Owners Strata Plan 4003 v Mustafa

[2012] NSWSC 780

Supreme Court

New South Wales

Medium Neutral Citation:	Owners Strata Plan 4003 v Mustafa [2012] NSWSC 780
Hearing dates:	6 July 2012
Decision date:	06 July 2012
Jurisdiction:	Common Law
Before:	Beech-Jones J
Decision:	Appeal upheld. Plaintiff directed to prepare Short Minutes and interest table.
Catchwords:	Appeal from Local Court - Magistrate dismissed proceedings even though amount conceded by defendant to be owing - recovery of contributions - recovery of interest - defence to claim under s 80(1) Strata Schemes Management Act.
Legislation Cited:	Civil Procedure Act 2005 - s 90(1) Local Court Act 2007 - s 39(1), s 40(1) Strata Schemes Management Act 1996 - s 79, s 80, s 229(2) Strata Scheme Management Regulation 2010 Suitors' Fund Act 1951 Supreme Court Act 1970 - s 75A
Cases Cited:	- Owners of Strata Plan 36131 v Dimitriou [2009] NSWCA 27; (2009) 74 NSWLR 370 - Pacific Asia Express Pty Ltd v Renegade Gas Pty Ltd [2010] NSWSC 1188 - Pool Data Systems Pty Ltd v Bayliss [2011] NSWSC 224 - Thaina Town (On Goulburn) Pty Ltd v City of Sydney Council [2007] NSWCA 300; (2007) 71 NSWLR 230
Category:	Principal judgment
Parties:	The Owners - Strata Plan 4003 (Plaintiff) Eray Mustafa (Defendant)
Representation:	Counsel: Mr C.P. Locke (Plaintiff) Ms P.E. Koroknay (Defendant) Solicitors: Bronwyn Smith Lawyers (Plaintiff) David Le Page (Defendant)
File Number(s):	2012/018137

EX TEMPORE Judgment

1. This is an appeal from the Local Court. Leaving aside a claim in respect of interest and some expenses, the plaintiff sued the defendant for the sum of $26,402.00 in respect of unpaid strata contributions. At the hearing the defendant conceded that the plaintiff was entitled to $23,909.94, but disputed the remainder. The presiding magistrate awarded the plaintiff nothing. Those bare facts are sufficient to warrant interference by this Court.

Background

1. Strata Plan No 4003 concerns residential premises in Mosman. The defendant is the owner of Lot 5. There has been a history of disputation between the plaintiff and the defendant, which I will only refer to as is necessary.

1. In March 2011 the plaintiff commenced proceedings in the Local Court against the defendant. The plaintiff sought recovery of various contributions that had been raised for the period April 2003 to December 2007. The plaintiff also sought recovery of interest as well as certain costs and expenses pursuant to s 80 of the Strata Schemes Management Act 1996 ("the Act").

1. A defence was filed admitting ownership of Lot 5 but putting all other matters in issue. A cross-claim was also filed. I have no details of the cross-claim but I note that it was not pursued at the hearing in the Local Court.

1. The matter was listed for hearing in the Local Court on 20 October 2011. The transcript reveals that the plaintiff refined its claim for contributions to the sum of $26,402.00. The period for which the contributions were sought to be recovered was narrowed to a period dating from 1 December 2006 to the end of 2010. The significance of the date 1 December 2006 is that there had been two sets of previous proceedings between the parties in which the defendant's obligation to pay contributions for the prior period had been put in issue.

1. In respect of this revised claim, the defendant's counsel, consistent with her obligations, quite properly advised the Court as follows:

"Could I just clarify. I've done a table of levies, your Honour, and in relation to the levies claimed in the proceedings, we concede that bar one which is a special levy, they've all been validly raised and the amounts are owing, that there's one which is a special levy of 1 September 2008 which we don't concede."

1. The table to which counsel referred set out the quarterly levies imposed since 1 December 2006 up to 1 December 2010 and highlighted in bold the contentious special levy dated 1 September 2008. The total amount in counsel's table was $26,177.03. The contentious special levy was $2,531.65. Of that figure, the defendant agreed that it should pay $264.56 referable to a particular fee but contested the balance. Thus, the defendant conceded that he was obliged to pay $23,909.94. The defendant disputed the liability to pay the balance of the special levy on the basis that the amounts raised by that levy were used to recoup moneys that had previously been credited by the plaintiff to his account.

1. Insofar as interest was claimed, there was a dispute between the parties as to the manner of calculation of interest. The plaintiff had brought forward an accountant's report in which the accountant had analysed the defendant's "owners statement" and undertaken some calculations. The defendant was able to point to some deficiencies in the calculations, including, it would seem, a suggestion that interest was being charged on a compound basis.

1. The claim for expenses under s 80 was only briefly mentioned in the hearing. It appears that the expenses being referred to were various charges added to the defendant's owners statement prior to December 2010, mainly for legal fees. Presumably they were charges for letters and the other communications sent to the defendant in an endeavour to have him pay. The defendant advised the presiding Magistrate that it contested the entitlement of the plaintiff to recover those amounts on the basis that it had not been demonstrated that they were reasonably incurred.

1. Only the plaintiff tendered evidence during the hearing. It read an affidavit of an employee of a strata manager which annexed various documents, including the resolutions of the plaintiff and the notices issued to the defendant. As I have stated, it also tendered a report from an accountant that reviewed and reconciled various accounts and levy notices.

1. On 29 November 2011 the presiding Magistrate published his judgment. His Honour entered a verdict for the defendant on the Amended Statement of Claim and ordered the plaintiff to pay the defendant's costs. Pursuant to s 229(2) of the Act, his Honour ordered that the costs paid by the plaintiff to the defendant were to be paid from contributions levied only in relation to lots other than the defendant's lot. I will refer to his Honour's judgment in the course of considering the particular grounds of appeal.

Appeal

1. Sections 39(1) and 40(1) of the Local Court Act 2007 provide:

"39(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."

...

40(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."

1. These provisions must be read together with s 75A of the Supreme Court Act (1970), which provides:

"(1) Subject to subsections (2) and (3), this section applies to an appeal to the Court and to an appeal in proceedings in the Court.

...

(4) This section has effect subject to any Act.

(5) Where the decision or other matter under appeal has been given after a hearing, the appeal shall be by way of rehearing.

(6) The Court shall have the powers and duties of the court, body or other person from whom the appeal is brought, including powers and duties concerning:

(a) amendment,

(b) the drawing of inferences and the making of findings of fact, and

(c) the assessment of damages and other money sums.

(7) The Court may receive further evidence.

(8) Notwithstanding subsection (7), where the appeal is from a judgment after a trial or hearing on the merits, the Court shall not receive further evidence except on special grounds.

(9) Subsection (8) does not apply to evidence concerning matters occurring after the trial or hearing.

(10) The Court may make any finding or assessment, give any judgment, make any order or give any direction which ought to have been given or made or which the nature of the case requires."

1. In its summons, the plaintiff only sought to have his Honour's decision set aside and the matter remitted to the Local Court for hearing. During submissions, the plaintiff indicated that it sought to have the Court determine the entirety of the matter to the extent that that was possible. The defendant did not seek to persuade me otherwise.

1. It is unnecessary to explore the limits on this Court's powers to determine the totality of a matter such as this where the Court's jurisdiction under ss 39(1) and 40(1) of the Local Court Act is invoked and it embarks upon an exercise of the power conferred by s 75A. It is sufficient to state that in this case it has the power to do so.

1. The entirety of the evidence before his Honour was documentary. As the matter developed, there was no challenge to any finding of primary fact by his Honour. Instead, the matters raised by the plaintiff concerning his Honour's judgment only concerned legal issues. That said, to the extent that any of the findings that I make travel beyond discerning and then resolving questions of law and into mixed questions of law and fact, then I grant leave for that to occur.

1. The factors in favour of this Court determining the matter in its entirety are overwhelming. As I will explain, the principal error made by his Honour was basic and fundamental. The amount in dispute is small. The parties should not have to be put to the burden of having to incur a third set of costs to resolve a set of issues which, at least by the time of the hearing, they had narrowed: see Thaina Town (On Goulburn) Pty Ltd v City of Sydney Council [2007] NSWCA 300; (2007) 71 NSWLR 230; Pacific Asia Express Pty Ltd v Renegade Gas Pty Ltd [2010] NSWSC 1188 at [33] to [41] (per Rein J); and Pool Data Systems Pty Ltd v Bayliss [2011] NSWSC 224 at [144] to [145] (per Hall J).

The undisputed amount for quarterly levies

1. Grounds four to six of the appeal concern the failure of his Honour to award the plaintiff any amount, even in respect of those contentions that were undisputed ("the undisputed amount").

1. In [3] to [5] of his Honour's judgment his Honour identified the issues in dispute as being: the entitlement to interest and its calculation; the plaintiff's claim for expenses; and the issue raised by the defendant concerning its liability to pay the special levy. His Honour then addressed each of the three issues. At [12] to [14] his Honour concluded that he was not satisfied that the defendant was liable to pay the plaintiff the amount the subject of the special levy. I will return to that later. His Honour then concluded in [15]:

"The owners have not proved the sum claimed, the interest claimed, or the expenses claimed."

1. This is the totality of the reasons given by his Honour for failing to order the payment of any amount, including the undisputed amount, in favour of the plaintiff.

1. As best as I can discern, his Honour appears to have proceeded on the basis that as the plaintiff had not proved the entitlement to the exact sum it claimed, it got nothing. In fairness to his Honour, it may be that his Honour was under a misapprehension that the disputed amount had been paid. However, in light of the approach his Honour took with interest, I doubt that that was the case. If his Honour was under that misapprehension, there was certainly no basis for it; the parties had not indicated that that was the position.

1. It is not necessary to dwell on these reasons any further, nor to attempt to formulate all the different ways in which his Honour's approach was erroneous. It is sufficient for present purposes to refer to s 90(1) of the Civil Procedure Act 2005, which provides:

"(1) The court is, at or after trial or otherwise as the nature of the case requires, to give such judgment or make such order as the nature of the case requires."

1. The "nature of the case" for the purposes of this provision is to be ascertained by reference to the issues that arose. They were defined, as I have said, by the parties at the outset. Leaving aside interest and expenses, the issue was did the defendant owe $23,909.94 or the greater amount claimed by the plaintiff? The judgment that his Honour was required to give, as required by the nature of the case, was a judgment that reflected that issue. At the very least, it had to be a judgment for $23,909.94. The plaintiff is certainly entitled to succeed on its appeal to that extent.

Special levy

1. Grounds one to three of the appeal concern his Honour's findings in relation to the special levy. The relevant part of his Honour's reasons is as follows:

"12. The owners' statement of account at the date of 11/07/2008 with reference numbers 519, 520, and 521, describes three credits. 520 and 521 reverses [sic] debits made on 14/06/2007 and 22/06/2007 respectively at reference numbers 456 and 457.

13. On 12/08/2008 at an extraordinary general meeting a resolution was carried to raise a special levy of $10,000. Credits were made to Mr Mustafa's account on 11/07/2008. Mr Mustafa asserts that an inference is available that the special levy was raised to replenish the administrative fund in order to maintain the minimum balance in the administrative fund, following the payments made on 11/07/2008, and if that is so he should not have been debited an amount with respect to the raising of the special levy. He asserts that a credit of $2267.09 is due.

14. I am satisfied on the balance of probabilities that it may be reasonably inferred that the special levy was raised due to the credits made to the account of Mr Mustafa, and that he is not liable to contribute. I am not satisfied on the balance of probabilities that Mr Mustafa was liable to contribute to the special levy."

1. By way of some background, in November 2006 the plaintiff commenced proceedings in the Local Court against the defendant, seeking recovery of contributions for the period 1 December 2005 to 3 November 2006. The defendant cross-claimed for various amounts, making complaints concerning the owners corporation's obligations to maintain the common property and alleging damage to his garage. The proceedings were settled on terms recorded in orders that were entered on 28 March 2008. The effect of the orders required a payment of an amount in favour of the defendant. No order was made at that time under s 229(2) of the Act.

1. The plaintiff did not seek to overturn his Honour's findings of fact as to the purpose of the special levy that I have set out above. Instead, it is submitted that, as a matter of law, the fact that the levy was raised to recoup a credit that had been given in favour of the defendant does not detract from its rights of recovery under s 80(1). The plaintiff contrasted this position with the circumstances in which an order had been made by a court in proceedings under s 229(2) of the Act. Such an order would restrict and qualify the ability of an owners corporation to raise contributions from a party with which it had been in litigation to cover the costs incurred in the litigation or damages it had paid.

1. The defendant submitted that s 229(2) was irrelevant. He submitted that there was no obvious connection between the credits that are referred to in his Honour's reasons and the settlement of the litigation to which I have referred. I agree to that point. However, this does not assist and, arguably, it makes the position worse. The point made by the plaintiff was that unless there was something such as an order under s 229(2) qualifying the owners corporation's rights under s 80, then irrespective of the underlying merits of the matter, there was no legal defence to the claim under s 80(1). The defendant pointed to the credit that had been offered to the defendant in the owners statements, but in and of itself that does not give rise to any matter that might constitute a defence. I have no doubt that a claim under s 80(1) can be met with the usual legal defence of set-off or estoppels or the like. However, the bare proposition that a contribution has been raised by joint owners of property to recoup moneys that had been paid to one of them does not, in my view, amount to any answer to the statutory entitlement of the owners corporation to recover.

1. Accordingly, I consider that his Honour erred in failing to find that the amount the subject of the special levy was owing to the plaintiff.

Interest

1. Grounds 7 and 8 of the appeal concern the claim that was made in the Local Court for interest.

1. I have already adverted to the operation of s 80. It is appropriate that I set out the terms of ss 79 and 80:

"79 Interest and discounts on contributions

(1) Any contribution levied by an owners corporation becomes due and payable to the owners corporation in accordance with the decision of the owners corporation to make the levy.

(2) A contribution, if not paid at the end of one month after it becomes due and payable, bears until paid simple interest at an annual rate of 10 per cent or, if the regulations provide for another rate, that other rate.

(3) However, an owners corporation may by special resolution determine (either generally or in a particular case) that a contribution is to bear no interest.

(4) An owners corporation may, by special resolution, determine (either generally or in a particular case) that a person may pay 10 per cent less of a contribution levied if the person pays the contribution before the date on which it becomes due and payable.

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."

1. I was advised that the regulations to the Act, the Strata Scheme Management Regulation 2010 have not provided for "another rate" of interest different to the 10% figure nominated in s 79(2). In this case the statutory prescription of an interest rate, coupled with the admission that contributions were owed, was a sufficient legal and evidentiary basis to found an entitlement on the part of the plaintiff to recover. The only question that should have arisen was the amount of the interest that was payable.

1. His Honour addressed the claim for interest at [6] to [9] of his judgment:

"6. Mr Dawkins, a chartered accountant has reviewed the debit and credit entries made by the strata manager to the owner's statement for lot 5 for the period 01/03/2003-31/07/2011, and is of the opinion that the entries are correct. In relation to interest, Mr Dawkins state [sic] that he has checked the interest raised by the owners in order to assess reasonableness and compliance with the requirements of s. 79 of the Strata Schemes Management Act, 1996 (the Act). S. 79(2) enacts:

A contribution, if not paid at the end of one month after it becomes due and payable, bears until paid simple interest at an annual rate of 10 per cent ...

7. The owners' statement of account attached to the report of Mr Dawkins has different narrations to the owners' statement of account attached to the amended statement of claim.

8. On 01/12/2006 Mr Mustafa incurred an admin levy debit of $987.34, and a sinking levy of $316.45. On 31/01/2007 interest was raised on the admin levy in the sum of $8.66, and on the sinking levy of $2.77. In each case the interest raised is greater than the amount calculated over the period at a rate of 10 per cent per annum.

9. The owners have not proved on the balance of probabilities the interest due and payable by Mr Mustafa."

1. As best as I can discern, his Honour appears to have rejected the claim because of a doubt about the calculation. Thus, his Honour appears to have rejected it on the same basis as I apprehend he rejected the claim for quarterly levies, namely, by concluding that, as the plaintiff had not demonstrated the entitlement to the exact amount that it sought, it recovered nothing. This approach is flawed for the reasons I have already given.

1. In the ordinary course, where a proper evidentiary legal basis is established for a claim for interest, but there is some doubt about the calculation, the usual practice is to require the party seeking recovery to prepare a table in a format suitable to the Court to enable any dispute about calculation to be determined, should it arise. Usually, once such an entitlement has been established and a table is prepared, the parties can often agree about the calculation between them. However, if they do not, the Court cannot abdicate its function by refusing to grant any interest because it is not satisfied of the accuracy of the particular calculation that the plaintiff has brought forward. Accordingly, the plaintiff succeeds to the extent it complains that his Honour did not calculate interest.

1. I should add that one issue between the parties concerning interest was whether the interest outstanding on a particular contribution is to be compounded or accrues on a simple basis. On its face, s 79(2) appears to me to clearly provide that interest is paid on a simple basis at the annual rate of 10%. I was not referred to any authority to the contrary. I will be directing the plaintiff to prepare a table of interest for provision to the defendant and ultimately to the Court. The table should, for each quarterly contribution and the special levy, identify the date when it became due and owing and then calculate interest on a simple basis at an annual rate of 10% up to the date that the matter will return to the Court for final orders.

Expenses

1. His Honour rejected the claim for expenses on the basis that the plaintiff had not tendered any evidence to prove that expenses are reasonably incurred and reasonable in amount. The necessity to prove that is established by the decision in Owners of Strata Plan 36131 v Dimitriou [2009] NSWCA 27; (2009) 74 NSWLR 370 at [40] per Hodgson JA and at [116] per Handley AJA. As I have indicated, the evidentiary material that was tendered before his Honour is also before me. I see no error in his Honour's finding. To the extent that I need to consider it myself, I agree with his Honour's finding. To the extent the plaintiff's appeal concerns this aspect of his Honour's judgment, the appeal is rejected.

Disposition

1. It follows from what I have said that the appeal will be allowed and that I will make orders providing for a verdict for the plaintiff. In that regard, I note the following.

1. First, there was before his Honour a small discrepancy between the amount the plaintiff sought by way of contributions and the amount the defendant had calculated for contributions, including the special levy. As I stated, the plaintiff sought the figure of $26,402.00, whereas the defendant's table had calculated that, if the plaintiff was entitled to recover the special levy, the total amount should be $26,177.03. There is nothing before me to warrant any greater figure than that nominated by the defendant. The amount to be awarded to the plaintiff, leaving aside interest, will be the figure of $26,177.03.

1. Second, I have already adverted to the position with interest. To enable the relevant table to be prepared and to enable some further submissions on costs, which I will describe shortly, I will be standing the matter over for final orders. I will make directions for the provision of a table by the plaintiff to the defendant and then to the Court.

1. Third, in relation to the costs of the hearing before the Local Court, given that I have determined that this Court should deal with the matter finally, it is appropriate that I make a costs order concerning those proceedings. There was a debate between the parties as to the interaction between the power to make a costs order and the ability of the owners corporation to recover expenses, including legal costs, under s 80. It seems that, as a result of the decision in Dimitriou, if an owners corporation wants to recover its legal expenses for conducting a case, it can bring evidence of its expenses in conducting that case and persuade the particular court that they are reasonable. The result of that may be that the owners corporation might recover an amount greater than or potentially less than the relevant assessment process. Be that as it may, the form of costs order that I am contemplating in respect of the costs before the Local Court will not be one by reference to s 80(1) but merely an order reflecting the costs that in the ordinary course should have been ordered by the Local Court by reference to its court scale. The direction that I make will enable the parties to make brief submissions as to what that costs order should have been.

1. Fourth, insofar as the costs of these proceedings are concerned, I will be minded to order the defendant to pay the plaintiff's costs. A question has arisen as to the ability of the defendant to seek some relief under the Suitors' Fund Act 1951. I do not propose to embark upon a consideration of whether he is able to do so. It is sufficient to say that if he is, then in my view the defendant is deserving of a certificate in respect of his costs in this Court. The only reason this matter has ended up in this Court is because, with the greatest respect to his Honour, there was a fundamental error on his Honour's part in conducting what should have otherwise been a straightforward case between two parties who had narrowed their dispute considerably. Contrary to their reasonable expectations, their dispute was expanded.

1. Accordingly, the orders that I make are as follows:

1   I stand the proceedings over for the making of final orders to 9.30am on 27 July 2012.

2   I direct the plaintiff on or before 5pm on 13 July 2012 to serve and send to my associate the following:

(a)   an interest table as referred to in this judgment;

(b)   any submission on costs, such submission to be no longer than three pages; and

(c)   proposed final orders.

3   I direct the defendant to file any material in response by 5pm on 20 July 2012.

4   I grant liberty to apply.

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Decision last updated: 11 July 2012