Rivage Royale [2007] QBCCMCmr 56 (2 February 2007)

Last Updated: 12 February 2007

REFERENCE: 0895-2006

ORDER OF AN ADJUDICATOR

MADE UNDER PART 9 OF CHAPTER 6

BODY CORPORATE AND COMMUNITY MANAGEMENT ACT 1997

Number of Scheme:	4163
Name of Scheme:	Rivage Royale
Address of Scheme:	75 Brighton Parade SOUTHPORT QLD 4215

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

Mr Steve & Mrs Susan West, the Owner(s) of lot 146

I hereby order that: • the Body Corporate is to credit the applicants’ account for the amount of $98.54. • the applicants are to pay the Body Corporate the amount of $777.34, by 26 February 2007. I further order, that if the applicant does not pay the amount of $777.34 by 26 February 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 balance of $693.19 until the arrears are cleared.

STATEMENT OF ADJUDICATOR’S REASONS FOR DECISION - REF 0895-2006

"Rivage Royale" CTS 4163

Application

Steve and Susan West the owners of Lot 146 (the applicants) have sought the following orders of an adjudicator against the Body Corporate for Rivage Royale CTS 4163 (the respondent):

Negation of penalties for late payment of levies and interest on same penalties (reversal of penalties and reversal of interest penalties on same)

The Scheme

Rivage Royale CTS 4163 is a 177 lot scheme registered under the Body Corporate and Community Management Act 1997 and is operating under the Body Corporate and Community Management (Standard Module) Regulation 1997.

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 advises they were unexpectedly delayed on a trip and called the Body Corporate to advise them they would be late in paying their 1 July 2006 Body Corporate levies. They state they asked for relaxation of any penalty due to a matter that was out of their control. The applicants enclose a letter dated 6 August 2006 which is addressed to the Body Corporate Manager from the applicant. It refers to a phone call made by the applicant before 1 July 2006 and where one of the applicants says she assured the person she spoke to she would pay as soon as they returned. The letter states the Body Corporate Manager asked for other methods of payment at that time but that the applicant said she had no cheque book facility while overseas.

On the bottom of this letter, is a hand written note dated 12 September 2006, where the applicant states she has still not received a return call from the Body Corporate Manager. It says she encloses a cheque for the October levies.

The applicants attach a letter from the Body Corporate Manager dated 12 October 2006, where the Body Corporate Manager advises the applicant that the committee has refused their request to allow the discount, on the basis that owners are advised of the due dates for levies every year. They enclose a notice of overdue levies for $741.02.

She also encloses a letter of complaint to the committee dated 31 October 2006.

In summary the applicants argue that they cannot understand the committee’s refusal "when (the applicant) did the correct thing and they have the right to not give a reply but apply large interest charges without prior advice".

Submissions

Submissions were received from four lot owners, at least one of whom I suspect is a member of the committee. All argue that the application should be dismissed. The following is a summary of their reasons:

•	there are multiple methods of payment, including phone (credit card), internet and DEFT;
•	if the applicants could call the Body Corporate Manager, they could have called and made payment;
•	no penalty was imposed by the committee. The introduction of discounts and penalty were a decision of the Body Corporate many years before;
•	all lot owners know the due dates;
•	all owners need to be treated the same way and regular relaxation of terms could encourage cash flow problems if late payment became overwhelming;
•	the committee cannot be expected to convene a meeting every time some form of ad hoc request comes up;

The Body Corporate committee has also made a submission through the Body Corporate Manager. They raise the following:

•	introduction of penalty interest and discounts was decided by the Body Corporate in general meeting on 6 February 1998. Minutes are supplied;
•	due to many requests, the committee decided not to entertain relaxation unless there were extenuating circumstances;
•	owners are informed each year (in the annual general meeting notice) of due dates and it is up to owners to arrange to meet these dates;
•	the applicants received a personalized letter when they moved in (enclosed and dated 9 August 2004) where they were advised of due dates for levies and also told that the committee will not consider relaxation requests;
•	the Body Corporate Manager does not have authority to approve the waiving of discounts which can only be done by the committee on written request;
•	the committee determined not to relax the discount and penalty at a meeting on 25 August 2006;
•	the decision was not notified to the applicants until 12 October due to an office emergency;
•	there are many payment options available to owners including DEFT, phone and internet by credit card or cheque, or authorisation of debit to credit card up front;
•	the committee believes the rule should be applied consistently.

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

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.

Clearly there is ability to offer discounts for timely payment, and to impose penalty interest at the rate of 2.5% per month. In their submissions, the Body Corporate has included copies of the Body Corporate resolutions where the Body Corporate decided to invoke discounts and penalties for late payment.

With the Body Corporate’s submission, the body corporate manager provided a statement of account to assist 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:

•	loss of discount;
•	calculation of penalty interest;
•	recovery of reminder notice fee.

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 20%. It is not appropriate to regard it as a penalty, but rather an incentive.

I note the applicants’ good manners in contacting the Body Corporate when they became aware that their return would be late. It appears however, that this contact by the applicants took the form of notification, rather than a request for extension and consent. I accept the body corporate manager’s statement that they told the applicant that they cannot give any undertaking on behalf of the Body Corporate that discount would be preserved.

Further, as stated in the Body Corporate submission, there are a large number of different payment methods available in this day and age, yet the applicants chose not to implement any one of those options when they were advised that an extension was not automatic.

Therefore, given that the applicants did not pay their July contributions until 11 July, they needed to pay an amount of $2,965.95 in order to cover the contributions levied (as discount was not available).

Some authorities will withhold discounts as long as any amount remains outstanding on an account. However, I note the body corporate has given the applicants the benefit of discounts on the October payment. In my mind, this shows a sense of fair play on the body corporate’s part.

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 will apply the above principles against the balance owing after administration fund discount is given, in my order.

Recovery of Reminder Notice Fee

It is important to recognise, that any agreement to charge a reminder notice 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.

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 a body corporate manager to include a charge to the Body Corporate for reminder notices in their agreement, 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 December 2006

Following is my calculation of the correct balance as at 31 December 2006, to acknowledge interest accrued by the time this order issues.

Date	Entry	Debit	Credit	Balance	Simple Balance
1/07/2006	Administration	2,368.35		2368.35	2,368.35
1/07/2006	Sinking	597.60		2,965.95	2,965.95
11/07/2006	Administration		1,894.68	1,071.27	1,071.27
11/07/2006	Sinking		478.08	593.19	593.19
31/08/2006	Interest	14.83		608.02	593.19
26/09/2006	Receipt		2,272.59	-1,634.91	-1,679.40
1/10/2006	Administration	2,368.26		703.69	688.86
1/10/2006	Sinking	597.47		1,301.16	1,286.33
13/10/2006	Discount		473.65	827.51	812.68
13/10/2006	Discount		119.49	708.02	693.19
31/10/2006	Interest	17.33		725.35	693.19
30/11/2006	Interest	17.33		742.68	693.19
31/12/2006	Interest	17.33		760.01	693.19
1/01/2007	Administration	2,305.58		3,065.59	2,998.77
1/01/2007	Sinking	581.63		3,647.22	3,580.40

I have concerns in relation to the payment made by the applicants on 26 September 2006, as it appears to be $100 short of the amount required to clear the October levy. Attempts were made to contract both the applicants and the respondent. The body corporate manager was able to provide written evidence that the amount received according to DEFT was only $2,272.59.

For the purposes of identifying the amount that is to be credited to the applicants’ account, I note that the balance owing according to the body corporate managers at 30 November 2006 was $841.22. On that basis I will order that:

•	the Body Corporate is to credit the applicants’ account for the amount of $98.54.

•	the applicants are to pay the Body Corporate the amount of $777.34 by 26 February 2007.

If the amount of $777.34 is not paid by 26 February 2007, then the Body Corporate is entitled to continue to impose penalty interest on the amount of $693.19 until the arrears are cleared.

The amount to be paid to the Body Corporate by the applicants is in addition to the levies falling due on 1 January 2007.

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