Filaria Pty Ltd v Proprietors Units Plan 932 [2000] ACTSC 69 (16 August 2000)

Last Updated: 17 October 2000

FILARIA PTY LTD v PROPRIETORS UNITS PLAN 932 [2000]

ACTSC 69 (16 AUGUST 2000)

CATCHWORDS

REAL PROPERTY - body corporate passes resolution imposing increased levy on units within a units plan - certain units exempted from levy - one unit holder considers levy excessive and withholds payment - body corporate threatens to cut off electricity - whether the body corporate took irrelevant matters into account in calculating the levy - whether exempting some units from levy breaches the Unit Titles Act 1970 - whether body corporate empowered to cut electricity - whether the resolution of the body corporate imposing the levy should be set aside.

STATUTORY DEMAND - body corporate issues statutory demand seeking recovery of non-paid levy - whether statutory demand was valid.

Units Titles Act 1970, ss 26, 27, 36, 38, 47, 48, 59, 78, 80, 113, 114

FILARIA PRY LTY v PROPRIETORS UNITS PLAN 932

No. SC 227 of 2000

No. SC 191 of 2000

Judge: Higgins J

Supreme Court of the ACT

Date: 16 August 2000

IN THE SUPREME COURT OF THE )

) No. SC 227 and 191 of 2000

AUSTRALIAN CAPITAL TERRITORY )

BETWEEN: FILARIA PTY LTD

Plaintiff

AND: PROPRIETORS OF UNITS PLAN 932

Defendant

ORDER

Judge: Higgins J

Date: 16 August 2000

Place: Canberra

THE COURT ORDERS THAT:

1. The parties be given leave to bring short minutes of declarations and orders (if any) required to give effect to these reasons.

2. The demand notice be set aside.

1. This is an application on behalf of Filaria Pty Ltd (Filaria) against Proprietors of Units Plan 932 (UP 932), a body corporate under the Units Titles Act 1970 (the Act) (the body corporate) for declarations and orders as follows:

(1) A declaration that the [body corporate] has no power or authority to disconnect the electricity to the units in UP 932 owned by [Filaria] other than by agreement with [Filaria].

(2) An injunction restraining the [body corporate] by itself and by its servants or agents from disconnecting or otherwise interfering with the supply of electricity to the units in UP 932 owned by [Filaria] other than by agreement with [Filaria].

(3) A declaration that the resolution of the [body corporate] setting contributions from members purportedly pursuant to s 38 of the [Act] was contrary to the Act, beyond the power of [the body corporate] and is of no effect.

(4) An injunction restraining the [body corporate] by itself and by its servants or agents from taking any action to enforce or recover the contributions purportedly set by the [body corporate] by resolution on 28 June 1999 in relation to the units in UP 932 owned by [Filaria].

2. The units owned by Filaria were identified as units 1-4, 11, 12, 16-18, 21, 50-59, 61-64, 68, 71-78, 83, 102, 104-106, 108-110, 113 and 119.

3. On 6 April 2000 Filaria applied for interim relief seeking restoration and maintenance of electricity supplies to those units.

4. The Statement of claim alleged that the body corporate had on 28 June 1999 resolved to fix levies upon unit holders in the following terms:

"Standard: $40.00 per unit entitlement

Previous: $2.00 per unit entitlement

Renovation: $5.30 per unit entitlement

Trustee: $5.30 per unit entitlement

It is intended to exclude the ROF units from levies, as they are owned by all unit holders in proportion to their unit entitlement. The base for calculations is thus 9500 unit entitlements."

5. The substantial increase in levies was designed to meet anticipated expenditure for the body corporate's budget for 1999/2000 of $380,000.

6. Filaria alleged that the determination was beyond power on two grounds:

"(i) The purported determination imposes the contributions on some but not all of the units in UP 932.

(ii) The purported determination includes expenses in relation to matters which the defendant has no powers or duties under the Act (sic)."

7. The second ground is inaptly expressed. It was intended to complain that the proposed expenditure of $380,000, which the levies were set to meet, was calculated by reference to components which ought not to have been included.

8. The body corporate, by its defence, admitted that it had, through its committee, adopted the resolution referred to. It also admitted that the $40.00 levy was set to raise funds to meet budget expenditure for 1999/2000 of $380,000. The "Previous" levy was to discharge a past deficit. The "Renovation" levy was to provide a sinking fund for the purpose of future renovations. The "Trustee" levy was to pay the fees of the trustee managing the "ROF" units on behalf of the body corporate. "ROF" units were units which were not residential. They comprised the restaurant and kitchen (unit 157), the bar (unit 158), the office area (unit 159), shop (unit 160), function rooms (units 161-162). They were separately managed by the body corporate through a trustee who held ownership of them for the unit holders jointly. The ROF units were not common property, but separate alienable units.

9. The body corporate asserted that the resolution of 28 June 1999 was valid.

10. As to electricity, power supplied to all units and common areas was metered to and paid exclusively by the body corporate which could physically cut supplies to particular units, but power consumed by individual units could not be separately metered. The levies therefore included an allowance for electricity consumed by all units. As Filaria declined to pay the levies set on 28 June 1999, the body corporate asserted that it was empowered to cut electricity to Filaria's units.

The background to the dispute

11. The complex of units within UP 932 was originally a hotel known as "Canberra International Hotel" (the Hotel) located on Northbourne Avenue, Dickson, in the Australian Capital Territory. As such, of course, guest rooms and other areas did not need to be (and were not) separately metered or managed.

12. On 25 May 1993 Filaria purchased the Hotel with a view to converting the rooms in the Hotel to separately titled units, for sale to investors.

13. UP 932 became registered in October 1993. By then some units had been sold to investors. Filaria, after further sales, retained ownership of 42 units.

14. All unit holders then agreed to lease their units to Jaywood Pty Ltd (Jaywood), a company associated with Filaria. Jaywood agreed, pursuant to a Hotel Management Agreement, to manage all units as a hotel/motel with serviced apartments. It was to occupy and manage the "ROF units" and had the right to use common property. The body corporate was also a party to the agreement. It was for a period of five years.

15. In August 1993 Filaria entered into a trust deed with Jaywood, Jacup Pty Ltd (Jacup) and Ms Millie Phillips, managing director of Filaria. Filaria agreed that it held the ROF units in trust for Jacup and Ms Phillips. Jaywood agreed to manage the ROF units for the trustee and was given a non-exclusive licence to occupy them. After the initial trust period the trust was to be altered so that if the number of units managed by Jaywood fell below 67 percent of the available number, all unit holders would be the beneficial owners of the ROF units.

16. Jaywood was not reappointed as manager by a majority of unit holders. The number of units managed by it fell below 67%. On 29 April 1999 the majority of unit holders appointed the "Premier Group" as manager. Filaria declined to appoint the "Premier Group" as manager of its units.

17. As a result, Filaria retired as trustee of the ROF units. It appointed, by Deed of 21 May 1999, Mr Henry Kazar as trustee.

18. The consequence of those transactions was that the ROF units were from that date, managed on behalf of all unit holders other than Filaria by the "Premier Group". Filaria manages its units separately from the rest under the name "Budget International Hotel". Thus the unusual situation obtains that, within what seems to be one Hotel, two separate entities let rooms (and facilities) in competition with each other.

19. In her affidavit of 13 April 2000, Ms Phillips complains that the levies imposed on 28 June 1999 require Filaria to pay for the trustee though Filaria gains no benefit from the use of the ROF units. Further, the ROF units are not included in the calculation of levies.

20. The passage of the resolution of 28 June 1999 prompted Filaria, through its solicitors, to seek from the body corporate, through its then manager "Canberra Units Plan Services" (CUPS), a detailed breakdown of the budgeted expenses. It complained that the expenses seemed "excessive".

21. It does not appear that there was a formal response from CUPS to that request.

22. On 13 October 1999 Filaria's solicitors noted that a consultant engaged by Filaria had been appointed to examine the units. The consultant's report, they asserted, demonstrated that the levies set were "excessive and unreasonable". They proposed to commence proceedings on behalf of Filaria challenging the "fee structure".

23. On 10 November 1999 Filaria's solicitors wrote to CUPS requesting relevant minutes and budget papers relating to the decision of 28 June 1999.

24. The notice of 29 July 1999, informing unit holders of the levy, had also indicated that the budget and levies were "provisional" and would be reviewed "in 3-6 months". Details of any review held or, if not yet held, when it would occur, was also sought by Filaria's solicitors. CUPS replied to this further correspondence by advising that it had ceased to manage the body corporate. As a result it did not provide the requested information.

25. On 19 November 1999 the request for that information was directed to the body corporate itself.

26. Solicitors for the body corporate responded on 24 November 1999. They denied that the body corporate's decisions were amenable to review "except perhaps by means of prerogative writ (sic)". They complained that Filaria had paid no levies at all and recovery proceedings would be taken if that situation was not remedied.

27. On 1 December 1999 the body corporate's solicitors responded to the letter of 19 November 1999. They disputed Filaria's entitlement to the information requested but, despite that, agreed to provide the minutes and budget.

28. That information was provided under cover of a letter dated 9 December 1999.

29. However, Ms Phillips did not consider the information sufficient. On 27 January 2000 she wrote personally to the body corporate's solicitors (her solicitor, also Filaria's solicitor, was on leave) asking if there was any documentation to support the estimates in the budget figures. She reiterated that Filaria would not pay "unsubstantiated claims".

30. On 11 February 2000, the body corporate's solicitors responded to Filaria's solicitors. They queried Filaria's bona fides as it had not tendered any sum towards body corporate expenses. Nevertheless, they said, the body corporate's committee was "happy" to discuss the matter with Ms Phillips. They threatened withdrawal of services unless payment was made of, at least, a "substantial" nature.

31. There were other disputes between Filaria and the body corporate. It is not relevant to detail them, but it is plain that they result from attempts by the majority of unit holders to compete with Filaria for business and vice-versa.

32. On 3 March 2000, referring to those additional claims by Filaria as "a vague, confused allegation", the body corporate's solicitors rejected them and threatened a "statutory demand".

33. Filaria's solicitors replied on 6 March 2000. They complained that the budget figures remained unexplained and apparently unreasonably excessive. They pointed out (correctly) that a statutory demand was not a proper process for debt collection, particularly where it was apparent that the alleged debtor was disputing the debt.

34. Notwithstanding that intimation, instead of proceeding to sue for and recover arrears of body corporate levies, the body corporate issued and served, on 16 March 2000, a statutory demand. It thereby sought payment of $91,839.60 then due for body corporate fees in accordance with the formula set by the resolution of 28 June 1999.

35. The sum so demanded is not disputed as a matter of calculation.

36. However, Filaria maintained that the projected increase from the previous year's expenses of $142,000 to $380,000 was manifestly excessive. It raised the unit levy from $1,000 per unit entitlement to $2,983.

37. There followed on 21 March 2000 a threat by the body corporate to cut off electricity services to Filaria's units. On 5 April 2000 Filaria offered to pay for electricity but the body corporate declined that offer. It also offered, conditionally upon production of the requested information, to pay half the body corporate fees as levied.

38. On 6 April 2000 Filaria commenced these proceedings. It also filed an application to set aside the demand notice.

39. On 7 April 2000 the dispute came before Crispin J. The body corporate undertook not to cut off electricity. Filaria, in exchange, undertook to pay, at the rate of $25,000 per annum, for unpaid electricity charges to date and a quarter of future charges. Those undertakings were without admission of liability.

40. Both matters came before me for hearing on 3 May 2000. On 5 May 2000 consent orders were made including an order that Filaria pay an additional $40,000 on account of body corporate fees.

The arguments of the parties

41. No challenge was made to the validity of the meeting of the body corporate convened, inter alia, to fix body corporate levies. Nor was it alleged that the levies were fixed for some ulterior purpose. The challenge mounted by Filaria asserted that the sum sought to be raised by those levies was excessive compared with the expenses which might reasonably have been anticipated. Two items in particular were singled out for objection. First, the exemption of ROF units from levies. Second, the inclusion of trustee and electricity charges.

* The ROF units

42. These units, though jointly owned by all unit holders, including Filaria, are managed on behalf of the trustee thereof (Kazar) by Pacific Group with the result that only the majority unit holders have the use of them. Whether that constitutes a breach of trust by the trustee of those units is not an issue before me. It also does not appear whether the Pacific Group remunerates the trustee appropriately, on behalf of Filaria, for the loss of amenity.

43. For present purposes, it suffices to observe that the ROF units are not "common property" pursuant to s 26 of the Act. The owners, through the trustee, may transfer, assign, sublet or mortgage those units.

44. The contention of Filaria is that, even though each of the ROF units is owned by all the unit holders, they must be levied equally with other units (or, at least, proportionally). They cannot simply be exempted.

* The units generally

45. The overall objection was that the levies were beyond the power of the body corporate to impose them.

46. The body corporate's budget contained an allowance of $102,000 for electricity charges. "Trustee costs" of $50,350 were also included. Filaria did not dispute that the levy on all unit holders (per unit entitlement) could be calculated upon the remaining budget items.

47. The electricity charges, it was contended, were not part of the expenditure that the body corporate was liable for (or capable of incurring) "by reason of the performance of the duties and functions and the exercise of the powers imposed or conferred on it by the Act" (s 38(1)).

48. Electricity was consumed by unit holders according to their own demand. It was not the same, for example, for vacant units compared with those in constant occupation and use nor for an ROF unit. In any event, Filaria contended, that expenditure falls outside the matters which may be covered by a levy under s 38 of the Act.

49. The "Trustee costs" were objected to because they were, in effect, incurred on behalf of only the majority unit holders, not all unit holders. It was contended that, in any event, those costs were outside the scope of the power to impose a levy under s 38.

The legislative provisions

50. The power of a body corporate to levy contributions from its members derives from s 38 of the Act. It provides, relevantly in relation to the present matter:

"(1) A corporation shall, from time to time, determine the amount that it will require by way of contributions from its members to discharge expenditure that it may reasonably be expected to incur, or has incurred, by reason of the performance of the duties and functions and the exercise of the powers imposed or conferred on it by this Act.

(2) A corporation shall, in a determination made under subsection (1), specify the time within which, and the manner in which, contributions so determined are to be paid by its members.

(3) Subject to subsection (4), the contribution payable in respect of each unit is such amount as bears to the total amount referred to in the determination the same proportion as the unit entitlement of the unit, as at the date of the determination, bears to the aggregate unit entitlement of all the units as at that date.

(4) Where -

(a) a determination made under subsection (1) relates to expenditure to be incurred by the corporation in discharge of a specified liability; and

(b) before the making of that determination, the corporation has, by a unanimous resolution, resolved that contributions for that expenditure are payable in a proportion other than that specified in subsection (3);

the contribution payable in respect of each unit for that expenditure is such amount as is ascertained in accordance with that resolution.

(5) [Notice to members of sums payable.]

(6) [Power to sue for sums due.]"

51. The duties of a body corporate are referred to in s 36:

"(1) Subject to this section, a corporation shall -

(a) be responsible for the enforcement of its articles and the control, management and administration of the common property;

(b) keep in a state of good repair and properly maintain the common property and all chattels in its possession, custody or control;

(c) maintain in good repair and proper working order and, if renewal is reasonably necessary, renew all pipes, wires, cables, ducts and apparatus and equipment of any kind used, or intended, adapted or designed for use, in the provision of services in respect of which easements are created by section 27; and

(d) comply with any requirement made by or under any law in force in the Territory.

(2) [Not relevant]."

52. Section 27 of the Act creates easements deemed to spring into existence upon registration of the units plan for the mutual benefit of the unit holders and the body corporate. Such easements include, under s 27(3):

"(b) rights for the collection, passage and provision of water, sewerage, drainage, garbage, gas, electricity and air, and other services of whatsoever nature (including telephone, radio and television services), through or by means of pipes, wires, cable, ducts, or other reasonable means; and

(c) such ancillary rights as are necessary to make the rights referred to in paragraphs (a) and (b) effective including ... [not relevant]."

Conclusions

* Inclusion of charges for provision of electricity

53. The provisions of the Act, cited above, in my view, make it incumbent upon the body corporate to ensure that electricity is available to each unit area. If, as in this case, that can be done only by paying a lump sum bill for electricity consumed by all unit holders, then it seems to me that the body corporate is empowered to pay it. Not to pay it would be likely to lead, eventually, to the denial of electricity services to all unit holders. There is no obvious way to more equitably distribute the charges amongst unit holders (even if it would be lawful to do so without a rational alternative basis). There is therefore, no reason why the charges should not be distributed in the same way as other general expenditure incurred by the body corporate on behalf of unit holders generally.

54. It follows that the contention that electricity charges could not be included in the "expenditure" made or anticipated pursuant to s 38(1) of the Act is without foundation.

* Inclusion of trustee fees

55. Given that the ROF units are not "common property", ss 36(1)(a) and (b) of the Act have no application, nor does ss 36(1)(c) or (d). The use of a trustee to hold and manage the ROF units (including the grant of licences and the engagement of management expertise) is not mandatory. The holder of any ROF unit or units could, if he, she or they chose, hold title personally or through trustees. The owner or owners could manage them personally or through an agent.

56. The fact that the units are held beneficially by all unit holders does not convert the units into common property, the expenses of managing which can be reflected in contributions to be levied pursuant to s 38 of the Act.

57. The powers and duties which may be assumed by a body corporate are strictly limited. This is to ensure that the property rights conferred upon unit holders are not significantly altered or burdened nor the solvency of the body corporate put at risk by engaging in business or investment activities at the whim of a majority of members.

58. Section 78 of the Act prescribes the form and content of the articles (see the Schedule) of a body corporate.

59. Those articles may be altered pursuant to s 80 of the Act (by special resolution). There is no evidence that this body corporate has done so but the scope of permissible alterations is strictly limited by s 80(3) of the Act. A provision which enabled the body corporate itself to manage for profit any of the units within the Units Plan would, in my view, be:

"... imposing a duty or conferring a power on the corporation which is not incidental or ancillary to the performance of the duties or functions, or the exercise of the powers, imposed or conferred on it by this Act." (s 80(3)(b))

60. The fees incurred by the Trustee are, therefore, not capable of being incurred by the body corporate. They are incurred by the unit holders jointly and severally.

61. It follows that those fees are not relevant for the purpose of fixing contributions. They should not have been taken into account for that purpose. It is unnecessary to consider whether Filaria should contribute thereto rateably or otherwise.

* Calculation of unit holders' liability

62. The body corporate has calculated contributions, effectively, as "nil" for the ROF units and, otherwise, equally between the remaining units, according to their unit entitlements.

63. In my view, this is a clear breach of s 38(3) of the Act. The unit plan itself mandates the proportions to the whole that each unit will bear. Most units have a rating of "55". Some are greater (unit 157 has a rating of 176). That is the formula required by s 38(3). It may be departed from only if all unit holders agree. Ex hypothesi, Filaria does not.

64. It was agreed that the total of unit entitlements, including ROF units was 10,000. Even if the net result might be the same, it is not lawfully open to the body corporate to strike a levy excluding some units from it.

65. To that extent, the resolution of 28 June was, on the face of it, contrary to the Act.

Relief to be given

66. Each party now seeks declaratory relief so far as the originating application is concerned.

67. Filaria also seeks to have the demand notice set aside.

* Declaratory relief

68. Insofar as the resolution of 28 June 1999 exceeded the powers of the body corporate, as it did by including trustee fees in its calculations of contributions and in its allocation of the levy between members, it is not saved by s 59 of the Act. That saves only an act, done in good faith, affected by some defect in the appointment or continuance in office of a committee member.

69. Whilst I have no material before me to suggest any lack of good faith in the passage of the resolution of 28 June 1999, its validity is impugned for reasons other than a defect in the appointment or continuance in office of a member.

70. Further, s 113 of the Act expressly permits an application to this Court where -

"... a corporation fails to carry out a requirement or perform a duty imposed on it by this Act, a proprietor or mortgagee of a unit may apply to the Court for an order requiring the corporation or the committee to carry out the requirement or perform the duty, as the case may be." (s 113(1))

71. Under s 113(2) of the Act the Court may, on such an application, make such orders "as it thinks just".

72. Section 114 of the Act expressly invests this Court with jurisdiction "in all applications made to it under this Act".

73. It seems to me "just" that the resolution of 28 June 1999 be set aside and the Committee of the body corporate re-convene to pass a resolution complying with the Act.

74. I will give the parties leave to bring in short minutes of declarations and orders (if any) required to give effect to these reasons.

75. I have not considered the issue as to whether the resolution could be construed as imposing a different, lesser and "undisputed" liability. Nor have I been asked to do so.

76. It is apparent, however, that the body corporate is required to incur and meet expenses so as to maintain the common areas and services for the benefit of all unit holders. It does not strike me as "just" that a unit holder, perceiving a defect in a resolution fixing levies should feel entitled to pay nothing. Filaria should have paid whatever it claimed to have been the correct levy.

77. It is inequitable for a unit holder in Filaria's position to pay nothing. I am satisfied that ss 113 and 114 enable this Court to order reasonable contributions to be paid by a unit holder even if no valid resolution had, due to error on the part of the committee of the body corporate, been passed.

77A. It is unlikely now that the body corporate would carry out its threat to cut electricity supplies to Filaria's units. However, as the issue was raised it should be addressed.

77B. First, it seems to me, the body corporate is under a duty to maintain and provide the kind of service referred to in s 36 (1)(c) of the Act supporting the efficiency of the easement referred to in s 27 and the rights granted pursuant to s 27 (3)(b).

77C. Second, s 38(6) of Act permits the body corporate to recover unpaid levies as "a debt due to the corporation" (see also ss 47 & 48 - repair costs and default costs). The Act does not (nor does any other law) permit the recovery of debts by the withdrawal of essential services. It is not a situation analogous to a supplier of services who may cease to provide those services.

77D. Accordingly, it seems to me, that, even if the levy had been fixed validly, it was not open to the body corporate to deny services to the defaulting unit holder. It is confined to the remedies available to any creditor to sue for the debt and enforce payment by these means lawfully available to levy execution. That may, ultimately, involve the sale of a unit.

* The statutory demand

78. The above reasons demonstrate that Filaria had genuine and substantial grounds to dispute the debt claimed. The statutory demand must be set aside. It should never have been issued.

79. Though the position adopted by Filaria was unreasonable in that it offered to pay less than it should, it was entitled to raise the dispute which it did.

80. I have no doubt that the body corporate's solicitors at all times were aware that the dispute was genuine insofar as it claimed the levies to be "excessive". The body corporate may have been of the view that Filaria was not acting in good faith in refusing to pay any contribution but that did not entitle it to issue a demand notice.

81. In any event, I have considerable doubt as to whether the body corporate entertained a genuine belief that winding up proceedings would be necessary to recover the sums due to it and other creditors, even if the resolution had been valid.

82. The demand notice will be set aside.

Costs

83. I will hear the parties as to costs.

I certify that the preceding eighty-three (83) numbered paragraphs are a true copy of the Reasons for Judgment herein of his Honour, Justice Higgins.

Associate:

Date: 16 August 2000

Counsel for the Plaintiff: Mr C Erskine

Solicitor for the Plaintiff: Meyer Clapham

Counsel for the Defendant: Mr B Kildea

Solicitor for the Defendant: Ken Cush & Associates

Date of hearing: 3 May 2000

Date of judgment: 16 August 2000