The Owners – Units Plan No 666 v Quaid and Anor (Unit Titles)
[2020] ACAT 87
•29 October 2020
ACT CIVIL & ADMINISTRATIVE TRIBUNAL
THE OWNERS – UNITS PLAN NO. 666 v QUAID & ANOR (Unit Titles) [2020] ACAT 87
UT 29/2019
Catchwords: UNIT TITLES – whether the owners corporation’s legal costs in the proceedings meet the double reasonableness test for section 31 expenses – whether reasonable steps were taken by corporation to resolve the dispute before commencing proceedings
Legislation cited: Unit Titles (Management) Act 2011 ss 31, 95, 125
Cases cited:In the Matter of Ruling Tribunal Section 31 of the Unit Titles (Management) Act 2011 [2017] ACAT 56
The Owners – Units Plan No 3182 v Black & Anor [2018] ACAT 6
Tribunal: Senior Member E Ferguson
Date of Orders: 29 October 2020
Date of Reasons for Decision: 29 October 2020
AUSTRALIAN CAPITAL TERRITORY
CIVIL & ADMINISTRATIVE TRIBUNAL UT 29/2019
BETWEEN:
THE OWNERS – UNITS PLAN NO. 666
Applicant
AND:
JACK QUAID
First Respondent
SUSAN QUAID
Second Respondent
TRIBUNAL: Senior Member E Ferguson
DATE:29 October 2020
ORDER
The Tribunal orders that:
The application for expenses claimed under section 31 of the Unit Titles (Management) Act 2011 is dismissed.
………………………………..
Senior Member E Ferguson
REASONS FOR DECISION
Background
The owners corporation of Units Plan 666 (the corporation) applied to the tribunal for orders in relation to a range of unapproved alterations the respondents had made without the consent of the executive in contravention of Article 4(1) of the Articles of the Unit Plan. The application was made pursuant to the tribunal’s jurisdiction to resolve unit title disputes under section 125 of the Unit Titles (Management) Act 2011 (UTM Act).
At the hearing on 17 January 2020 I upheld the application and made orders requiring the respondents to remedy the contravention.
As part of the same application the applicant sought to recover legal professional costs and disbursements, and the fee for lodging the application, which it incurred in bringing the proceedings as expenses pursuant to section 31 of the UTM Act.
I reserved my decision on the corporation’s section 31 claim and asked the parties to provide written submissions and evidence to enable me to determine the issue on the papers. My decision in relation to the section 31 issue and reasons are set out below.
Introduction
It is not uncommon for costs incurred by a corporation in tribunal proceedings for the recovery of unpaid unit title levies to be recovered in the same proceedings as ‘expenses’ under section 31 of the UTM Act. Unpaid unit title levies and expenses to which section 31 apply are both recoverable as statutory debts.[1] The Tribunal does not require separate applications as both fall within the tribunal’s jurisdiction to determine debt applications, subject to jurisdictional limits relating to the amount claimed.[2]
[1] Section 95 of the UTM Act
[2] Part 4 of the ACT Civil and Administrative Act 2008
The corporation in this case applied to resolve a unit title dispute and sought to recover its expenses of those proceedings as part of the same application. The expenses claimed were within the jurisdictional limit of the tribunal.[3] As the claims arise from different jurisdictions of the tribunal, separate unit titles dispute and debt applications would generally be required, but in this case no disadvantage was suffered by determining the claims as part of the same proceedings and unnecessary costs to both the parties and the tribunal were avoided.
[3] Part 4 of the ACT Civil and Administrative Act 2008
To prove a debt pursuant to section 31 a corporation must establish, amongst other things, that the expenses claimed meet the double reasonableness test established in In the Matter of Ruling Tribunal Section 31 of the Unit Titles (Management) Act 2011 (Ruling Tribunal Decision), that is that:
…it was reasonable for the owners corporation to incur expenses of the type described and the amount of each component of the expenses sought is reasonable.[4]
[4] In the Matter of Ruling Tribunal Section 31 of the Unit Titles (Management) Act 2011 [2017] ACAT 56 at order 1; [55], [104]
After considering the material presented in proceedings and the materials subsequently submitted by the parties, I decided not to make an order for recovery of the corporation’s expenses in the proceedings pursuant to section 31 because I found they had not been reasonably incurred. In particular, I found that the corporation had commenced proceedings against the respondents without first taking reasonable steps to resolve the dispute. The reasons for my decision are set out below.
Factual background
The respondents bought their unit in early 2017.Over the following two years they undertook certain work without the approval of the executive committee. I have previously determined that the respondents’ failure to obtain approval for that work contravened Article 4(1) of the Corporation’s Rules which provides under the heading “Erections and Alterations”:
A unit owner shall not, except in accordance with the written permission given by the Executive Committee, and in accordance with the written permission given by the Executive Committee, and in accordance with the provisions of any law in force in the Territory applicable in the circumstances, erect or alter any structure in or in the unit or the common property.
The respondents submitted that they kept the strata manager and members of the executive informed both before and after commencing work and no objection was raised, nor were they informed that they required the consent of the executive for the works.
The strata manager in a sworn statement said that “I have advised Mr and Mrs Quaid that any additions or erections to a unit requires the consent of the Executive Committee.”
In August 2018 another unit owner reported to the strata manager that the respondents had made certain exterior changes to their unit.
On 7 November 2017 the strata manager wrote to the respondents in the following terms:
The Executive Committee of Units Plan 666 note and confirm that additions/erections to the external walls at Lot 1 Wentworth Court have been undertaken without the consent of the Owners Corporation [in accordance with the requirements of the Unit Titles [Management] Act 2011 and the OP 666 Rules.
Can you please forward the Committee, within fourteen days of this notice, all plans submitted to the ACT Building Controller approving the above additions/erections.
Your assistance in this matter is appreciated.
The respondents say they never received the letter, which was addressed to their unit. However, the applicant at paragraph 7 of its submissions pointed out that the lack of response to the letter was also discussed at meetings of the executive committee on 3 December 2018 and 18 February 2019, the latter of which the first respondent attended. It seems likely that, at least by 18 February 2019, the respondents were aware that a letter had been sent and had, at least, a general idea of its contents.
The executive committee agreed at its meeting on 18 June 2019, that “due to the nil responses to all correspondence sent thus far that the matter shall proceed to ACAT.”
The corporation commenced these proceedings on or about 17 October 2019 without further notice to the respondents.
The respondents submitted that the applicant took inadequate steps to resolve the issue of the unapproved works before commencing proceedings. They also said that the corporation did not avail itself of opportunities to resolve the proceedings once they had commenced.
The applicant submitted:
…that the period between 7 November 2018 and 17 June 2019 was a sufficiently reasonable period for either the Respondents to either provide a response to the Applicant’s letter of 7 November 2018 or take steps to remove the Works. In circumstances where the Respondents did neither, the Applicant submits that the reasonable next step was to commence these proceedings seeking orders in relation to a breach of the Applicant’s rules.
Double reasonableness test
Section 31 provides as follows:
Recovery of expenditure resulting from member or unit occupier’s fault
(1)This section applies if an owners corporation for a units plan has in carrying out its functions incurred an expense, or carried out work, that is necessary because of—
(a)a wilful or negligent act or omission of a member of the corporation, or an occupier of the member’s unit; or
(b)a breach of its rules by a member of the corporation, or an occupier of the member’s unit.
(2)The amount spent or the cost of the work is recoverable by the owners corporation from the member as a debt.
(3)If the owners corporation recovers an amount under subsection (2) from a member for an act, omission or breach of an occupier of the member’s unit, the member may recover the amount from the occupier as a debt.
(4)In this section:
expense, includes a reasonable legal expense reasonably incurred, including a legal expense relating to a proceeding in the ACAT.
Work, carried out by an owners corporation, means maintenance or anything else the corporation is authorised under this Act to do.
On 2 August 2017 a Ruling Tribunal determined that certain costs, including legal professional costs and disbursements; and filing fees, incurred in bringing tribunal proceedings to recover unpaid unit title levies are necessary ‘expenses’ for the purposes of section 31 of the UTM Act if:
…it was reasonable for the owners corporation to incur expenses of the type described and the amount of each component of the expenses sought is reasonable.[5]
[5] In the Matter of Ruling Tribunal Section 31 of the Unit Titles (Management) Act 2011 [2017] ACAT 56 at order 1; [55], [104]
Senior Member Robinson in the subsequent decision of The Owners – Unit Plan 3182 v Black & Anor [2018] ACAT 6 (Black) described this as the “double reasonableness test”.
The expenses claimed by the corporation in these proceedings are only ‘necessary’ within the meaning of section 31(1) if they were reasonably required to address the respondents’ breach of the rules.
In Black Senior Member Robinson considered the meaning of ‘reasonably incurred’ expenses in proceedings to recover unpaid levies and. After reviewing relevant authorities she concluded:
36.Ultimately, whether any costs were reasonably necessary will depend on the individual facts of the matter. However, two observations may be usefully made.
37.First, formal proceedings for debt recovery should generally not be a first resort. In most cases, where levies are unpaid, the first step should be informal preliminary action to find out why the levies were not paid, and whether they will be paid imminently. Even where the default continues or is unexplained, the usual and preferable course would be to pursue other options, including reminder letters and letters of demand, and perhaps informal arrangements for payment, followed by legal action only if those letters are not actioned or some agreement not reached. Where no preliminary steps are taken, it will be open to the respondent to argue that commencing formal proceedings was premature and that any legal expenses are therefore not ‘necessary’ as required by section 31.
38. Secondly, just because it is necessary to commence formal proceedings does not mean it is necessary to continue them. In Ford v The Owners Units Plan 259, Appeal President Stefaniak proceeded on the basis that “…it is a general rule… that costs have to be deemed to be reasonable…”, but he did not think it was appropriate to order that the appellant pay all of the respondent’s costs of the appeal in circumstances where further work needed to be done after the original hearing and once an appeal from the decision had been brought to finally determine the amount owed by the appellant. He considered this work should have been done prior to the original hearing or at the very latest during the original hearing before lawyers were retained to act in the appeal. This means that in a particular case it may be open to a party to argue that the continuation of proceedings was unnecessary or unreasonable and costs should not be payable beyond a certain point. Again, none of the present eleven cases appear to fall within this description. (footnotes omitted)
All the reported cases on section 31 expenses involve proceedings to recover unpaid levies as a statutory debt. Expenses in such cases are only recoverable if it is established that the member’s failure to pay was a wilful or negligent act or omission pursuant to section 31(1)(a).
In this case the expenses sought related to proceedings arising from the respondents’ breach of the corporation’s rules and so section 31(1)(b) applies, which does not require the breach to be the member’s fault. However, the distinction is not relevant to the issue under consideration because the double reasonableness test applies to the corporation’s expenses regardless of whether they were necessitated by a member’s act or omission under the first limb of section 31(1) or a breach of the rules under the second limb.
Analysis and conclusion
A corporation should only resort to legal proceedings to resolve a dispute with a member after other reasonable avenues are exhausted.
The only attempt the corporation made to notify the respondents that the works performed by them had contravened its rules before commencing proceedings was the letter of 7 November 2018. In my view that letter contained insufficient information to justify legal action being launched against the respondents without further steps being taken.
The corporation failed to establish on the evidence that it took any of the following pre litigation steps which might be regarded as usual and reasonable in the circumstances:
(a)Although it notified the respondents of the breach in relation to additions/erections to the external wall; it did not notify them of other works the corporation subsequently relied upon in these proceedings, including works to the subsidiary and works affecting the common garage.
(b)It did not invite the respondents to retrospectively seek the approval of the executive for the works, or advise what the executive would require in order to consider such a request.
(c)It did not request that the respondents rectify the breach.
(d)It did not warn the respondents that it intended to commence proceedings, or what action the respondent could take to avert such action.
I concluded that it was not reasonable in the circumstances for the corporation to have commenced these proceedings and so the expenses it incurred as a result were not recoverable as necessary expenses under section 31.
………………………………..
Senior Member E Ferguson
HEARING DETAILS
FILE NUMBER: | UT 29/2020 |
PARTIES, APPLICANT: | The Owners – Units Plan No. 666 |
PARTIES, RESPONDENT: | Jack and Susan Quaid |
COUNSEL APPEARING, APPLICANT | N/A |
COUNSEL APPEARING, RESPONDENT | N/A |
SOLICITORS FOR APPLICANT | McInnis Wilson |
SOLICITORS FOR RESPONDENT | N/A |
TRIBUNAL MEMBERS: | Senior Member E Ferguson |
DATES OF HEARING: | 17 January 2020 |
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