Dakota at 88 Macquarie Street [2007] QBCCMCmr 583 (8 October 2007)

Last Updated: 18 October 2007

REFERENCE: 0056-2007

ORDER OF AN ADJUDICATOR

MADE UNDER PART 9 OF CHAPTER 6

BODY CORPORATE AND COMMUNITY MANAGEMENT ACT 1997

Number of Scheme:	29862
Name of Scheme:	Dakota at 88 Macquarie Street
Address of Scheme:	QUEENSLAND

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

Shana Buchanan, the owner of lot 228

I hereby order that the application for an order that the owner of lot 228 be relieved from paying charges described as "debt recovery fees", totalling $3,003.22 and "arrears recovery charges" totalling $3,240.82 is dismissed. The body corporate is not prevented from seeking a court order for payment of recovery costs where it can establish to the court’s satisfaction that those costs are reasonable.

STATEMENT OF ADJUDICATOR’S REASONS FOR DECISION - REF 0056-2007

"Dakota at 88 Macquarie Street" CTS 29862

Scheme

"Dakota at 88 Macquarie Street" Community Titles Scheme 29862 was registered as a building format plan of subdivision comprising 94 lots and common property, on 27 November 2001. It is regulated by the Body Corporate and Community Management Act 1997 (the Act) and its Accommodation Module Regulation (Accommodation Module).

Application

This is an application by the owner of lot 228, Shana Trish Buchanan (the applicant), through Lehns Solicitors, against the body corporate, seeking a determination of the amount owing by the applicant to the body corporate from the period 28 September 2006 to date. The applicant purported to amend her application, by letter dated 27 July 2007 to seek an order that she be relieved from paying charges described as "debt recovery fees", totalling $3,003.22 and "arrears recovery charges" totalling $3,240.82.

The applicant’s grounds are to the effect that:

• The charges have been levied otherwise than in accordance with the Act, Accommodation Module or by-laws;

• Communication as to the outstanding balance of the applicant’s account has been inappropriate and often made it difficult for her to determine the amount outstanding on her account;

• In order for the body corporate to show that the debt recovery fees and arrears recovery charges are payable by the applicant, it must show that the fees are "reasonable";

• As evidence of the "unreasonableness" of the fees, consideration should be had to the previous small debt claim. In the previous small debt claim the outstanding contributions at the date of the judgment were $2,775.60, whereas the recovery fees in pursuit of this amount were $4,984.31. The applicant submits that these amounts are obviously excessive and therefore not "reasonable".

• Recovery costs should be in accordance with the Uniform Civil Procedure Rules 1999. The appropriate scale is the Magistrates Court Scale.

Submissions

A submission by the body corporate manager (BCM) was to the following effect:

• The committee resolved on 26 June 2002 "that the secretary issue a reminder letter to all lot owners overdue in the payment of levies after thirty days and refer all outstanding levies to a solicitor for recovery action after sixty days";

• At a general meeting held on 14 December 2004, the body corporate entered into an agreement with Ernst Body Corporate Management Pty Ltd that states, in part, that the BCM is to "monitor levies in arrears. Refer arrears to a recovery agent";

• Action has been taken against the owner of lot 228 in accordance with the body corporate instructions;

• The charges by the BCM appear on the "Lot Owner Costs" report as "arrears recovery". The basis of the charge is two units of six minutes of staff time at $8.00 per unit, ie $16 plus GST;

• The work is performed as follows:

o At 30 days – an aged debtors report is printed. Those lots who have arrears at 30 days are marked. An arrears notice is printed for those marked lots with arrears. The printed notices are checked against the marked aged debtors report. The notice is copied, enveloped and written up in the postage journal. A copy of the notice is placed in the lot owner’s file. The charge is entered into the "Lot Owner Costs" account;

o At 60 days – an aged debtors report is printed. Those lots who have arrears at 60 days are marked. Correspondence is prepared to the recovery agent requesting they take action. The correspondence includes a break-up of both the administrative and sinking funds and other amounts owing. The correspondence is copied, enveloped and written up in the postage journal. A copy of the correspondence is placed in the lot owner’s file. The charge is entered into the "Lot Owner Costs" account.

o The above work is performed by a senior accounting staff person.

• The charges incurred to the body corporate by the recovery agent appear on the "Lot Owner Costs" report as "debt recovery fee";

• Overdue interest – the body corporate resolved on 4 February 2003 to fix a penalty of 2.5% per month on contributions not received by the due date as fixed in notices of contribution given to owners. The penalty interest has been charged in accordance with this resolution and is listed on the owners statement as "overdue interest";

• Legal fees – in accordance with section 97(1)(c) any costs reasonably incurred by the body corporate in recovering outstanding contributions has been charged to the lot owner (invoices from Strata and Corporate Collections Pty Ltd attached);

• Arrears Notice/Commence Action – these amounts are costs incurred by the body corporate and passed on to the lot owner. The amounts are set in the BCM’s agreement, schedule of fees;

• Copies of notice sent to the applicant and those sent and received from Strata and Corporate Collections Pty Ltd are attached.

The applicant exercised her right to inspect the submission and responded by re-iterating material in the amended application, adding that the body corporate, in its submission, had not addressed the issue of whether the recovery costs were reasonable.

Jurisdiction

This is a dispute between an owner and a body corporate and comes within the dispute resolution provisions of the Act concerning alleged contraventions of the Act (see sections 226, 227 & 228).

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)).

Decision

Applicable Law

The legislation includes provisions to the effect that:

• At least 30 days before the payment of a contribution is required the body corporate must give the owner written notice of the contribution, the date for payment, any discount, any arrears and any penalty. This notice may also include amounts payable for a specially contracted service enjoyed by the owner or payable under an exclusive use by-law. The notice may be served on a lot owner at their address for service, or in the way directed by the lot owner (Accommodation Module, 94);

• The body corporate may, by ordinary resolution, fix a penalty (consisting of simple interest at a stated rate of not more than 2.5% for each month) to be paid by owners if a contribution is not received by the body corporate by the due date (Accommodation Module, 96);

• If a contribution is not paid by the due date the body corporate may recover, as a debt, the contribution, any applicable penalty and any recovery costs reasonably incurred by the body corporate (Accommodation Module, 97(1));

• If a contribution has been outstanding for two years the body corporate must start proceedings to recover the amount (Accommodation Module, 97(2)); and

"Reasonableness" of Recovery Costs

The legislation specifically provides that the body corporate can recover as a debt any reasonably incurred recovery costs (Accommodation Module, 97(1)(c)). The body corporate would be mistaken if it considered that section 97 Accommodation Module allowed it to simply turn over debt recovery to a body corporate manager, debt collector, a lawyer or another party and expect to be able to ultimately recover any debt recovery fees from the debtor. Rather, the committee needs to closely monitor all costs associated with recovering contributions from lot owners to ensure that the costs are reasonably incurred.

The body corporate needs to claim recovery costs as a debt and await either agreement by the defendant or a court order specifying which recovery costs are "reasonably incurred". If the applicant and the body corporate cannot agree on what recovery costs have been reasonably incurred then the body corporate can initiate court action seeking its reasonable recovery costs.

I therefore do not consider it appropriate in the present circumstances to consider the details of all the costs claimed and determine whether or not those costs are reasonable. The body corporate can take further debt recovery action seeking those costs and the dispute can be determined by agreement between the parties or by a court or tribunal of competent jurisdiction as necessary. The right to recover reasonable costs as a debt provides a broader basis for recovery than the standard court scale of costs but does not remove the need to seek recovery in court and establish that those costs are in fact reasonable.

It should be noted that the body corporate cannot rely on by-law 11.1 to recover the disputed charges from the applicant. To the extent that any recorded by-law purports to empower a body corporate to recover from a lot owner all recovery costs it might incur without the body corporate having first obtained a judgement for the said costs, then the by-law is inconsistent with section 97(1) of the Accommodation Module in my view, and invalid to this extent under section 180(1) of the Act which provides that if a by-law is inconsistent with the Act or applicable regulation module, the by-law is invalid to the extent of the inconsistency. The only basis for recovery of debt recovery costs is s.97(1) of the Accommodation Module and, if the parties cannot agree on the reasonableness of the charges, recovery must be sought in court.

I therefore dismiss the application.