Arjunan v Neighbourhood Association DP No 285853

Local Court Act 2007 (NSW)

1. Section 29A of the Local Court Act defines "money claim" as "a claim for recovery of any debt, demand or damages (whether liquidated or unliquidated)." Section 30(1) of the Local Court Act confers jurisdiction on the Local Court in its General Division to hear and determine proceedings on a money claim so long as the amount claimed does not exceed the jurisdictional limit of the Court when sitting in that Division. Section 29 of the Local Court Act provides that, for the purposes of Pt 3 (Civil Jurisdiction), the jurisdictional limit of the Local Court in the General Division is $100,000.
2. Section 39 of the Local Court Act relevantly provides that a party to proceedings in the Local Court can appeal to this Court "but only on a question of law". Section 40 provides for appeal with leave on "a question of mixed law and fact". The amended summons does not seek leave. As the lot owners are self-represented, I propose to regard the amended summons as an application for leave to appeal, in so far as leave is required.

The Act

1. Section 13(3) of the Act provides that a neighbourhood management statement is binding on, relevantly, all lot owners. Section 14 provides that an association may amend its management statement as long as the amendment is not inconsistent with the Act. An amendment has no effect until it is registered: s 14(4).
2. Section 20(13) of the Act provides that the association may recover a contribution, together with any interest from, relevantly, a lot owner, as a debt. Section 20A provides that, subject to specified exceptions, outstanding contributions bear interest at 10 per cent per annum.
3. Part 4 of the Act makes provision for disputes. Section 62 of the Act, which is in Pt 4, relevantly provides that the proprietor of a neighbourhood lot may apply for an order under Division 4 for settlement of a dispute or complaint.
4. Division 4 of Pt 4, entitled "Orders by Tribunal" confers various powers on the New South Wales Civil and Administrative Tribunal (the Tribunal), including: 1. to vary a management statement if it considers a provision of the management statement not to be in the best interest of the association's members or the proprietors of lots within the scheme to which the management statement relates (s 80); 2. to invalidate, by order, a resolution passed at a meeting of an association if the Act was not complied with (s 82); and 3. to vary contributions or their manner of payment if it considers the contribution to be too much (or too little) or that the manner of payment is unreasonable, and, in such cases, to order payment of a different amount or that the contribution be paid in a different manner (s 83).
5. Section 120 of the Act relevantly provides: "120 Other rights and remedies not affected (1) Nothing in this Act detracts from any rights or remedies that - (a) an association, or … (c) the proprietor … of … a neighbourhood lot, or … may have in relation to any such lot, or any association property or common property, apart from this Act and the Strata Schemes Development Act 2015 and the Strata Schemes Management Act 2015. (2) In any proceedings to enforce a right or remedy preserved by subsection (1), the Court must, if of the opinion referred to in subsection (3), order the plaintiff to pay the costs of the defendant as determined by the Court. (3) Subsection (2) applies only if the Court is of the opinion that, having regard to the subject-matter of the proceedings and the circumstances of the case, the taking of the proceedings was not justified because this Act, or the Strata Schemes Management Act 2015, makes adequate provision for enforcement of the rights and remedies."
6. Part 3 of sch 5 of the Act makes provision for the first annual general meeting (AGM) of neighbourhood associations. Clause 36 provides that the chairperson of the neighbourhood association, if present, is to preside at the meeting. If the chairperson is not present, those who are present and entitled to vote must elect one of their number to preside. Such person, while presiding at the meeting, has all the functions of the chairperson.
7. Part 3 of sch 6 of the Act makes provision for subsequent meetings of neighbourhood associations, other than the first AGM. Clause 57 provides that as long as there is a quorum, a general meeting of a neighbourhood association is validly held even if it is attended only by the chairperson.

Strata Schemes Management Act 1996 (NSW)

1. Although the Strata Schemes Management Act 1996 (NSW) (now repealed) did not apply in terms, the following provisions were referred to in argument by analogy.
2. Section 80 of the Strata Schemes Management Act provided: "80 How does an owners corporation recover unpaid contributions and interest? (1) An owners corporation may recover as a debt a contribution not paid at the end of one month after it becomes due and payable, together with any interest payable and the expenses of the owners corporation incurred in recovering those amounts. (2) Interest paid or recovered forms part of the fund to which the relevant contribution belongs."
3. Section 226 of the Strata Schemes Management Act relevantly provided: "226 Other rights and remedies not affected by this Act (1) Nothing in this Act derogates from any rights or remedies that an owner, mortgagee or chargee of a lot in a strata scheme or an owners corporation or covenant chargee may have in relation to any lot or common property apart from this Act. (2) In any proceedings to enforce any such right or remedy, the court in which the proceedings are taken must order the plaintiff to pay the defendant's costs if the court is of the opinion that, having regard to the subject-matter of the proceedings, the taking of the proceedings was not justified because of this Act or Part 4 of the Community Land Management Act 1989 makes adequate provision for the enforcement of those rights or remedies. (3) The defendant's costs are to be as determined by the court."

The factual background

1. Before turning to the grounds of appeal, it is necessary to outline the background to the dispute.

The deposited plan and the neighbourhood management statement

1. The lot owners own a single lot, Lot 2, in a deposited plan managed by the association (the deposited plan). The deposited plan comprises a total of 15 lots of which one is common property. The neighbourhood management statement for the deposited plan was registered on 30 April 2004 and, accordingly, became binding on that day by reason of s 14(4) of the Act.
2. On or prior to 15 November 2011, the association resolved to amend its management statement by passing a by-law (the by-law) as follows: "(a) The Neighbourhood Association may recover as a debt a contribution, levy or other debt owed by a proprietor not paid at the end of one month after it becomes due and payable, together with any interest payable and the expenses of the Neighbourhood Association incurred in recovering those amounts. (b) Interest paid or recovered in (a) forms part of the fund to which the relevant contribution belongs. (c) For the purposes of recovering unpaid contributions the Executive Committee of the Neighbourhood Association may: (i) engage the legal services of a debt collection agency, obtain legal advice and/or retail legal representation; (ii) commence, pursue, continue or defend any Court, Tribunal or other proceedings against any Owner, mortgagee in possession and/ or former lot owner in relation to all matter arising out of the recovery of unpaid contributions and the recovery of other debts, including penalties, interests, legal and other costs;"
3. The by-law was registered and, therefore, became binding.

The managing agent

1. In or prior to 2011, O'Connors Strata & Property Specialists Pty Ltd (O'Connors) became the managing agent of the association. Its appointment was confirmed by a new managing agent agreement on 4 December 2018. This agreement remains on foot. Clause 5 of the agreement relevantly provides for the manager's responsibilities, some of which may be provided by the managing agent without a written request of the association. Such responsibilities include, in cl 5.5.5: "authorise the taking of legal proceedings to recover outstanding levies/contributions interest and costs from a lot owner."
2. Every year, at least from 12 December 2017, the association at its AGM resolved to authorise O'Connors to do various things on its behalf, including: "to commence, pursue, continue or defend any court, tribunal or any other proceedings against any lot owner, mortgagee in possession and/or former lot owner in relation to all matters arising out of the recovery of levy contributions and the recovery of other debts, including penalties, interest, legal and other costs"
3. The minutes of the association's AGM on 4 December 2018 record that a nominee of lots 5, 8, 9 and 10 was present and a representative of O'Connors was in attendance. It would appear that the representative of O'Connors acted as "spokesperson" and "Chairperson".
4. The minutes of the association's AGM on 30 October 2019 record that a nominee of lots 5, 8, 9 and 10 was present, there was a proxy for lot 12 and that a representative of O'Connors was in attendance. The representative of O'Connors acted as Chairperson for the purpose of being custodian of the proxies.
5. The minutes of the association's AGM on 22 December 2020 record that a nominee of lots 5, 8, 9 and 10 was present, there was a proxy for lot 2 (owned by the lot owners) and lot 12 and that a representative of O'Connors was in attendance.

The commencement of the proceedings in the Court below

1. On 20 January 2020, the association commenced proceedings in the Local Court against the lot owners in the Small Claims Division, claiming the liquidated sum of $2,795.91 (for unpaid levies) pursuant to ss 20(13) and 20A of the Act and, by way of unliquidated claim, the amount of the costs incurred by the association from 17 January 2020 in seeking to recover the unpaid levies. The statement of claim alleged an entitlement to recover costs as follows: "4. The Plaintiff has incurred expenses in attempting to recover contributions due and owing by the Defendants to the Plaintiff and claims the whole of its costs and/or expenses pursuant to the bylaws of the Plaintiff. 5. The Plaintiff claims the whole of its costs and/or expenses it incurs in these proceedings as from the issue of this Statement of claim, up to and including but not limited to the hearing (final or otherwise), judgment and enforcement of these proceedings pursuant to the bylaws of the Plaintiff."
2. The defence filed by the lot owners on 14 February 2020 alleged, in substance, that the levies were excessive (paragraphs 2(a), (b), (c), (d), (e), (f) and (h)). As to the claim for costs, the lot owners alleged, in paragraph 2(g) of their defence: "The defendants do not admit the expenses or cost claimed by the plaintiff as the plaintiff failed or refused (Attachment 3) to send details of increased expenses that are authorised or allowable under the strata plan, supported with paid invoices requested. The defendants has promptly paid the levies till June 2018."

The proceedings brought by the lot owners in the Tribunal

1. As the question whether the levies were excessive was within the jurisdiction of the Tribunal, the lot owners, on 19 May 2020, commenced proceedings in the Tribunal pursuant to s 83 of the Act to challenge the amount of the contributions. Their application was dismissed on 1 October 2020. An appeal against this dismissal was also dismissed. Various costs orders were made by the Tribunal against the lot owners which do not arise for consideration in the proceedings in this Court.
2. Following the dismissal of the Tribunal proceedings, the association proceeded with its claim in the Local Court. The Local Court proceedings had been in abeyance while the proceedings in the Tribunal had been on foot.
3. An assessor in the Small Claims Division of the Local Court transferred the proceedings to the General Division as the amount claimed increased such that it exceeded the limit in the Small Claims Division.
4. On 1 December 2020, the lot owners filed a notice of payment in the Court below which confirmed that, by 13 November 2020, they had paid $2,760.04, which was the total amount claimed in the statement of claim plus interest of $136.86 at 10% up to 4 December 2020. Accordingly, the only issue remaining was as to the reasonableness of the costs, the lot owners having not admitted that the amount claimed was payable (paragraph 2(g) of the defence). This was confirmed by a notation on the court file made on 4 February 2021, which said: "Dear Dr Arjunan the Court file was noted that the claim paid in full. Outstanding issues is costs of the proceedings. That is the issue for determination by the small claims assessor on 25 February. The court has received your notice of payment filed 1 February and your amended submission filed on 2 February. So as the claim has been paid the only issue for the Court to determine is the costs of the proceedings there appears to be no basis on which amended defence would be required. The Court has granted leave for you to appear via telephone."
5. At the hearing in the Court below on 2 December 2021, the association tendered evidence from its legal representatives, Ms Parker and Mr Radman, both of Grace Lawyers, and Kathleen O'Hea, an employee of O'Connors. No objection was made to this evidence and no witness was cross-examined. Their evidence included: 1. the minutes of the association's AGMs on 4 December 2018, 30 October 2019 and 22 December 2020 at which it was resolved that Grace Lawyers be retained for particular tasks, including to act on behalf of the association in the proceedings in the Court below; 2. a costs agreements and disclosures dated 20 January 2020 and 11 January 2022 between Grace Lawyers and the association; and 3. descriptions of work done in the Local Court proceedings, invoices for such work and a schedule of invoices up to the hearing of the Local Court proceedings on 4 December 2021.
6. The lot owners did not adduce evidence in the Court below. Rather, they relied on detailed written submissions. As the lot owners were not represented, the Court below allowed them to rely on their submissions, in effect, as if they constituted evidence.

The judgment of the Court below

1. The Court below noted that the lot owners alleged as follows: 1. the association had not validly appointed Grace Lawyers to act on its behalf; 2. that the costs were not claimable under the Act as the association could have claimed the costs in the Tribunal and did not do so and thus recovery was prohibited under s 120(2) of the Act; and 3. that the costs were excessive and disproportionate to the amount claimed.
2. Her Honour was satisfied that Grace Lawyers had been validly retained by the association, that the by-law had validly amended the management statement, that Grace Lawyers were authorised to recover costs against the lot owners and that the costs were claimable.
3. Her Honour accepted the association's argument that the effect of Owners of Strata Plan 36131 v Dimitriou (2009) 74 NSWLR 370; [2009] NSWCA 27 (Dimitriou) was that an entitlement to costs worded in a similar way to the by-law added to the management statement in the present case was not limited to assessed costs but entitled the successful party to all costs reasonably incurred as long as the amount was also reasonable. Her Honour concluded that the costs claimed fulfilled these requirements. As the evidence did not extend to the costs of the hearing itself, her Honour also ordered the lot owners to pay those costs.
4. Her Honour also noted that, in IIB Australia Pty Ltd v Owners Strata Plan 76024 (No 2) [2015] NSWSC 929 (IIB), Fagan J, at [35], expressly rejected the argument that the costs recovered pursuant to s 80 of the Strata Schemes Management Act must be proportionate.

The grounds of appeal

1. The lot owners appeal or, in the alternative, seek leave to appeal, on grounds set out in the amended summons which are, in substance, as follows: 1. the Court below applied the wrong law in determining the relevant principles; 2. the Court below erred in finding that Grace Lawyers were authorised by the association to act as its legal representatives, as the AGMs at which the motions were passed did not have a Chairperson and were conducted outside the time allowed for such meetings; 3. costs were not recoverable by reason of s 120(2) of the Act; and 4. the costs were disproportionate and were, therefore, not recoverable.
2. Before the hearing of the appeal, the lot owners made two interlocutory applications by notices of motion.
3. The first notice of motion, which was filed by the lot owners on 16 February 2022, sought a declaration that the appointment of Grace Lawyers was invalid and that Grace Lawyers could not represent the association either in the Local Court or in this Court,; and that the association's claim for costs ought be dismissed. The notice of motion was dismissed by Hamill J on 24 March 2022: Arjunan v Neighbourhood Association No DP 285853 [2022] NSWSC 691. His Honour found that Grace Lawyers were validly acting for the association in this Court.
4. By amended notice of motion filed on 19 April 2022, the lot owners, in substance, sought to re-agitate the issues which had been ventilated before Hamill J. The application was heard on 26 May 2022 by Rothman J. Other than to grant leave to the lot owners to add a claim for costs of the proceedings in this Court, his Honour dismissed the motion and ordered the lot owners to pay the associations costs of and incidental to the motion: Arjunan v Neighbourhood Association No DP 285853 [2022] NSWSC 746.

The first and fourth grounds: alleged application of the incorrect law

1. These grounds can be addressed together. In substance, the lot owners argued that s 20(13) of the Act covered the field and that, as it made provision only for the recovery of contributions and interest, the by-law was invalid in so far as it purported to authorise the recovery of costs. Further, the lot owners argued that Dimitriou had no application since it concerned the Strata Schemes Management Act and the by-law was invalid as it was inconsistent with the Act.
2. There is nothing in the wording or context of s 20(13) which gives rise to the implication that only contributions and interest can be recovered. Nor is there anything in s 14 to indicate that variations to management statements cannot include a provision that the costs of recovery are a debt due to the association. I note that the lot owners did not seek to have the by-law revoked or varied by the Tribunal pursuant to s 80 of the Act. This Court does not have jurisdiction to revoke or vary the by-law under s 80: cl 5(3) of Sch 4 of the Civil and Administrative Tribunal Act 2013 (NSW).
3. In Dimitriou, the Court of Appeal was required to consider the meaning of "expense" in s 80 of the Strata Schemes Management Act. Hodgson JA (Basten JA and Handley AJA agreeing) held that the word "expense" extended to legal costs and disbursements incurred in recovering contributions but only to the extent that they had been proved to have been reasonably incurred and reasonable in amount.
4. Basten JA considered that the same principles as apply to the costs and disbursements of mortgagees would apply under s 80 of the Strata Schemes Management Act. His Honour said at [65]: "Similar issues can arise in respect of the recovery of costs under mortgages and other finance transactions. In such cases, the amount recoverable will turn upon the proper construction of the contractual provision … With respect to a mortgagee, the entitlement to recover all costs reasonably and properly incurred in protecting or enforcing a security has long been a principle of general law, not dependent upon the existence of an express contractual term … It is usual practice nowadays for there to be a clause in a standard form mortgage entitling the mortgagee to recover all its costs …" [Citations omitted.]
5. The by-law is to similar effect as s 80 of the Strata Schemes Management Act. Thus, the association was entitled to recover all costs reasonably and properly incurred. By reason of IIB, such costs were recoverable even if they were disproportionate to the amount claimed.
6. The Court below correctly applied these principles in the present case. Thus, although the costs were arguably disproportionate, they were not, on that basis, irrecoverable since they were found to have been reasonably and properly incurred.
7. As ground 1 turned on a question of law, leave is not required. However the ground has not been made out.

Ground 2: alleged invalidity of the appointment of Grace Lawyers

1. The lot owners argued in the Court below, and in this Court, that the resolutions made by the association appointing Grace Lawyers were invalid because the minutes did not record that there was a Chairperson at the AGMs at which the resolutions were passed and, more generally, that the association became "defunct" from 2018 onwards. They argued, accordingly, that Grace Lawyers had no authority to act on behalf of the association in the Court below or in this Court.
2. The lot owners were unable to identify any statutory requirement that there be a Chairperson at the AGMs of the association. They argued that cl 57 of Pt 3 of sch 6 had the effect of mandating the presence of a Chairperson. This is not its effect. All cl 57 does is to provide that a general meeting of a neighbourhood association is valid even if attended only by a chairperson, subject to there being a quorum (as there may be if there are sufficient proxies, or the chairperson owns sufficient lots).
3. I am not persuaded that there was any non-compliance with the Act such as to impugn the validity of the resolutions made by the association on 4 December 2018 and 30 October 2019 to appoint Grace Lawyers to act on its behalf to recover contributions and costs from defaulting lot owners. However, even if there had been, it does not follow that the resolutions are invalid. Parliament has expressed its intention through s 82 of the Act that non-compliance does not automatically invalidate a meeting or a particular resolution. Rather, it is a matter for the Tribunal, on application, to determine whether any non-compliance ought result in invalidity. No such application was made to the Tribunal. The Local Court had no jurisdiction to entertain such application.
4. For these reasons, ground 2, which involves a mixed question of fact and law, has not been made out. I do not consider that leave ought be granted in respect of this ground.

Ground 3: alleged irrecoverability of costs by reason of s 120(2) of the Act

1. The lot owners relied on s 120(2) of the Act in support of their contention that the association was not entitled to recover its costs of recovering outstanding contributions and costs from them.
2. The lot owners' submission is based on a misreading of s 120(2). Section 120(3) provides that s 120(2) only applies if the Court is of the opinion that the taking of the proceedings (by the association against the lot owners in the Local Court) was not justified because the Act made adequate provision for enforcement of the respective rights and remedies.
3. The Act does not provide for unpaid contributions or costs to be recovered as a debt. The source of the association's power to recover unpaid contributions (other than those varied by the Tribunal under s 83 of the Act) is the by-law. The Tribunal has no jurisdiction to order payment of costs incurred in recovering unpaid contributions (other than those it has varied). The Local Court has jurisdiction with respect to claims for debt up to $100,000: ss 29(1)(a), 29A and 30(1)(a) of the Local Court Act. Thus, it was necessary for the association to bring proceedings in the Court below to recover, relevantly, the costs to which it was entitled having regard to the by-law. In these circumstances, s 120(2) provided no basis for the Local Court to refuse to order judgment or order that the lot owners pay the costs of the hearing on 2 December 2021.
4. Ground 3 concerns a mixed question of fact and law since it turned not only on the construction of s 120 of the Act and the jurisdiction of the Local Court and the Tribunal but also on the circumstances of the present claim. As the ground was without merit and was based on a misapprehension of the effect of the statutory provisions, I am not persuaded that leave ought be granted.

Other matters

1. The lot owners also contended that the association's "defence" should have been struck out because of alleged non-compliance with the directions of this Court. They referred me to Kimber v Owners of Strata Plan No 48216 (2017) 258 FCR 575; [2017] FCAFC 226 (Kimber) at [79] in which the Full Federal Court (Logan, Kerr and Farrell JJ) criticised a practitioner who was found not to have considered all relevant documents filed by the applicant in that case. That the same firm acted for the respondent in Kimber as acted for the association in the present case does not make Kimber germane to the issues in the present case.
2. A summons to appeal or for leave to appeal against a decision of the Local Court requires the plaintiff, in this case, the lot owners, to file an affidavit in accordance with Uniform Civil Procedure Rules 2005 (NSW) (UCPR), r 50.14. UCPR, r 50.14 requires the affidavit to exhibit the relevant order or orders, the transcript of the proceedings in the Court below and copies of exhibits, affidavits or other documents that the plaintiff wishes to be considered at the proposed appeal.
3. The lot owners filed a court book which did not include the transcript of the proceedings in the Court below (which incorporated the reasons) and some exhibits which the association wished this Court to consider. Accordingly, the association filed its own court book, which included the transcript and other exhibits. Thus, this Court had available all the material which was before the Court below as well as the transcript.
4. Thus, any non-compliance by either party with the directions of the Court (about which it is unnecessary to adjudicate) did not affect the final hearing or inhibit the parties in the submissions which they wished to make.
5. The lot owners further argued that the association was in breach of the orders of the Local Court because it continued to rely on evidence up until the hearing of the substantive matter in the Local Court. Dr Arjunan sought to characterise the late evidence as "no evidence" and argued that this was a question of law on the basis of Kostas v HIA Insurance Services Pty Ltd (2010) 241 CLR 390; [2010] HCA 32 (Kostas).
6. It was inevitable that the association's evidence would have to be updated until the actual hearing date, given the nature of its claim, which was for the cost of recovery of the costs. Thus, it was not possible for the association to adduce evidence of the costs it had actually incurred up to and including 2 December 2021 (being the date of the hearing) until 2 December 2021 itself. The association's evidence was, thus, served in tranches to keep the lot owners up to date as to the amount of costs, which equated to the amount claimed. In these circumstances, the association ought not be held to have been non-compliant with the directions of the Local Court, as the Court below appreciated when Mr Radman (who appeared for the association in the Court below and in this Court) explained the reason for the up-dated evidence.
7. While a "no evidence ground" raises a question of law (Kostas at [90] (Hayne, Heydon, Crennan and Kiefel JJ)), evidence which is progressively served and is admitted without objection by a court (as occurred in the Court below) cannot be characterised as a lack of evidence.

Costs

1. The parties accepted that there was no reason to depart from the general rule that costs ought follow the event: UCPR, r 42.1. As the association has been successful, it is entitled to its costs of the proceedings, in addition to the costs which were the subject of the order made by Rothman J on 26 May 2022.

Orders

1. For the reasons given above, I make the following orders: 1. Refuse leave to appeal in respect of grounds 2 and 3. 2. Otherwise dismiss the appeal. 3. Order the plaintiffs to pay the defendant's costs of the proceedings, including the costs which were the subject of the order made by Rothman J on 26 May 2022.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 09 November 2022