Cornhill Gardens [2007] QBCCMCmr 229 (24 April 2007)

Last Updated: 21 May 2007

REFERENCE: 0043-2007

ORDER OF AN ADJUDICATOR

MADE UNDER PART 9 OF CHAPTER 6

BODY CORPORATE AND COMMUNITY MANAGEMENT ACT 1997

Number of Scheme:	19308
Name of Scheme:	Cornhill Gardens
Address of Scheme:	134 Hill Road RUNCORN QLD 4113

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

Peter Ferguson & Melissa-sue Clarke, the Owner(s) of lot 41

I hereby order that: 1. the Body Corporate is to credit the applicants’ account for the amount of $2,678.90 by 30 April 2007; and 2. the applicants are to pay the Body Corporate the amount of $3,320.80 by 30 April 2007. I further order, that if the applicant does not pay the amount of $3,320.80 by 30 April 2007, then the Body Corporate is entitled to accrue penalty interest (in terms of the Body Corporate and Community Management (Accommodation Module) Regulation 1997) on the simple balance of $2,627.79 until the arrears are cleared.

STATEMENT OF ADJUDICATOR’S REASONS FOR DECISION - REF 0043-2007

"Cornhill Gardens" CTS 19308

Application

Peter Ferguson, the owner of Lot 41 (the applicant) has sought the following orders of an adjudicator:

We are requesting interest pertaining to outstanding levies owed from previous owner & interest paid on this interest over the past 3 years be formally waived in order to assist in resolving this dispute.

As per request to AD body corporate:

1.	That the Body Corporate refunds the discount amount of $536.18 to the Owners of Unit 41.

2.	That the Body Corporate refunds the interest amount of $769.35 to the Owners of Unit 41.

3.	That the Body Corporate refunds the Debt Recovery fee amount of $940.41 to the Owners of Unit 41.

4.	That the Body Corporate refunds the amount of charge of $50 to submit application to waive above mentioned fees on 24//11/2006.

The Scheme

"Cornhill Gardens" CTS 19308 was registered as a group titles plan (now termed a standard format plan) 24 January 1994 and comprises 94 lots. It is regulated by the Body Corporate and Community Management (Accommodation Module) Regulation 1997 ("Accommodation Module").

Jurisdiction

Section 276(1) of the Act provides that an adjudicator may make an order that is just and equitable in the circumstances (including a declaratory order) to resolve a dispute, in the context of a community titles scheme, about-

(a) a claimed or anticipated contravention of the Act or the community management statement; or

(b) the exercise of rights or powers, or the performance of duties, under the Act or the community management statement; or

(c) a claimed or anticipated contractual matter about-

(i) the engagement of a person as a body corporate manager or service contractor for a community titles scheme; or

(ii) the authorisation of a person as a letting agent for a community titles scheme.

An order may require a person to act, or prohibit a person from acting, in a way stated in the order (section 276(2)). An adjudicator's order may contain ancillary and consequential provisions the adjudicator considers necessary or appropriate (section 284(1)).

Grounds

The applicant’s grounds are quoted as follows:

I am writing to you as a final resort to resolve dispute over Outstanding Body Corporate Levies at ‘Cornhill Gardens’ Unit 41/134 Hill Road, Runcorn. Some 3 years a go (01/10/2003) we purchased the above property. However, at the time of settlement, outstanding levies from previous owner were not cleared. As such these were transferred to ourselves, along with interest which has been accruing prior to settlement, and each & every day after settlement.

We have spent the last 3 years trying to resolve this matter through our solicitor. He has acknowledged an error was made at settlement, and sought payment amount from AD Body Corporate to rectify the matter. On advise (sic) from AD Body Corporate, our solicitors made payment from their business directly to Body Corporate to clear the amount of outstanding levies owed at the time of settlement. We then received a BC statement advising of a new amount of outstanding levies with no explanation. Our solicitor has requested a breakdown of calculations for the pat 2 years, to no avail. And yet the Body Corporate continue to apply interest, arrears and debt recovery costs. I have had numerous letters from Debt Collection Agency, including contact to my employer. All the while, applied interest & debt recovery costs have meant we have maintained an outstanding balance from day one.

Desperately seeking a final resolution, I personally requested AD Body Corporate waive the outstanding interest, debt recovery costs & arrears pertaining to the prior owners non payment. However, after 3 years of trying to resolve this matter, the motion was lost due to non receipt of Voting papers from committee members.

The applicant includes an extract of a letter written by their solicitor to the Body Corporate along with various supporting documentation.

Submissions

Despite an invitation and follow up with the body corporate manager, the committee did not make a submission in relation to this application.

Two owners made submissions. Both submissions are in the same form and state that the applicant should have known of the arrears through their solicitor and there is no justification for waiving additional costs, when other people paid their levies at the proper time.

Determination

I would first like to observe that, without some sort of incentive system, bodies corporate are extremely vulnerable to being regarded as a very low priority creditor. This is because it is far more attractive to reduce the interest accruing on credit cards or overdraft, and simply make a "toothless tiger" wait for payment. However, as bodies corporate are not in the business of accepting the risk associated with debt, the Act provides bodies corporate with an incentive system to alleviate the need to engage in debt collection procedures. These incentives take the form of discounts for timely payment and penalty interest on arrears.

Section 150(2)(c) of the Body Corporate and Community Management Act 1997 states that:

"... ... the regulation module applying to a community titles scheme may provide for financial arrangements about ... ... discounts and penalties relating to the payment of contributions".

The Body Corporate and Community Management (Accommodation Module) Regulation 1997 permits the giving of a discount as follows:

Discounts for timely payment [SM, s 97]

(1) The body corporate may, by ordinary resolution, fix a discount to be given to owners of lots if a contribution, or an instalment of a contribution, is received by the body corporate by the date for payment fixed in notices of contribution given to the owners.

(2) The discount cannot be more than 20% of the amount to be paid.

Example--

Suppose that--

•	a contribution of $100 is payable in 4 instalments of $25 and the body corporate has fixed a discount of 10% for payment by the date for payment in the notices of contribution given to the owners
•	an account requiring payment of an instalment of $25 by 31 March is given to the owner of a lot
•	the instalment is paid on 25 March.

In this case, the owner is entitled to a discount of $2.50 on the instalment.

The Accommodation Module further allows the imposition of penalty interest at the rate of 2.5% per month as follows:

96 Penalties for late payment [SM, s 98]

(1) The body corporate may, by ordinary resolution, fix a penalty to be paid by owners of lots if a contribution, or instalment of contribution, is not received by the body corporate by the date for payment fixed in notices of contribution given to the owners.

(2) The penalty must consist of simple interest at a stated rate (of not more than 2.5%) for each month the contribution or instalment is in arrears.

Example--

Suppose that--

•	a contribution of $400 is payable in 4 instalments of $100 and the body corporate has fixed a penalty interest rate of 2% per month
•	an account requiring payment of an instalment of $100 by 31 March is given to the owner of a lot
•	the instalment is not paid until 27 June.

In this case, the instalment has been in arrears for 2 months and a penalty of $4 is payable.

To assist me in making a final determination, I arranged for the body corporate manager to provide me with statements of account prior to settlement and through to 31 December 2006. This is to help me determine the make up of the applicants’ statement of account from the time the arrears first occurred. There are a number of issues within that statement that I will address in the course of my determination. These are:

•	recurring loss of discount;
•	calculation of penalty interest;
•	debt recovery costs;
•	committee submission fee;
•	arrears notice fees.

Recurring loss of Discount

As I have already indicated, the Body Corporate is entitled to offer discounts for timely payment. This Body Corporate has adopted the maximum discount figure of 10% at an annual general meeting held on 8 April 2000.

An adjudicator is empowered to make an order that is just and equitable in the circumstances and I intend to invoke this discretion in relation to the applicants’ situation below.

The statements I have received indicate that the payment due on Sunday 1 August 2006 was not receipted until the second day of that month. There may be any number of reasons for this, none of which have been put forward by either the applicant or the Body Corporate. However in my mind, the first available day on which the Body Corporate could have put the money to work after the due date, was the second day of the month. That is, no interest could be earned on the monies until the first bank working day after the due date for the levy. The Body Corporate has not suffered any loss on this payment.

Calculation of Penalty Interest

There are two aspects of the calculation of interest that I wish to highlight:

1. the interest is to be calculated on a simple basis. Simple interest is "calculated on the principal amount only of a loan for each period on which interest is paid, as against compound interest where interest is added to the existing balance so that the subsequent interest calculation is made on principal plus interest. For example, $10,000 invested at 10 per cent simple interest per annum would earn $82 in each month for the term of the loan. With compound interest, the second month's interest would be calculated on $10 082 and so on".^[1]

2. the example given under Section 96 of the Body Corporate and Community Management (Accommodation Module) Regulation 1997 makes it clear that interest does not accrue daily, but rather a full month must elapse before the penalty interest can be imposed.

My calculation of the interest that has accrued on the outstanding amounts varies from those made by the body corporate manager (I suspect) as the body corporate manager has calculated the interest on a daily basis. In my view, this has resulted in some rounding variances and also calculations based on the daily average balance, rather than the monthly minimum balance.

I will apply the above principles against the balance owing in my order.

Debt Recovery Costs, Fee for Committee Submission and Arrears Notice Fees

It is important to recognise, that the agreement to charge an arrears notice fee and flying minutes fee is between the Body Corporate and the body corporate manager. At no point has the owner of the lot agreed to have a charge of this type debited to their account. Therefore, if the body corporate manager and Body Corporate have an agreement for the Body Corporate to pay such a fee, it is between them. However, there is no authority to pass such a fee along to the lot owner.

In relation to debt collection costs, in a previous adjudication (no. 458 of 1997), Adjudicator Meek made the following observation in relation to an equivalent provision in the Body Corporate and Community Management (Standard Module) Regulation 1997, namely the inclusion of recovery costs on the applicant’s contribution account.

Payment and recovery of contributions is dealt with in section 99 of the standard module. That section provides that outstanding contributions etc, are recovered as a debt.
In my view, legal costs do not become an amount payable by an owner in arrears, until the body corporate has in fact obtained judgement for the amount of the arrears, together with an order as to costs. If it were otherwise, then there would be no check on the ability of a body corporate to increase an owner’s contribution by amounts that the body corporate considered outstanding. This would be unreasonable. To avoid this scenario, there must be an order for payment of the body corporate’s legal costs, before such costs can be added to an owner’s contribution account. ...

Since the making of this order, section 97 has been amended to be more specific, quote:

97 Payment and recovery of body corporate debts

(1) If a contribution or contribution instalment is not paid by the date for payment, the body corporate may recover each of the following amounts as a debt--

(a)	the amount of the contribution or instalment;
(b)	any penalty for not paying the contribution or instalment;
(c)	any costs ("recovery costs") reasonably incurred by the body corporate in recovering the amount.

(2) If the amount of a contribution or contribution instalment has been outstanding for 2 years, the body corporate must, within 2 months from the end of the 2 year period, start proceedings to recover the amount. ...

The section now directs a body corporate to commence proceedings to recover outstanding contributions and also specifically identifies the items or arrears the body corporate can in fact recover i.e. outstanding contributions, any penalty imposed and recovery costs reasonably incurred by the body corporate.

Each of the amounts claimed must be recovered as a debt and there is particular significance in this method of recovery. That is, that evaluation of the reasonableness of costs of recovery is for determination by a court. Given that this is the case, the body corporate cannot therefore include the costs of recovery on the account, until a court has determined that they are reasonable.

I finally observe that, while it remains open to the body corporate manager to charge the Body Corporate a fee for reminder notices or flying minutes, in this case I consider the cost of this to the Body Corporate have been amply compensated, by the forfeited discount and penalty interest applied.

Calculation of Balance to be cleared at 31 March 200

Following is my calculation of the correct balance as at 31 March 2007 to make my calculations as up to date as possible.

I note that my opening balance does not accord to that provided by the body corporate manager. This is because the body corporate manager’s records only date back to 1 February 2003 and show an opening balance of $116.94. However, given the disparity in my calculations and items for inclusion (compared to that the of body corporate manager), it seems unlikely the Body Corporate would be in a position to prove this debt should the matter go to the Magistrates Court for enforcement. I am therefore starting with an opening balance of nil.

Day	Date	Item	Debit	Credit	Balance	Simple Balance
Saturday	1/02/2003	Bought forward	$0.00		$0.00	$0.00
Friday	28/02/2003	Interest	$0.00		$0.00	$0.00
Monday	31/03/2003	Interest	$0.00		$0.00	$0.00
Wednesday	30/04/2003	Interest	$0.00		$0.00	$0.00
Wednesday	28/05/2003	Admin	$204.80		$204.80	$204.80
Wednesday	28/05/2003	Sinking	$226.05		$430.85	$430.85
Saturday	31/05/2003	Interest	$0.00		$430.85	$430.85
Friday	13/06/2003	Payment		$253.48	$177.37	$177.37
Friday	13/06/2003	Payment		$20.48	$156.89	$156.89
Friday	13/06/2003	Payment		$119.86	$37.03	$37.03
Friday	13/06/2003	Payment		$14.42	$22.61	$22.61
Monday	30/06/2003	Interest	$0.57		$23.18	$22.61
Monday	28/07/2003	Admin	$204.80		$227.98	$227.41
Monday	28/07/2003	Sinking	$226.05		$454.03	$453.46
Thursday	31/07/2003	Interest	$0.57		$454.59	$453.46
Sunday	31/08/2003	Interest	$11.34		$465.93	$453.46
Tuesday	30/09/2003	Interest	$11.34		$477.26	$453.46
Thursday	2/10/2003	Settlement			$477.26	$453.46
Friday	24/10/2003	Admin	$204.80		$682.06	$658.26
Friday	24/10/2003	Sinking	$226.05		$908.11	$884.31
Friday	31/10/2003	Interest	$11.34		$919.45	$884.31
Sunday	30/11/2003	Interest	$22.11		$941.56	$884.31
Wednesday	31/12/2003	Interest	$22.11		$963.67	$884.31
Saturday	31/01/2004	Interest	$22.11		$985.77	$884.31
Sunday	1/02/2004	Admin	$204.80		$1,190.57	$1,089.11
Sunday	1/02/2004	Sinking	$226.05		$1,416.62	$1,315.16
Sunday	29/02/2004	Interest	$32.88		$1,449.50	$1,315.16
Wednesday	31/03/2004	Interest	$32.88		$1,482.38	$1,315.16
Friday	30/04/2004	Interest	$32.88		$1,515.26	$1,315.16
Wednesday	12/05/2004	Admin	$360.00		$1,875.26	$1,675.16
Wednesday	12/05/2004	Sinking	$90.00		$1,965.26	$1,765.16
Friday	21/05/2004	Payment		$823.80	$1,141.46	$941.36
Friday	21/05/2004	Payment		$200.05	$941.41	$741.31
Monday	31/05/2004	Payment		$566.38	$375.03	$174.93
Monday	31/05/2004	Payment		$26.14	$348.89	$148.79
Monday	31/05/2004	Interest	$3.72		$352.61	$148.79
Wednesday	16/06/2004	Payment		$48.02	$304.59	$100.77
Wednesday	16/06/2004	Payment		$3.00	$301.59	$97.77
Wednesday	16/06/2004	Payment		$353.98	-$52.39	-$256.21
Wednesday	16/06/2004	Discount		$0.00	-$52.39	-$256.21
Wednesday	30/06/2004	Interest	$0.00		-$52.39	-$256.21
Saturday	31/07/2004	Interest	$0.00		-$52.39	-$256.21
Sunday	1/08/2004	Admin	$360.00		$307.61	$103.79
Sunday	1/08/2004	Sinking	$90.00		$397.61	$193.79
Monday	2/08/2004	Payment		$322.02	$75.59	-$128.23
Monday	2/08/2004	Payment		$72.18	$3.41	-$200.41
Monday	2/08/2004	Payment		$10.80	-$7.39	-$211.21
Monday	2/08/2004	Discount		$45.00	-$52.39	-$256.21
Tuesday	31/08/2004	Interest	$0.00		-$52.39	-$256.21
Thursday	30/09/2004	Interest	$0.00		-$52.39	-$256.21
Friday	29/10/2004	Payment		$324.00	-$376.39	-$580.21
Friday	29/10/2004	Payment		$81.00	-$457.39	-$661.21
Sunday	31/10/2004	Interest	$0.00		-$457.39	-$661.21
Monday	1/11/2004	Admin	$360.00		-$97.39	-$301.21
Monday	1/11/2004	Sinking	$90.00		-$7.39	-$211.21
Monday	1/11/2004	Discount		$45.00	-$52.39	-$256.21
Tuesday	30/11/2004	Interest	$0.00		-$52.39	-$256.21
Friday	31/12/2004	Interest	$0.00		-$52.39	-$256.21
Monday	31/01/2005	Interest	$0.00		-$52.39	-$256.21
Tuesday	1/02/2005	Admin	$360.00		$307.61	$103.79
Tuesday	1/02/2005	Sinking	$125.00		$432.61	$228.79
Friday	4/02/2005	Payment		$294.66	$137.95	-$65.87
Friday	4/02/2005	Payment		$99.00	$38.95	-$164.87
Friday	4/02/2005	Payment		$42.84	-$3.89	-$207.71
Friday	4/02/2005	Discount		$0.00	-$3.89	-$207.71
Monday	28/02/2005	Interest	$0.00		-$3.89	-$207.71
Thursday	31/03/2005	Interest	$0.00		-$3.89	-$207.71
Thursday	28/04/2005	Payment		$18.31	-$22.20	-$226.02
Thursday	28/04/2005	Payment		$19.09	-$41.29	-$245.11
Thursday	28/04/2005	Payment		$399.10	-$440.39	-$644.21
Saturday	30/04/2005	Interest	$0.00		-$440.39	-$644.21
Sunday	1/05/2005	Admin	$360.00		-$80.39	-$284.21
Sunday	1/05/2005	Sinking	$125.00		$44.61	-$159.21
Sunday	1/05/2005	Discount		$48.50	-$3.89	-$207.71
Tuesday	31/05/2005	Interest	$0.00		-$3.89	-$207.71
Thursday	30/06/2005	Interest	$0.00		-$3.89	-$207.71
Sunday	31/07/2005	Interest	$0.00		-$3.89	-$207.71
Monday	1/08/2005	Admin	$390.00		$386.11	$182.29
Monday	1/08/2005	Sinking	$125.00		$511.11	$307.29
Thursday	11/08/2005	Payment		$283.31	$227.80	$23.98
Thursday	11/08/2005	Payment		$231.69	-$3.89	-$207.71
Thursday	11/08/2005	Discount		$0.00	-$3.89	-$207.71
Wednesday	31/08/2005	Interest	$0.00		-$3.89	-$207.71
Friday	30/09/2005	Interest	$0.00		-$3.89	-$207.71
Monday	31/10/2005	Interest	$0.00		-$3.89	-$207.71
Tuesday	1/11/2005	Admin	$390.00		$386.11	$182.29
Tuesday	1/11/2005	Sinking	$125.00		$511.11	$307.29
Friday	11/11/2005	Payment		$351.00	$160.11	-$43.71
Friday	11/11/2005	Payment		$112.50	$47.61	-$156.21
Friday	11/11/2005	Discount		$0.00	$47.61	-$156.21
Wednesday	30/11/2005	Interest	$0.00		$47.61	-$156.21
Saturday	31/12/2005	Interest	$0.00		$47.61	-$156.21
Tuesday	31/01/2006	Interest	$0.00		$47.61	-$156.21
Wednesday	1/02/2006	Admin	$390.00		$437.61	$233.79
Wednesday	1/02/2006	Sinking	$125.00		$562.61	$358.79
Friday	3/02/2006	Payment		$351.00	$211.61	$7.79
Friday	3/02/2006	Payment		$112.50	$99.11	-$104.71
Friday	3/02/2006	Discount		$0.00	$99.11	-$104.71
Tuesday	28/02/2006	Interest	$0.00		$99.11	-$104.71
Friday	31/03/2006	Interest	$0.00		$99.11	-$104.71
Sunday	30/04/2006	Interest	$0.00		$99.11	-$104.71
Monday	1/05/2006	Admin	$390.00		$489.11	$285.29
Monday	1/05/2006	Sinking	$125.00		$614.11	$410.29
Monday	1/05/2006	Payment		$351.00	$263.11	$59.29
Monday	1/05/2006	Payment		$112.50	$150.61	-$53.21
Monday	1/05/2006	Discount		$51.50	$99.11	-$104.71
Wednesday	31/05/2006	Interest	$0.00		$99.11	-$104.71
Saturday	10/06/2006	Special	$2,100.00		$2,199.11	$1,995.29
Friday	30/06/2006	Interest	$0.00		$2,199.11	$1,995.29
Monday	31/07/2006	Interest	$49.88		$2,248.99	$1,995.29
Tuesday	1/08/2006	Admin	$475.00		$2,723.99	$2,470.29
Tuesday	1/08/2006	Sinking	$100.00		$2,823.99	$2,570.29
Wednesday	9/08/2006	Payment		$96.25	$2,727.74	$2,474.04
Wednesday	9/08/2006	Payment		$162.50	$2,565.24	$2,311.54
Wednesday	9/08/2006	Payment		$258.75	$2,306.49	$2,052.79
Wednesday	9/08/2006	Discount		$0.00	$2,306.49	$2,052.79
Thursday	31/08/2006	Interest	$51.32		$2,357.81	$2,052.79
Saturday	30/09/2006	Interest	$51.32		$2,409.13	$2,052.79
Tuesday	31/10/2006	Interest	$51.32		$2,460.45	$2,052.79
Wednesday	1/11/2006	Admin	$475.00		$2,935.45	$2,527.79
Wednesday	1/11/2006	Sinking	$100.00		$3,035.45	$2,627.79
Monday	6/11/2006	Payment		$475.00	$2,560.45	$2,152.79
Monday	6/11/2006	Payment		$100.00	$2,460.45	$2,052.79
Monday	6/11/2006	Discount		$0.00	$2,460.45	$2,052.79
Thursday	30/11/2006	Interest	$51.32		$2,511.77	$2,052.79
Sunday	31/12/2006	Interest	$51.32		$2,563.09	$2,052.79
Wednesday	31/01/2007	Interest	$51.32		$2,614.41	$2,052.79
Thursday	1/02/2007	Admin	$475.00		$3,089.41	$2,527.79
Thursday	1/02/2007	Sinking	$100.00		$3,189.41	$2,627.79
Wednesday	28/02/2007	Interest	$65.69		$3,255.11	$2,627.79
Saturday	31/03/2007	Interest	$65.69		$3,320.80	$2,627.79

For the purposes of identifying the amount that is to be credited to the applicants’ account, I note that the balance according to the body corporate manager at 31 March 2007 was $5,999.70.

On the basis that the body corporate manager’s recorded account balance at $5,999.70, I will order that:

•	the Body Corporate is to credit the applicants’ account for the amount of $2,678.90 by 30 April 2007; and
•	the applicants are to pay the Body Corporate the amount of $3,320.80 by 30 April 2007.

It is regrettable that the applicants have not met the special levy that was due on 10 June 2006 as this has led to the accrual of a substantial amount of interest expense and forfeiture of discount.

If the applicant wishes to avoid the accrual of further interest for the month of April, they should make payment no later than 30 April 2007.

---

^[1] http://www.anz.com/edna/dictionary.asp?action=content&content=simple_interest
from the "Language of Money" by Edna Carew, ISBN 0868614394