Section 31 of the Unit Titles (Management) Act 2011 (ACT) (‘UTM Act’) empowers an owners corporation to recover “expenses” ensuing from the wilful or negligent act or omission by an owner or occupier, or because of a breach of the rules of the units plan by an owner or occupier. This section goes on to say that “expenses” (an amount spent or the cost of work carried out) are recoverable by the owners corporation as a debt.
Until recently the breadth of section 31 has been a frequently disputed point in the field of body corporate debt recovery, with it being unclear as to whether the legal costs associated with small claims levy recovery proceedings against members can be awarded to an owners corporation as a recoverable “expense”. This has been contentious because ACT Civil and Administrative Tribunal (‘ACAT’), where such claims are heard, is a “no costs” jurisdiction under section 48 of the ACT Civil and Administrative Tribunal Act 2008 (ACT) (‘ACAT Act’), meaning litigants must bear their own legal costs unless the ACAT Act or Tribunal otherwise orders.
Thankfully, a recent ACAT decision has shed light on the issue, to the effect that an owners corporation can recover the legal and related costs incurred from commencing tribunal proceedings against members to recover their unpaid levies. Specifically, in the decision of In The Matter Of Ruling Tribunal Section 31 of the Unit Titles (Management) ACT 2011  ACAT 56, three Members of the ACAT (‘the Ruling Tribunal’) deemed that legal costs incurred in the recovery of unpaid levies do come within the scope of “expenses” for the purposes of section 31 of the UTM Act and are therefore recoverable as a debt. Thus, and notwithstanding the general “no costs” nature of the ACAT, the ACAT does have the power under section 31 to award the following costs to a successful body corporate litigant:
- Legal professional costs and disbursements incurred in bringing the Tribunal levy recovery proceedings in (e.g. lawyers’ fees, lawyer’s photocopying);
- Company title and similar searches incurred in bringing the Tribunal proceedings;
- Filing and hearing fees incurred in bringing the Tribunal proceedings; and
- Administrative costs or disbursements incurred in bringing the Tribunal proceedings (e.g. charges by owners corporation managing agent, collections agency).
This said, the Ruling Tribunal did qualify its decision to say that any such costs are only recoverable to the extent that:
- it was reasonable for the owners corporation to incur the legal costs; and
- the amount of each component of the expenses sought is reasonable.
Moreover, the Ruling Tribunal found that claimed legal costs do not need to be firstly ‘assessed’ – being the process which may typically follow, in the absence of agreement, to determine the quantum of a costs order – before the ACAT may make an order in relation to their recovery, subject to the requirement of their being incurred was reasonable. Given the focus on this requirement, we explore further below how the ACAT may exercise its discretion to award costs pursuant to section 31.
Determining whether legal costs were “reasonably incurred” and of a “reasonable amount”
Past cases of Dimitriou (from the NSW Court of Appeal), and Gold (Federal Court of Australia), were both referred to by the Ruling Tribunal in its recent decision, as they provide some guidance as to the test of reasonableness and provide some safeguards against excessive claims by an owners corporation. Specifically, the principles acknowledged by the Ruling Tribunal include that:
- a corporation’s conduct in commencing recovery proceedings in the first place must have had reasonable grounds and not simply done frivolously or in an incendiary manner;
- any question as to whether it is reasonably necessary for an owners corporation to commence proceedings should not be determined so stringently as to mean that proceedings must be “essential” to recover any unpaid levies; rather, the common sense meaning of what is reasonably necessary to recover unpaid levies is to apply; and
- the amount of the legal costs must also be fair and reasonable in terms of the rates charged and the work done. In assessing this, the court in Dimitriou stated that a signed retainer and the provisions of any relevant costs agreement between the lawyer and the body corporate is to be regarded.
As for the third criteria, as a matter of best practice, the legal costs ought to have been incurred in a way that is compliant with the Legal Profession Act 2006 (ACT) (‘LPA’) which, as the name suggests, is the legislation regulating legal practice in the ACT. Notably here is section 300 of the LPA, which outlines the criteria for assessing whether legal costs are of a reasonable amount. Specifically, matters to be taken into account in assessing the reasonable of a claim for costs should include: the level of skill displayed by the legal practitioner and quality of the work done, the retainer agreement and whether the work was conducted within its scope, and the complexity of the matter.
Moreover, as to whether costs incurred are of a reasonable amount, the Ruling Tribunal stressed that any claimed costs must have been incurred in circumstances where the owners corporation went through the proper process to engage legal representation. In relation to this, any decision to engage legal representation must be made through resolutions at the general meetings of the owners corporation. Proper voting procedures must be complied with in the passing of this resolution. Failure to do so may lead to any decision to appoint solicitors a nullity.
This recent decision by the ACAT means that owners corporations will no longer be prejudiced by a cost-free jurisdiction in chasing rogue debtors, provided that the legal costs incurred in recovering unpaid levies are reasonable. It clears up a vexed area that has been a source of confusion and dispute for many years, and confirms the common sense position that a body corporate should not be left out of pocket due to the failure of an owner to pay its due contributions.