) is the owner of Lot 11 on Strata Plan 3266 (Strata Plan) located at No. 4 Bulimba Road, Nedlands. The respondent is The Owners of Bulimba Grove Villa Strata Plan 3266 (Strata Company) which is the strata company for the strata scheme known as Bulimba Grove Villa (Scheme).
On 14 August 2019, the Strata Company raised a special levy in the amount of $28,000 for legal expenses incurred by the Strata Company to meet legal claims (Special Levy). The Special Levy was raised by contributions of $2,000 per unit entitlement, there being 14 lots in the Scheme each with a single unit entitlement.
This is an application under s 99(1) of the Strata Titles Act 1985 (WA) (ST Act) seeking variation of the Special Levy of $28,000 to zero, or to such other amount that the Tribunal finds appropriate or reasonable, on the basis that the amount of contributions levied per lot is excessive.
The applicant also seeks an order from the Tribunal under s 83(1) of the ST Act that the Special Levy was not levied in accordance with s 36(1) or s 36(2) of the ST Act.
The issues for determination by the Tribunal
The issues for the Tribunal to resolve are:
1)was the Special Levy validly levied?; and
2)if the answer to 1) is in the affirmative, is the Special Levy excessive?
The statutory framework relating to the levying of contributions
A strata company may establish a reserve fund in accordance with s 36(2) of the ST Act. Section 36 of the ST Act relevantly provides:
36.Levy of contributions on proprietors
(1)A strata company shall -
(a)establish a fund for administrative expenses that is sufficient in the opinion of the company for the control and management of the common property, for the payment of any premiums of insurance and the discharge of any other obligation of the strata company; and
(b)determine from time to time the amounts to be raised for the purposes described in paragraph (a); and
(c)raise amounts so determined by levying contributions on proprietors -
(i)in proportion to the unit entitlements of their respective lots; or
(ii)where a by-law referred to in section 42B or an order under section 99A is in force, in accordance with that by law or order;
…
(2)A strata company may -
(a)establish a reserve fund for the purpose of accumulating funds to meet contingent expenses, other than those of a routine nature, and other major expenses of the strata company likely to arise in the future; and
(b)determine from time to time the amounts to be raised for the purpose described in paragraph (a); and
(c)raise amounts so determined by levying contributions on the proprietors in proportion to the unit entitlements of their respective lots[.]
If a strata company establishes a reserve fund under s 36(2) of the ST Act, a s 42B by-law may provide that contributions are to be levied on lot owners otherwise than in proportion to the unit entitlement of their respective lots. If there is no s 42B by-law (as is the case in this proceeding), the contributions of the lot owners must be in accordance with the unit entitlement of their respective lots: Grenside and The Owners of Upper Eastside Apartments Strata Plan 41133 [2008] WASAT 229 at [39].
If the Tribunal finds that the contributions levied under s 36 of the ST Act are excessive, as contended by the applicant in this proceeding, the Tribunal may order variation of the amount levied as set out in s 99(1) of the ST Act. Section 99(1) of the ST Act provides:
99.Order for variation or manner of payment of contributions
(1)Where, pursuant to an application by a proprietor or by a mortgagee in possession (whether by himself or another person) for an order under this section, the State Administrative Tribunal considers that any amount of contributions levied under section 36 is inadequate or excessive, or that the manner of payment of contributions is unreasonable, the State Administrative Tribunal may -
(a)order variation of the amount; or
(b)order payment of contributions in a different manner; or
(c)make orders under paragraphs (a) and (b).
Under s 81(1) of the ST Act, the Tribunal may make an order that is expressed in different terms from the order sought by the applicant provided it does not differ in substance to the order sought. The applicant is seeking the Tribunal order variation of the Special Levy of $28,000 to zero (or such other amount that the Tribunal finds appropriate or reasonable). The applicant is not seeking an order for payment of contributions ($2,000 per lot owner) in a different manner.
The applicant is also seeking an order from the Tribunal under s 83(1) of the ST Act that the Special Levy is invalid because it was not raised for the purpose stated in s 36(2)(a) of the ST Act. That is, the purpose of accumulating funds to meet contingent expenses, other than those of a routine nature, or other major expenses of the Strata Company likely to arise in the future.
The conduct of the proceedings
The Tribunal made orders for the filing of written submissions, witness summaries and any documents on which the parties proposed to rely.
The applicant provided to the Tribunal written submissions dated 31 January 2020 with the following documents in support:
1)Minutes of EGM on 14 August 2019;
2)Approved Levy Posting - Special Levy determined 14 August 2019;
3)Notice of Special Levy - Legal Fees due 31 August 2019;
4)Income & Expenditure Statement, 1 January 2019 to 31 August 2019;
5)Minutes of Annual General Meeting on 9 March 2017;
6)Detailed Expenses, 1 January 2019 to 31 December 2019;
7)Income & Expenditure Statement for financial year, 1 January 2019 to 30 September 2019;
8)GV Lawyers Tax Invoice No. 36146 dated 16 August 2019;
9)Income & Expenditure Statement for financial year, 1 January 2019 to 31 December 2019;
10)Letter from applicant to lot owners dated 30 July 2019;
11)Insurance for Strata Scheme 3266 as at 1 February 2020; and
12)Minutes of Council of Owners meeting on 26 July 2019.
The applicant also filed two affidavits with the Tribunal sworn 3 February 2020.
The Strata Company provided to the Tribunal a written response to the application, documents in support and witness summaries. The Strata Company called the following witnesses to give evidence before the Tribunal:
1)Ms Vimala Amirthalingam (owner of Lot 5 and chairperson of the Council of Owners (Council));
2)Mr Adrian Baddeley (owner of Lot 13 and secretary of the Council);
3)Mr Peter Drummond (owner of Lot 12 and treasurer of the Council); and
4)Ms Christine Gow (strata manager from 12 May 2017).
Background to the dispute
The factual background to the dispute between the parties is summarised below:
1)The applicant has initiated a number of legal proceedings against the Strata Company.
2)The Council met on 26 July 2019 to discuss the series of legal actions brought by the applicant against the Strata Company, the proposed amendments to the schedule 1 bylaws, and the Special Levy. The minutes of the meeting record the following:
Discussions were held over the series of legal actions that have been lodged against the Strata Company initiated by [the applicant] and it was noted that [whilst] the Strata Company [has] successfully defended several actions, the workload is immense and the need to constantly defend these actions is taking away from the duties of the CoO and the Strata Manager.
It was noted that the actions are becoming more legally challenging and based on the recommendation of the Registrar of the Magistrates PreTrial meeting, legal advice should be obtained.
It was agreed that monies of $28,000 should be raised via Special Levy towards legal costs.
3)At an extraordinary general meeting of the Strata Company on 14 August 2019 (EGM), a resolution was moved to amend the by-laws of the Strata Company by adding a schedule 1 by-law for the costs recovery of unpaid contributions and other amounts (Debt Recovery By-Law).
4)The Debt Recovery By-Law was lost because it required a resolution without dissent. On the resolution being put, all but two of the lot owners were in favour. Those dissenting were the applicant and the owner of Lot 10 (for whom the applicant held a proxy).
5)At the same EGM, a Special Levy resolution was moved to raise the amount of $28,000 to meet legal expenses, with contributions in accordance with unit entitlement and due in one instalment payable on or before 31 August 2019. The Special Levy resolution was carried at the EGM.
6)The minutes of the EGM record the appointment of GV Lawyers to represent the Strata Company in any future or pending legal actions from any lot owner.
The applicant's case
The applicant's contentions may be summarised as follows:
1)The ST Act does not give the Strata Company power to raise special levies. The ST Act refers to two types of levies, namely, an administrative fund levy and a reserve fund levy.
2)A reserve fund was established by the Strata Company at an annual general meeting held on 9 March 2017 for the purpose of accumulating funds to pay unknown major expenses likely to arise in the future as per s 36(2) of the ST Act (Reserve Fund).
3)The purpose of the money raised and placed in the Reserve Fund must satisfy the requirements of s 36(2)(a) of the ST Act. The ST Act does not give the Strata Company power to use reserve funds for immediate (present) or past expenditure. Section 36(2)(a) of the ST Act restricts the use of the reserve funds to meet contingent expenses and other major expenses of the Strata Company that are likely to arise in the future.
4)One month after the EGM, the Strata Company improperly transferred funds from the Reserve Fund into the administration fund to pay for current and past legal expenditure contrary to s 36(2)(a) of the ST Act. The Strata Company did not have authority to make the transfer from the Reserve Fund.
5)The Special Levy is unreasonable, hugely excessive, unjustified and out of proportion to legal costs. On the day of the EGM, the Strata Company's legal costs were $3,418.52. The Special Levy was 8.2 times the value necessary to pay for the professional legal fees incurred by the Strata Company.
6)Despite the applicant advising the Strata Company on 30 July 2019 that no other legal action is anticipated or contemplated apart from the proceedings currently listed, the Strata Company levied $28,000 to cover its legal expenses. The figure of $28,000 is based on a prediction or expectation of the future without knowing what is going to happen. It is not based on facts.
7)By 31 January 2020, the Special Levy was still 3.1 times the value necessary to pay the professional legal fees incurred up to that date in relation to legal claims on foot or recently finalised.
8)The figure of $28,000 was described by the secretary of the Council at the EGM as a 'guestimate' and, therefore, the amount levied does not have any credible evidentiary basis. No details of how the amount was calculated are included in the minutes of the EGM.
9)The respondent's claim that the Special Levy is necessary due to the large number of legal claims by the applicant against the Strata Company is incorrect, baseless and without substance. A number of proceedings referred to by the respondent were authorised by the Strata Company against owners in the Scheme but taken in the applicant's name as a Council member. As an owner of Lot 11 for 36 years, the number of legal claims could not be viewed as a 'litigious history'.
The Strata Company's case
The Strata Company's contentions may be summarised as follows:
1)The combination of the proposed Debt Recovery ByLaw, Special Levy and appointment of GV Lawyers was intended to protect the Strata Company against persistent attack by the applicant.
2)The applicant has commenced a number of legal proceedings against the Strata Company in the Tribunal. One action has also been initiated by the applicant in the Magistrates Court. The applicant has requested documents from the strata manager, attended the office of the strata manager on numerous occasions in 2019 to inspect documents, and corresponded with the strata manager on a regular basis.
3)In light of the applicant's litigious history, the Strata Company considered it was good corporate governance that a Special Levy be raised to meet that contingency. The respondent accepts that some legal proceedings were issued in the applicant's name for and on behalf of the Strata Company against owners in the Scheme.
4)The Strata Company established the Reserve Fund for the purpose of accumulating funds to meet contingent expenses in accordance with s 36(2) of the ST Act.
5)The Special Levy of $28,000 was raised by $2,000 per lot, there being 14 lots in total in the Scheme, to meet legal expenses incurred by the Strata Company in relation to legal claims. The Special Levy will be used to engage GV Lawyers in respect of those claims.
6)The Special Levy is paid into the Reserve Fund and as invoices are rendered the Strata Council can approve payment for legal services. The funds are transferred from the Reserve Fund into the administration fund for payment.
7)Mr Baddeley stated in evidence that he had considered how much had been spent in legal fees by the Strata Company and how much would be required for the next 12-18 months. Mr Baddeley's estimate of $28,000 in legal expenses is on track.
8)At the EGM, 12 of the 14 lot owners approved payment of $2,000 into the Reserve Fund for the clear purpose of defending and providing appropriate legal support to the Strata Company for litigation, including any action by the applicant. The Special Levy was appropriately raised and should not be reduced.
The Tribunal's consideration
Was the Special Levy validly levied?
The applicant contends that the Special Levy was not raised for the purpose set out in s 36(2)(a) of the ST Act and, therefore, it was not validly levied.
If a strata company establishes a reserve fund under s 36(2)(a) of the ST Act, it must be for the purpose of accumulating funds to meet contingent expenses, other than those of a routine nature, and other major expenses of the strata company likely to arise in the future.
The term 'contingent' is defined in the Collins Online Dictionary as:
dependent on events, conditions etc, not yet known; conditional.
The applicant advised the Strata Company by letter dated 30 July 2019 that no further legal action is anticipated or contemplated by him and, therefore, in light of this information, the Strata Company did not have a proper basis to pass the Special Levy on 14 August 2019. The applicant contends that the Special Levy is based on a prediction or expectation of the future without knowing what is going to happen.
The Strata Company contends that it is likely to incur legal expenses to defend both current proceedings and any new proceedings commenced by the applicant in the future. In light of the applicant's history of initiating legal action, the Strata Company considers it is good governance to raise a Special Levy to meet that contingency.
The Tribunal accepts the evidence of the lot owners that a number of legal proceedings have been commenced by the applicant against the Strata Company. Mr Baddeley stated in evidence that he had a very strong impression after the first Tribunal application that things were going to get more litigious and more complicated. His strong conviction was that the Strata Company would need more legal help than in the past, which encompasses both court proceedings and the handling of correspondence.
Ms Gow gave evidence that as a result of an application heard in the Tribunal in 2018 and two subsequent actions lodged by the applicant, one in the Magistrates Court and another in the Tribunal, it was agreed at a Council meeting that it would be necessary for the Strata Company to engage the services of a lawyer and to call the EGM to raise the Special Levy. Ms Gow stated that the Strata Company had not budgeted sufficient money in its annual budget to cover these expenses. She also stated that the legal proceedings initiated by the applicant were becoming quite complex and more onerous to deal with by the Council and herself.
Section 36(2) of the ST Act expressly empowers a strata company to establish a reserve fund to meet large expenditures for which it is desirable to accumulate funds. The provision enables a strata company to set aside money for meeting non-routine expenses. The Tribunal finds that future expenses arising from legal proceedings (whether currently on-foot or anticipated) are contingent expenses and would not be considered routine expenses. Accordingly, the Tribunal finds that the Special Levy was raised for the purpose set out in s 36(2)(a) of the ST Act and, therefore, it was validly levied. The Tribunal further finds that the transfer of funds from the Reserve Fund to the administrative fund (to enable the payment of accounts rendered for legal services) does not invalidate the Special Levy.
In the decision of Clark and The Owners of Rosneath Farm - Strata Plan 35452 & Ors [2007] WASAT 85 (Clark) at [71], the Tribunal found that a professional fees levy raised under s 36(2) of the ST Act for future legal and accounting fees was excessive. Although the validity of the professional fees levy was not a live issue in that proceeding, the Tribunal's decision in Clark supports a finding that a reserve fund can be used legitimately for the purpose of accumulating funds for contingent legal expenses provided the amount levied is not excessive.
Is the Special Levy excessive?
The applicant contends that the Special Levy contributions levied under s 36(2) of the ST Act are excessive. He contends that the amount of $28,000 (or $2,000 per lot owner) has no credible evidentiary support and, therefore, the Tribunal should make an order under s 99(1) of the ST Act reducing the Special Levy to zero (or to such other amount that the Tribunal finds appropriate or reasonable).
The Tribunal heard evidence from Mr Baddeley, the secretary of the Council, who was called by the Strata Company. Mr Baddeley is a Professor of Statistics at Curtin University but was not called as an expert witness for the purposes of the State Administrative Tribunal Rules 2004 (WA). As a statistician, Mr Baddeley said that his job involves making calculations and predictions in the presence of uncertainty.
Mr Baddeley described in evidence how he had arrived at the figure of $28,000 as an estimate. Using the fee schedule for GV Lawyers and the average rate of new legal actions brought by the applicant (around 3, plus or minus 1 per year), Mr Baddeley calculated that the legal costs from the date of the EGM until the end of 2020 (approximately eighteen months) could be between $20,000 and $40,000. The uncertainty is large because the cost would depend on the number of cases and on their outcomes. A levy of $28,000 was proposed because it corresponds to a round figure of $2,000 per lot owner and lies near the middle value of $30,000 of the predicted interval of $20,000 and $40,000. The legal expenses were not in the existing budget so the Council agreed to raise special money to cover the expenses.
Ms Amirthalingam, Mr Baddeley, and Mr Drummond confirmed that the Special Levy was presented and passed at the EGM with an overwhelming majority of 12 of the 14 lot owners. Only two lot owners abstained, including the applicant and the owner of Lot 10 (who had provided her proxy to the applicant).
Mr Baddeley stated that he had been monitoring the accuracy of his prediction and that approximately $9,000 in legal fees had been incurred by the Strata Company as of 13 January 2020 (about a third of the way through the eighteen month period) and would extrapolate to $27,000 by the end of 2020. When challenged by the applicant about the potential uncertainty in his estimate, Mr Baddeley credibly stated in evidence that there was uncertainty in his estimate but that it was bearing itself out well. He said he was reasonably confident that it is the best estimate that one can have with the available information.
Mr Baddeley rejected the applicant's suggestion of using the figure of $3,418.52 (the Strata Company's legal costs incurred from 1 January 2019 to 31 August 2019) to predict future legal expenses on the basis that it is a smaller data set and, therefore, would be less reliable if used as a basis for an estimate.
The Tribunal accepts the evidence of Mr Baddeley and finds that the Special Levy is not excessive as the amount expended in legal expenses by the Strata Company is tracking towards the predicted figure of $28,000. The fact that 12 of the 14 owners voted in favour of contributions of $2,000 per lot in itself demonstrates that a majority of the lot owners support the need for a Special Levy at that level. Accordingly, the Tribunal finds that the contributions levied are not excessive and, therefore, will not make an order under s 99(1) of the ST Act varying the amount of the Special Levy.
Conclusion
In accordance with these reasons, the Tribunal concludes that the Special Levy was validly levied because it was raised for the purpose set out in s 36(2)(a) of the ST Act. The amount of contributions levied by the Strata Company to raise the Special Levy were appropriate and reasonable in the circumstances. The Tribunal will not make a variation order under s 99(1) of the ST Act because it is not satisfied that the contributions levied were excessive.
Orders
The Tribunal makes the following order:
1.The application is dismissed.
I certify that the preceding paragraph(s) comprise the reasons for decision of the State Administrative Tribunal.
MS C BARTON, MEMBER
7 APRIL 2020
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