Heritage Park [2003] QBCCMCmr 239 (24 November 2003)

Last Updated: 17 May 2005

REFERENCE: 0214-2003

ORDER OF AN ADJUDICATOR

MADE UNDER PART 9 OF CHAPTER 6

BODY CORPORATE AND COMMUNITY MANAGEMENT ACT 1997

Number of Scheme:	20153
Name of Scheme:	Heritage Park
Address of Scheme:	Tristen Court BENOWA

TAKE NOTICE that pursuant to an application made under the abovementioned Act by

Mr Wilson, the Owner(s) of lot 2

I hereby order that, in relation to the contributions the body corporate is seeking to recover from Ean Wilson, the owner of lot 2, (applicant): 1. any legal costs incurred by the body corporate in seeking payment of these contributions can not to be recovered from the applicant as part of the contributions owed; 2. any penalties accruing against the applicant on outstanding contributions are waived by the body corporate, for the period from midnight on 31 March 2003 until 30 days after the date of this order; 3. any discounts lost by the applicant on outstanding contributions are allowed by the body corporate in favour of the applicant, for the period from midnight on 31 March 2003 until 30 days after the date of this order; 4. within 21 days, the body corporate must provide the applicant with a reconciliation statement of contribution amounts paid and incurred for the period from 1 January 1997 until the present. This statement must show reversals of legal costs, penalties and discounts that are to be allowed in accordance with this order; 5. within 30 days, the applicant must pay all of his outstanding contributions. After this date penalties and lost discounts will continue to accrue against the applicant on any outstanding contributions.

STATEMENT OF ADJUDICATOR’S REASONS FOR DECISION - REF 0214-2003

"Heritage Park" CTS 20153

Application

Heritage Park Community Titles Scheme (Heritage Park) is a 40 lot scheme under the Body Corporate and Community Management Act (Act) and the Act’s Standard Module Regulation (Standard Module). The scheme is designed for residential purposes.

This application is by Ean Wilson (applicant) seeking orders against the body corporate for the scheme (respondent). The body corporate has claimed that the applicant is in arrears in his contribution payments. The applicant is requesting an order that his outstanding arrears be waived.

Background

Heritage Park grants owners who pay contributions on time a 20% discount. If payments are made late then interest is charged on arrears.

The applicant first fell into arrears in 1997. This was by an amount of $29.70 that he disputed he owed and refused to pay. The applicant’s arrears are now approximately $680. Most of these arrears have resulted from the applicant refusing to pay the disputed amount and, as a result, losing the timely payment discount each time he makes a contribution. Whenever the applicant has made a contribution payment part (or all) of that payment has been allocated towards the applicant’s arrears. As part of the contribution therefore remains outstanding at the due date the applicant loses the timely payment discount for that period.

The applicant’s arrears have also increased as a result of interest charged on those arrears. In addition, the body corporate is also seeking payment of its legal costs from a debt recovery action it is commencing against the applicant.

Submissions

The applicant’s main submissions were to the effect that:

• He has made an effort to pay levies on time (except for amounts not properly owing);
• The only time levies were not paid on time was due to the fault of the body corporate and therefore any arrears should be waived; and
• He is only willing to pay what he properly owes.

The body corporate’s main submissions were to the effect that:

•	On a number of occasions the applicant did not pay levies on time;
•	The applicant elected to use a unique method of direct deposit into the bank which caused extra difficulties; and
•	The applicant should have been aware of the change in banking arrangements.

Preliminary Question

The body corporate has claimed that this matter is frivolous, vexations, misconceived or without substance and should be dismissed (Act, 270).

After considering the issues I am not willing to dismiss the application on this basis. The applicant has raised three legal questions that need to be considered, being:

1. Whether the committee was unreasonable in refusing to grant him a timely payment discount in 1997;
2. Whether he was unfairly affected by the closure of the body corporate’s bank account shortly before he made this application; and
3. Whether the payments sought are properly owed.

If the applicant’s claim was only the timely payment discount from 1997 then the body corporate’s submission may succeed due to the long period of time that has elapsed since. However, the closure of the body corporate’s bank account was only shortly prior to the applicant bringing this application. I am satisfied that the applicant honestly believes that this action of the body corporate has adversely affected him. It is arguable that it was premature for the applicant to make this application without first making more of an effort to resolve it with the body corporate first. However, it is implicit in the materials that the parties had some discussions on this matter prior to the application being lodged. I am therefore satisfied that this constitutes a dispute requiring adjudication. The applicant also expressed a concern that he was unsure about exactly what payments are claimed to be in arrears and whether they are properly owed. This appears to be a legitimate concern, although the body corporate did submit that at some point a reconciliation of the amounts owing had been prepared for the applicant.

As I am not willing to dismiss the claim as being frivolous, vexatious, misconceived or without substance, I will also not make any costs order in relation to this application. Both parties have sought costs. However, the Act only specifically authorises an order of costs in limited circumstances. These circumstances are not satisfied here.

Decision

Applicable law

The legislation includes provisions that:

• Allow discounts for timely payment and penalties for late payment (Standard Module 97 and 98);
• Allow recovery of contributions and penalties as a debt (Standard Module, 99(1));
• Require payments made by an owner to be used to pay outstanding penalties with the remainder going towards payment of the current contribution or instalment (Standard Module, 99(4));
• Prohibit an owner from voting (except on resolutions requiring approval without dissent) if the owner has outstanding contributions or penalties (Standard Module, 49(11)); and
• Allow the body corporate to give a discount or waive a penalty notwithstanding late payment of a contribution (Standard Module, 99(5)).

Procedure for disputing contributions owing

Due to these provisions, an owner takes a considerable risk if they refuse to pay a disputed amount pending the outcome of the dispute. Firstly, failure to pay one amount commonly leads to loss of timely payment discounts on subsequent payments if the body corporate applies those payments towards the amount it considers to be in arrears. Secondly, interest may accrue on outstanding amounts. Thirdly, the body corporate is entitled to bring an action for recovery of outstanding amounts, potentially also giving liability to legal costs. Finally, the owner will have a restricted right to vote while any contributions remain outstanding.

Instead, the legislation appears to make in incumbent on owners to pay the full amount the body corporate claims is owed. The owner can then take steps to seek a refund of the disputed amount.

For example, if any owner believes the body corporate is at fault in causing the owner to lose a timely payment discount then appropriate steps for an owner to take would be:

1. Pay the full amount the body corporate claims is owing. This payment can be made under protest but should be made immediately to avoid the owner becoming unfinancial or accruing additional penalties (Standard Module 49, 99);
2. Within a reasonable time, apply to the body corporate advancing special reasons why the discount should actually be allowed (Standard Module, 99(5)). The body corporate must act reasonably in considering these reasons and deciding whether to give the discount (Act, 94(2)) ;
3. If the body corporate still refuses to allow the discount and the owner can give evidence that the body corporate has not acted reasonably then the owner can lodge an application under the dispute resolution chapter of the Act seeking to overturn that decision (Act 238, 239). The owner should make this application within 3 months of the decision the owner is seeking to overturn (Act, 242).

Lost discount (1997)

The real cause of the applicant’s accrual of arrears is the applicant’s refusal to pay the amount of the timely payment discount for the June to August quarter in 1997. The body corporate advised the applicant that it would not grant him the timely payment discount of $29.70 for this quarter because he paid his contribution late. The applicant claims that he actually tried to make the payment early but the body corporate manager lost his cheque. He says that the body corporate manager admitted this to him but not to the committee. The applicant has therefore refused to pay the amount of the disallowed discount. In all subsequent contribution notices the applicant has never paid the amount claimed. Instead, he has effectively discounted the claimed amount by subtracting an amount equivalent to this disallowed discount, interest on this disallowed discount, and other lost discounts resulting from the applicant’s refusal to pay the full amount claimed. The applicant claims that it is morally wrong for the body corporate to seek payment of the amounts claimed as they have really all resulted from the fault of the body corporate manager in losing his cheque.

While it is possible to understand the applicant’s argument, he has lost his legal right to challenge the disallowed discount by failing to take appropriate action at the time. By refusing to pay the disputed amount he has also allowed further penalties to accrue against him. As a result, the disputed amount and subsequent penalties are debts owed to the body corporate that the applicant must pay (Standard Module 99(1)). By letter dated 14 January 1998 the body corporate advised the applicant that it would not allow him the timely payment discount of $29.70. After receiving that decision the applicant had the option of accepting that decision or challenging that decision by bringing an application within 3 months to seek to overturn the decision. By doing nothing for over 5 years the applicant has lost any rights to dispute that he must pay this amount. I can see no basis for waiving the 3 month time limit for challenging a committee resolution after this length of time (Act, 242).

Late payment when bank account closed

From late 1997 the applicant entered into arrangements to pay his contributions by direct deposit into the body corporate account rather than by sending cheques to the body corporate manager. It appears that these arrangements were largely satisfactory to both parties for approximately five years. However, in September 2002 the body corporate resolved to open an account with another bank that would allow all owners to make payments by BPay or credit card. As a consequence, the old account that the applicant was depositing his contribution payments into was closed. An attempted payment by the applicant into this account therefore failed. The applicant claims he was never informed of this account closure. He also claims he attempted to use the new BPay facility but the format of the information supplied was wrong (as additional spaces were included) and this caused the attempted payment to fail.

The applicant has provided evidence that he attempted to pay $168 towards the amount he owed to the body corporate (comprised of the $210 contribution levied for the quarter less the timely payment discount of $42). The contribution was due on 1 December 2002. The applicant first attempted to make this payment on 27 November 2002 but was unable to make the payment because the body corporate’s bank account had been closed. The applicant subsequently made his payment using new BPay arrangements that had been set up for payment of contributions. However, in doing this, the deadline for payment had passed and the applicant lost the opportunity to gain the timely payment discount of $42.

If the applicant had no arrears owing when he made this payment I may well have looked favourably on the applicant’s claim that he ought to have been granted this discount. However, the applicant would not have received the discount even if the body corporate’s bank account had still been open on 27 November 2002. This is because the payment of $168 made by the applicant was applied towards the $458.45 arrears owed by the applicant in the period leaving the $210 levy for the period still outstanding.

To have avoided losing the timely payment discount for the contribution the applicant would have needed to ensure he paid the entire amount owing (including arrears) before the due date of the contribution.

Payment of legal expenses

After this application was lodged the body corporate engaged solicitors to recover the outstanding debts from the applicant. Now the body corporate is seeking to also recover from the applicant the legal costs incurred in engaging solicitors.

If a body corporate successfully recovers outstanding contributions as a debt, the body corporate will also ordinarily be able to recover its reasonable costs in pursuing the debt recovery action. However, I do not consider the body corporate has any valid basis on which it can require the applicant to pay the body corporate’s legal costs without a court order to that effect.

The body corporate relies on its by-law 20 to justify requiring the applicant to pay its legal costs. This by-law provides:
"20 Legal Costs.

An owner shall pay on demand the whole of the Body Corporate’s costs and expenses (including Solicitor and own client costs) which amount shall be deemed to be a liquidated debt due, in recovering all and any levies or moneys duly levied upon such proprietor by the Body Corporate pursuant to the Act".

However, this by-law is invalid. The power to make by-laws for a scheme is limited to subject matters the Act permits (Act, 169(1)). It is not within the power of the body corporate to make this by-law allowing the body corporate to recover legal costs incurred in seeking payment of contributions. This by-law does not relate to the administration, management and control of common property or body corporate assets (Act, 169(1)(a)). Additionally, the Act specifically provides that by-laws (other than exclusive use by-laws) must not impose a monetary liability on an owner or occupier of a lot (Act, 180(6)).

As this by-law is invalid the body corporate cannot recover its legal costs from the applicant in reliance on this by-law. If the body corporate wishes to recover its legal costs it will need to seek that recovery in an action for debt recovery in a court of competent jurisdiction.

I will therefore order that the body corporate cannot recover its legal costs from the applicant as part of the applicant’s outstanding contributions.

The body corporate manager has advised that the amount claimed against the applicant for legal costs is $81.06. However, I will give the body corporate an opportunity to clarify all amounts owed by the applicant by requiring the body corporate to provide the applicant with a final reconciliation of the amount owed by the applicant. Any amounts claimed for legal costs must be deducted from this final reconciliation.

Penalties and lost discounts since lodgement of application

In the circumstances, it would have been better if the applicant had avoided penalties and lost discounts by paying disputed amounts and then seeking reimbursement. As a general rule, penalties and lost discounts must be paid by the applicant and are recoverable as a debt (Standard Module, 99(1)).

However, I am required to make an order that is just and equitable in the circumstances to resolve the dispute (Act, 276). While the applicant has failed in his attempt to overturn the lost discounts I am satisfied that the applicant has acted in good faith in making his application seeking resolution of the dispute. The applicant has also partially succeeded in his application to the extent that the body corporate is not entitled to recover its legal costs from the applicant as a debt.

Particularly as the application was partially successfully it seems unfair for the applicant to continue to accrue penalties and lost discounts for the period that he had this application lodged for determination. I am therefore satisfied that it is just and equitable for the body corporate to waive penalties and lost discounts from the date the applicant took the concrete step of lodging this application, being 31 March 2003.

Order

For these reasons, I make the order above.