One Reply to “120. Be careful when recovering unpaid strata levies”

  1. Dimitriou is better expressed by the following comments from a lower Court
    The Owners – Strata Plan No 52098 v Khalil [2014] NSWLC 2
    Hearing Dates 21/02/2014
    Decision Date 10/03/2014
    Jurisdiction Civil
    Before Assessor Olischlager

    48 A review of Ms Khalil’s account reveals a flawed practice adopted by the Strata Manager, BCS. During period 2011 to 2013 BCS has debited Ms Khalil’s account in the sum of $1,981.50 for various debt recovery expenses. There is no basis upon which the plaintiff is entitled to treat these expenses as a debt due and owing by the defendant.
    49 A distinction is drawn within the Strata Schemes Management Act 1996 regarding the right to recover levies and interest as opposed to expenses. The relevant provisions are as follows:
    Section 78
    (1) 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.
    Section 79
    (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.
    Section 80
    (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.
    50 The operation of section 78(1) and 79(1) creates a statutory debt in respect to levies upon the conditions of those provisions occurring. Section 79(2) has a similar effect in respect to interest accruing on those levies. There is no provision within the Strata Scheme Management Act 1996 that gives expenses the characteristic of being a debt immediately due and payable upon being incurred by an owners corporation. While section 80 refers to the right to recover expenses that provision creates a statutory cause of action. A debt recovery expense incurred by an owners corporation does not, of itself, create a debt immediately payable by the lot owner. It is necessary for the owners corporation to seek a judgment to recover those expenses.
    51 This distinction was noted by Hodgson JA in the Court of Appeal decision in The Owners Strata Plan 36131 v Dimitriou [2009] NSWCA 27; (2009) 74 NSWLR 370. At 381 Hodgson JA states: “that apart from s 80, an owners corporation would have a debt for contributions and interest, but not for expenses incurred in recovering them.”
    52 While Hodgson JA goes on to say that section 80 makes the expenses themselves a debt, it is clear that Hodgson JA is referring to a right to recover expenses as part of a claim rather than as a separate discretionary costs order. The majority of the Court of Appeal held that there are a number of limitations on the recoverability of expenses.
    53 Firstly, expenses are only recoverable “to the extent that such costs and disbursements are reasonably incurred and reasonable in amount; and such costs and disbursements would have to prove this in order to obtain a judgement for them” (Hodgson JA at 382, Handley AJA at 130). Costs should be assessed on a party/party basis rather than on a solicitor/client basis (Hodgson JA at 384).
    54 Secondly, expenses “must be truly characterised as having been incurred in recovering arrears of contributions” (Hodgson JA at 384). That is, there must be a clear connection between the expense incurred and the recovery of the levy.
    55 Thirdly, “the words “together with” in section 80(1) do mean that the claim for expenses, including legal costs and disbursements, must be made in the same proceedings as the claim for the contribution” (Hodgson JA at 385, Handley AJA at 402). Furthermore, the right to recover expenses is ancillary to the right to recover unpaid contributions. It is not open for an owners corporation to initiate proceedings with respect to expenses only. At the commencement of legal proceedings there must be a claim for unpaid contributions. Proceedings may be maintained to recover expenses associated with recovering outstanding contributions.
    56 It is clear from the way BCS managed the account that it misunderstands the distinction between contributions and interest which creates an immediate debt due and owing by virtue of sections 79(1) and (2) and expenses which are a debt that must be proven before the court before they are payable by virtue of section 80(1).
    57 In Dimitriou’s case Handley AJA [at 402] described a claim by an owners corporation for expenses to be “in the nature of a quantum meruit” claim that must be proven at a trial to be reasonable in amount and reasonably incurred.
    58 None of the “expenses” which appear on Ms Khalil’s account statement prior to the commencement of these proceedings had been proved as a debt before a Court of competent jurisdiction. The expenses that appear in 2012 appear to be related to the earlier legal proceedings. As the plaintiff obtained no judgment in those proceedings they could not be treated as a debts for which Ms Khalil is liable.
    59 It is not open for the plaintiff to seek to recover these expenses in these proceedings as that offends the third limitation that requires expenses to be recovered in the same proceedings as the contribution to which it relates. Furthermore, in light of the agreement that was reached between Ms Khalil and Mr Greenaway in April 2012 the accrual of these expenses was unreasonable.
    60 The expenses appearing on Ms Khalil’s account in 2013 may, at least in part, relate to recovery of contributions that are the subject of these proceedings. However, it is pre-emptive on the part of BCS to include these costs as a debit on Ms Khalil’s account prior to the court giving judgement in respect to those expenses. Expenses should not appear on a lot owner’s account unless they have been subject to assessment either by a Court or a costs assessor under the Legal Profession Act 2004.
    S Olischlager
    Local Court Assessor

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