Crown Towers [2011] QBCCMCmr 79 (24 February 2011)

Last Updated: 21 March 2011

REFERENCE: 0972-2010

ORDER OF AN ADJUDICATOR

MADE UNDER PART 9 OF CHAPTER 6

BODY CORPORATE AND COMMUNITY MANAGEMENT ACT 1997

Number of Scheme:	24386
Name of Scheme:	Crown Towers
Address of Scheme:	5 - 19 Palm Street SURFERS PARADISE QLD 4217

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

Wayne Dangerfield, the Owner of lots 168 and 173

I hereby order that the application for the following order: “We are seeking an order to overturn the committee’s decision not to refund us the amounts and to order that the Crown Towers committee pays a bank cheque to Wayne Dangerfield in the amount of: $22,960.04 being penalty interest and legal/recovery costs from 31/10/07 til now for lots 168 and 173; or $20,620.13 being legal/recovery costs and disallowed interest from 31/10/07 til now for lots 168 and 173” is dismissed.

STATEMENT OF ADJUDICATOR’S REASONS FOR DECISION - REF 0972-2010

“Crown Towers” CTS 24386

Application

This application is by Wayne Dangerfield, owner of lots 168 and 173, seeking an order to overturn the Committee decision not to refund him certain amounts and an order that the body corporate pay him either $22,960.04 (being penalty interest and legal/recovery costs from 31 October 2007 until now for lots 168 and 173); or $20,620.13 (being legal/recovery costs and disallowed interest from 31October 2007 until now) for lots 168 and 173.

Investigation and Submissions

The grounds to the application are to the following effect:

• Precedents have been set previously where all penalty interest, legal costs and discounted interest have been either refunded or waived completely;
• The body corporate did not obtain permission to charge the legal costs;
• In May 2010, even though he had made considerable payments and had said continuously that all payments would be made by 31st May 2010, the body corporate spent more money and charged the Applicant more legal fees when it instructed lawyers to issue demand notices for payment by 29th May 2010. This was on top of the body corporate setting aside a judgment in April 2010.
• The Applicant had been told by the body corporate to pay everything then ask for refunds.
• It was very difficult to even have calls taken or returned by Challenge Strata Management;
• Extenuating circumstances outlined in the letter of 11 August 2010 to the Committee justify the waiving of all penalty interest and recovery costs.
  

The application comprised a voluminous amount of material (although the grounds, as set out above, were scant), including copies of some 60 documents which the Applicant relies upon.

In accordance with section 243 of the Act, a copy of the application was provided to Challenge Strata Management (the BCM at the time), for distribution to all owners (excluding the Applicant) and the Committee, with an invitation to respond to the matters raised in the application.

Mr Kolovos, the chairperson, submitted on behalf of the body corporate, that:

• Many members of the present committee were first elected to office in January 2009. As such, they inherited the Dangerfield levy arrears matter which has been running since 2007. During the past two years, the committee has done no more than persevere with recovery action which was commenced by former committees.
• During the past two years, the committee has received numerous written commitments and promises to pay from Dangerfield which have never been honoured. These written communications have amounted to no more than broken promises or arguments of convenience to encourage the committee to waive penalties, interest, costs and defer recovery action.
• The body corporate is governed by the Act, its regulations and its by-laws. The body corporate (through its committee) has simply fulfilled its legislative obligations.
• Lots 168 and 173 began falling into arrears in late 2007. Reminder notices were sent to the owner in January 2008, with no responses received. At the committee meeting on 15 August 2008, a letter from the owner was tabled in which he asked for withdrawal of all interest charges that had accrued and stating he would pay all arrears within 3 months. That did not occur so legal recovery action was commenced in November 2008.
• The legal action remained on foot over the ensuing year or so. At every meeting over that period, on the day before each meeting a letter was hand delivered on behalf of the owner stating when payments would be made (not asking for concessions, but simply stating what the owner was going to do). In about mid 2009 the Committee decided to suspend recovery action to allow the owner to settle the arrears over a few months. That did not occur.
• Most of the undertakings over this period were not met and although periodic payments were received, the indebtedness of each lot continued to increase with the arrears amount rising to over $20,000 on each lot (including interest and legal costs). At its meeting on 10 February 2010, the Committee resolved to resume the suspended legal recovery action and default judgement was entered shortly after. By May 2010, the owner had paid all arrears, interest, and costs.
• A resolution to charge penalty interest was passed by the body corporate on 21 April 1998.
• In light of the above and the fact that levies have been outstanding for 3 or more years, the body corporate is of the view that there are no extenuating circumstances to warrant waiver of interest or allowance of discounts. The body corporate has a responsibility to collect levies and pay its financial obligations as and when they fall due.
• The essence of this dispute revolves around a lot owner’s election to stop paying levies for 3 or more years. Thereafter, and upon paying all levy arrears, interest and recovery costs the lot owner is seeking a full refund of all interest and recovery costs. These events can be problematic for a body corporate which relies on the timely collection of levies to meet its financial obligations. Regrettably, if lot owners are able to enjoy the liberty of choosing when and by how much they are willing to pay their levies and subsequently claim a refund or reimbursement of interest and recovery costs, then a body corporate would not be able to meet its financial commitments as and when they fall due. Lot owners are required to pay their levies on time. A body corporate has no ability to sustain non-paying lot owners. Furthermore, a body corporate is not a financial institution with the ability to extend credit to lot owners, let alone interest and fee free credit.
• The Committee’s view is that Dangerfield would still be in arrears if not for the legal action instigated by the body corporate. It is only reasonable that the body corporate be entitled to recover the interest and recovery costs in connection with this matter.
  

The owners of lot 122 support the Applicant, submitting that the Committee has not treated the owner reasonably given the amount of times the owner has attempted to resolve the matter. They further submit that the owner’s treatment seemed on the surface to be lacking even the most basic requirement of providing information and statements in a timely manner. They further state that there have been clear precedents set; on a number of occasions late fees etc, levied against owners have been waived in similar circumstances. This has been noted in a number of body corporate committee minutes that they have reviewed over the last two years. They question why the Committee offered any amount in settlement if they had made the correct decision in the first instance. It seems, they say, very harsh that the Committee should be making money from the owner in these circumstances. The owners of lot 122 conclude that they are very concerned about the way the Committee conducts its meetings and its business.

The Applicant exercised his right to inspect the submissions and replied that:

• He disputes totally that he was not paying anything; the accounts show that he was attempting to catch up with the arrears.
• He disputes totally that his arguments were ones of convenience.
• Time and time again he tried to talk to the body corporate manager and received no reply; as can be seen from the evidence, he had a very hard time trying to obtain copies of statements and did not receive replies to letters.
• He was paying each month, as much as he could. The statements show that they have been paying all they could over the last 12 months, since the deaths in the family and their daughters’ circumstances had improved.
• The Act allows for consideration of circumstances such as theirs and there have been many precedents set as detailed in the application of late payments by other owners and committee members where interest was waived and discounts allowed.
  

Jurisdiction

“Crown Towners” was registered as a building units plan (now known as building format plan) of subdivision on 29 October 1997 comprising 298 lots and common property. The scheme is regulated by the Body Corporate and Community Management Act 1997 (the Act) and the Body Corporate and Community Management (Accommodation Module) Regulation 2008 (the Accommodation Module).

This is a dispute between an owner and the body corporate that falls within the dispute resolution provisions of the Act (see sections 226, 227 and 228 of the Act).

Summary of issues

The main issues for determination can be summarised as follows:

1. Should I declare that it was unreasonable for the body corporate to have taken debt recovery proceedings against the Applicant?
   
2. Should I overturn the resolution of the Committee of 11 August 2010 and declare that it is unreasonable for the committee to refuse to waive the full amount of penalty interest or disallowed discounts and recovery costs claimed against and paid by the Applicant?
   

Findings of Fact - Amounts Owed to the Body Corporate and Paid by Applicant

Outstanding Contributions

From the copies of statements supplied with the application, the amount of contributions stated to have been owed by the Applicant to the Body Corporate is $21,862.79 in respect of each lot. The amount of contributions that were owed is not disputed.

Penalty Interest

From the copies of statements supplied with the application, the amount of penalty interest stated to have been owed by the Applicant to the Body Corporate totalled $6,643.07 in respect of lot 168 and $6,236.14 in respect of lot 173, having been calculated at the rate of 2.5% per month on contributions not paid by the due date. The chairperson submits that a resolution to charge penalty interest was passed by the body corporate on 21 April 1998. A copy of the minutes of the First Annual General Meeting, which I requested of the body corporate, confirms this.

Section 142 of the Accommodation Module allows the body corporate to fix a penalty (of up to 2.5% per month, or 30% per annum) for late payment of contributions. The body corporate has done so, by passing the requisite resolution.

The Applicant does not dispute that his levies were not paid by the due date for payment. However, he claims that it was unreasonable for the body corporate not to have waived the penalty in its entirety, due to his special circumstances.

Recovery Costs

Recovery costs are defined in section 145 as "any costs reasonably incurred by the body corporate in recovering the amount". The term "the amount" appears to refer to the amount of a contribution, and probably also to the amount of any outstanding penalties or agreed existing recovery costs.

Recovery costs incurred in relation to the recovery of contributions for Lot 168 are recorded in the Statement supplied with the application as totalling $4,630.06; and for lot 173, $4,891.86. The Applicant claims that it is unreasonable for the body corporate to seek to recover these costs from him and further, that the recovery action instituted in May 2010 was unreasonable. The legal fees charged since October 2007, it is claimed have not been approved by the BCCM and therefore are not authorised to be charged.

Determination

1. Not unreasonable for body corporate to take debt recovery action

The Body Corporate instituted proceedings to recover unpaid amounts in May 2009, after two letters in respect of each lot (one from the body corporate manager dated 7 November 2008 and one from ABKJ Lawyers dated 27 November 2008 in respect of lot 168 and 28 November 2008 in respect of lot 173) were sent to the Applicant, warning that unless a satisfactory response was received within a certain period (10 days and 7 days respectively), the body corporate would be left with no alternative other than to issue proceedings for the recovery of the amounts outstanding. The Applicant was further advised that if it was necessary to institute proceedings, the additional cost of taking the recovery action would also be sought from the Applicant.

Again in May 2010, the Body Corporate instructed ABKJ Lawyers to act in relation to recovery of levy arrears in relation to lot 168 and 173.

The body corporate, pursuant to a request for further information of 20 January 2011, supplied copies of relevant minutes of committee meetings as follows:

• 4 July 2008 wherein a resolution was passed “That only 1 routine reminder notice is to be issued to overdue owners in the month after levy contributions are due. If payment is not made within the required time, a final demand is to be given requiring full payment within 14 days. If payment is still not received within that time, the matter is to be referred to formal recovery action.”
• 15 August 2008 wherein a resolution was passed “That, except where otherwise decided, legal action be commenced to recover arrears owing by lots for more than 60 days and that all costs and charges thereby incurred be imposed in accordance with the provisions of the Regulation Module.” A further resolution specific to the Applicant was resolved as follows:
  

Dangerfield (U1601/06) – Arrears

A letter was received today asking that the body corporate withdraw interest charges on accrued arrears and advising that the balance owing would be paid within about 3 months.

Mr Danieletto was asked to notify the owner that consideration to the waiver of penalties would not be made until arrears had actually been paid and also that, as a matter of policy, no concession would be considered before the date of the owner’s first notification to the body corporate.

• 5 May 2009 wherein a resolution was passed that “The owner of Units 1601/1606 responded to legal recovery action by offering to pay $2,000 per month in reduction of arrears which were now over $14,000 on each property. After noting that even this proposal had not been maintained because only $1,000 was received against each unit, the Committee decided to decline the owner’s proposal and instruct the body corporate’s solicitors to continue with recovery action.”
  

I am of the view that the committee resolutions of 15 August 2008 and 5 May 2009 were sufficient to authorise the engagement of ABKJ Lawyers to take appropriate recovery action against the Applicant. I am further of the view that the decision to commence debt recovery action was reasonable in the circumstances.

No payments had been made toward outstanding body corporate contributions in respect of the two lots owned by the Applicant for a period of some 19 months, by which time in excess of $30,000 was owed to the body corporate. Even when the Applicant commenced making payments in reduction of the debt, the debt was accumulating at a faster rate than the payments being made were reducing it. The legislation requires the body corporate to start proceedings to recover outstanding contributions if they have been outstanding for two years (Accommodation Module, 143(2)). In these circumstances, where the Applicant had been in arrears for a significant length of time and the amount being claimed by the body corporate continued to grow, it is difficult to argue that the body corporate was acting unreasonably in deciding to take debt recovery action against the Applicant.

The same can be said of the resolution made by the Committee on 12 May 2010 to commence new recovery action. Although the Applicant had paid all arrears, penalties and charges claimed in the legal proceedings that had previously been commenced, the two lots were at that stage still more than $25,000 in arrears. While the Applicant’s claim that the institution of further proceedings was unreasonable in circumstances where they had, on about four occasions, notified the body corporate that all outstanding amounts would be paid on 31 May 2010, the body corporate submits that over the two years prior, the Committee had received numerous written commitments and promises to pay from the Applicant which were never honoured. Most of the undertakings given by the Applicant, the body corporate submits, were not met and although periodic payments were received from May 2009, the indebtedness of each lot continued to increase, rising to over $20,000 on each lot (including penalty interest and recovery costs).

If the Applicant actually had a contract of sale for either of the lots or had made appropriate arrangements for an immediate auction of the lots, then it may well be unreasonable for the body corporate to incur more costs pursuing debt recovery when it could presumably recover all outstanding contributions and penalty interest on settlement of the sales (Accommodation Module, 143(3)). If the Applicant informed the body corporate of such sale arrangements and the body corporate refused to suspend debt recovery action then that decision of the body corporate might be challengeable. However, none of those circumstances existed at the time and in my view, the decision of the body corporate to commence further debt recovery action in May 2010 was objectively reasonable.

Reasonableness of Recovery Costs

The legal fees charged since October 2007, it is claimed by the Applicant, have not been approved by the BCCM and therefore are not authorised to be charged. Recovery costs do not constitute a “body corporate debt” as that term is defined in the Dictionary of the Accommodation Module and therefore, it is not appropriate for debt recovery costs to be included in notices of contributions payable by owners[1] (it is not submitted that this has occurred; in fact, it appears as though the recovery costs claimed from the Applicant were invoiced separately).

Section 143(1)(c) of the Accommodation Module provides the body corporate with a substantive right to its costs reasonably incurred in recovering contributions.[2] However, I consider the body corporate needs to establish its right to costs by providing evidence that those costs are reasonable in amount and reasonably incurred.[3]

In the letter of 20 January 2011, I requested copies of invoices for all recovery costs charged to the Applicant, which totalled $9,521.92 in respect of both lots.

In this instance, there is no evidence that ABKJ Lawyers were engaged by the body corporate under anything but normal commercial arrangements. The body corporate has provided copies of invoices that itemise the costs charged by ABKJ Lawyers and also Challenge Strata Management, in respect of debt recovery. The Applicant has not suggested that some of the work was unnecessary (other than to argue that the commencement of legal proceedings on the second occasion was unnecessary, which I have considered above) or that the body corporate could have obtained similar work at a cheaper rate. I am generally satisfied that the claimed costs are reasonable in amount and reasonably incurred. I have allowed the body corporate to retain all of these costs recovered from the Applicant, totalling $9,521.92.

2. Not unreasonable for the committee to refuse to waive penalty interest and recovery costs, in full

There is a general requirement that the committee and body corporate act reasonably in making a decision (Act 100(5), 94(2)). Where this does not occur, an adjudicator may intervene to make an order that is just and equitable to resolve a dispute, including to declare a resolution purportedly passed to be void or to give effect to a motion that was not passed (Act 276, Schedule 5 – Items 8, 10).

The legislation allows a committee to allow contribution discounts and waive penalty interest and recovery costs if satisfied there are special reasons for doing so (Accommodation Module, 143(6)). On 11 August 2010 the committee resolved “that while no special or extenuating circumstances have been demonstrated for non payment of levy contributions over the past 3 years, as a goodwill gesture in view of the owner’s serious illness, the body corporate will agree to credit the owner all late payment penalties and levy discounts for the current year in the sum of $3,309.55 for Unit 1601 and $2,902.67 for Unit 1606”. This offer was conditional on its being accepted in full settlement and before the end of the then current financial year, which was 31 August 2010. The Applicant made a counter offer to accept $18,000 in full and final settlement of the dispute. The body corporate did not accept the counter-offer. The Applicant refused the body corporate offer and made application with this office.

The Applicant claims that it was unreasonable of the body corporate not to waive the penalty interest and recovery costs in full, because of his extenuating circumstances, and claims that precedents have been set previously in which penalty interest and recovery costs have been waived and discounts allowed. The body corporate refutes this, claiming that no precedent has been set in the way other levy arrears collections have been settled as each case has been judged on its merits and the individual circumstances relating to that case.

Reasonableness is a question of fact. The objective test requires a balancing of factors in all the circumstances according to the ordinary meaning of the term ‘reasonable’.[4] The question is not whether the decision was the "correct" one but whether it is objectively reasonable.[5]

The extenuating circumstances which the Applicant relies upon for asserting that it is unreasonable for the body corporate not to waive the total amount of penalty interest ($12,879.21) and recovery costs ($9,521.92) are stated to be outlined in a letter of 11 August 2010 to the Committee. In that letter, Sherry Dangerfield stated that “since October 2007 we have been under extreme hardship, with our daughter and grandchildren loosing (sic) everything, 2 deaths and now Wayne having just in the last month been diagnosed with cancer. At the moment all we have in the bank is less than $500 and bills for this month in excess of $10,000.” It is further claimed in that letter that the authorisation of further legal action at the Committee meeting on 12 May 2010 was outrageous in circumstances where they had been making regular enough payments since 2008 and had stated on about 4 times that the balance would be paid by the end of May 2010. It is further claimed that there has been plenty of precedent set where the Committee has removed all interest charges, and even provided the 20% discount.

The indebtedness of the Applicant, in respect of both lots, began in October 2007. The first payment made in reduction of amounts owed to the body corporate was $1,000 in respect of each lot on 1 May 2009 (not 2008, as claimed by Sherry Dangerfield in the letter of 11 August 2010). By this stage, the amount owing in respect of each of lots 168 and 173 had reached over $15,000, including penalty interest and recovery costs. Thereafter, payments of $2,000 in respect of each lot were paid on 12 June 2009 and 25 August 2009; $1,500 in respect of each lot was paid on 1 October 2009, 2 November 2009, 7 December 2009 and 10 February 2010, before the total amount outstanding was settled on 31 May 2010. In addition, some payments were made in respect of lot 173 on 24 March 2010, 30 March 2010 and 7 April 2010.

The difficulty for the Applicant is establishing that the decision of the body corporate is outside the range of what is reasonable, such that an adjudicator should overturn the decision. It is relevant to consider that other than one sentence in the letter of 11 August 2010, the Applicant provides no detail regarding their circumstances, which it is claimed amount to extreme hardship. In particular, there has been no attempt to explain how the alleged hardship affected the ability of the Applicant to pay his body corporate contributions when they fell due. Further, the Applicant has not submitted evidence of any attempt to negotiate any repayment plan of any kind with the body corporate, or even contact the body corporate regarding their indebtedness, prior to March 2010, although part payments had begun to be made from May 2009. It is also relevant to consider that the Committee did offer to waive the penalty interest and allow lost discounts, in part, for the then current financial year and that the Applicant refused this offer.

The fact that the Committee has in the past waived penalty interest and allowed discounts, is also relevant. The Applicant has gone to some trouble to identify particular instances of this over a period from January 2007 to the present. I am of the view however, after perusing the detail of the circumstances in which the Committee either allowed previously disallowed discounts or waived penalty interest, that the Applicants have not been discriminated against and their treatment by the Committee could not be described as unreasonable. In particular, I note that in relation to the first instance mentioned by the Applicant, the lot owner had not received the levy notices and the levies were paid within 7 days of receipt of the levy notices. Further, only a 10% discount was allowed and 75% of the financial penalties waived. Also, the outstanding amounts were paid 74 days after the due date. In one other instance, a discount was allowed and penalty interest credited on the basis of a good history of payment. In another instance, discount was allowed and penalty interest credited on the basis of a computer error. In all instances where the Committee had either allowed discounts or waived financial penalties, the contributions in question were not outstanding for lengthy periods (in fact, most were paid before the next contribution fell due) and no legal proceedings/recovery action had been commenced.

In the Applicant’s case, no payments had been made toward outstanding body corporate contributions for a period of some 19 months, by which time in excess of $30,000 was owed to the body corporate in respect of both lots. Even when the Applicant commenced making payments in reduction of the debt, the debt was accumulating at a faster rate than the payments being made were reducing it.

From a legal perspective, it is not objectively unreasonable for the body corporate to refuse to waive the penalty interest and recovery costs charged to and paid by the Applicant. Body corporate funds have been spent on trying to recover arrears from the Applicant. A waiver of the claim for these amounts would effectively result in the other owners contributing to the payment of these amounts. The same may not be said for the waiver of penalty interest at 30% per annum but it is difficult to argue that it is unreasonable for the body corporate to insist on the payment of penalty interest at that rate when the legislation specifically allows the body corporate to charge penalty interest at up to that rate (Accommodation Module, 142(2)).

Ultimately, while the body corporate decision may be seen to be harsh, it is not a decision that should be overturned by an adjudicator on the basis that it is objectively unreasonable. In particular, it is not possible for the Applicant to argue that the body corporate has unreasonably discriminated against him by treating him differently from other owners. As outlined above, I consider the circumstances of the cases detailed by the Applicant very different from his own.

Order

For the reasons detailed above, I make the order above.

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[1] Body Corporate for Liberty v Alotier Pty Ltd & Stewart Silver King and Burns CCT KA009-08 (11 February 2009).
[2] Dimitriou Case, [2009] NSWCA 27 at paragraph 125-129.
[3] Dimitriou case, supra, at paragraph 132.
[4] Secretary, Department of Foreign Affairs and Trade v Styles [1989] FCA 342; (1989) 88 ALR 621. See also McKinnon v Treasury [2006] HCA 45 per Hayne J at paragraph 61.
[5] Commonwealth Bank of Australia v Human Rights and Equal Opportunity Commission (1997) 150 ALR 1 at page 34.