CATZEL v THE OWNERS, STRATA PLAN 468

Supreme Court of NSW|2011-04-29|Before: Hall J

Judgment 1HALL J: This appeal was commenced in this Court by way of Summons filed on 3 November 2010. The proceedings are by way of appeal from the decision of her Honour, Magistrate O'Shane of the Downing Centre Local Court on 1 October 2010. 2The action in that Court concerned the failure of the plaintiff (the defendant in the proceedings below) to pay certain levies to the Owners Corporation in relation to the unit owned by the plaintiff in a unit complex in Bellevue Hill. 3The plaintiff purchased that property on or about 26 April 2002. He ceased paying levies on 1 February 2008. 4After a period of (unsuccessful) correspondence, the defendants in these proceedings commenced an action in the Local Court by Statement of Claim filed on 10 February 2010. The claim was for principal and interest and totalled, at that time, $27,969.33. An Amended Statement of Claim was filed on 14 April 2010 which sought the recovery of a fixed sum of levies, interest and costs incurred up to and including 14 April 2010. 5A Defence was filed on 24 February 2010 in respect of the first Statement of Claim. No amendment was made to the Defence prior to the hearing before Magistrate O'Shane which commenced on 14 September 2010 and which reconvened and concluded on 10 October 2010. 6However, I note that a document was filed in the Registry of the Local Court by or on behalf of the plaintiff on 27 July 2010. Although somewhat longer than the purported Defence filed on 24 February 2010, it is in a similar vein. It did not, as the learned Magistrate observed in her judgment, identify the parties to the proceedings or comply with the form requirements of the Uniform Civil Procedure Rules 2005 ("UCPR"), unlike the document filed on 24 February 2010. 7The matter came before the Local Court on 10 August 2010 for a Review hearing. That hearing was presided over by Magistrate Heilpern. The plaintiff sought to file an Amended Defence, which was opposed by the defendant (the plaintiff in the Local Court). His Honour considered that, in dismissing the application, Mr Catzel ought to have filed a Notice of Motion in order to obtain the leave of the Court to file the Amended Defence where consent of the parties was not apparent. 8No Notice of Motion was filed. I note that, in respect of the Review hearing, only limited information is available of what transpired on that day. There is no transcript of proceedings. Indeed, the only record of the events of that day was contained at Annexure B of the Affidavit of Daniel Radman, solicitor for the defendant, sworn 21 January 2011, which consisted of the Orders of the Court and handwritten notations to that effect. What can be divined from that document is that, in summary, Mr Catzel sought to amend his Defence, and that a Motion was required in order to undertake that task. 9On 14 September 2010, Magistrate O'Shane struck out the Defence. The defendant was also denied the ability to file an Amended Defence or to re-plead the Defence. Her Honour did so on the grounds that the purported Defence did not comply with the requirement to respond directly to the allegations made in the Statement of Claim. Indeed, her Honour described the document filed as " a rave ": transcript, p.25. 10Her Honour commented at p.24 of the transcript:- " There are a number of matters set out in it. It is a highly argumentative and contentious document. It makes comments about various persons, including Mr Radman, the solicitor who appears on behalf of the plaintiff in these proceedings, and other personnel who have sworn affidavits in evidence in these proceedings. And altogether, if it can be characterised at all, it would amount to some sort of statement of evidence. But even then, it does not actually meet with the requirements of the law ." 11During the course of the proceedings on 14 September 2010, her Honour made the following observation in respect of the purported Defence at p.9 of the transcript:- "... The document that is attached to what purports to be the Defence simply does not address any of the matters which had been placed in issue here by the plaintiff in its statement of claim, not at all. And it wasn't going to get any better, quite obviously, because [the defendant] finished off that document by stating, 'I certainly will not pay any legal costs whatsoever as I feel I am being taken advantage of and bullied .'" 12In respect of the second document filed 27 July 2010, her Honour stated the following:- " ... the second document - which is attached to nothing, certainly not to any notice of defence - this four page document from which I have read some passages, which does not even start to identify the parties in this matter, and not even themselves (sic), doesn't identify any of the issues. The amended statement of claim was filed four months ago." (p.9 Transcript) 13On the above bases, and in light of the delay between the filing of the Amended Statement of Claim and the application on 10 August 2010, and again on 14 September 2010, her Honour declined to allow Mr Catzel to to amend or re-plead his defence. It was her Honour's opinion that to do so would be contrary to the principles enunciated in s.56 of the Civil Procedure Act 2005 and AON Risk Services Australia Limited v Australian National University (2009) 239 CLR 175. 14On 1 October 2010, the learned Magistrate entered judgment for the defendant to these proceedings.

Statement of agreed facts 15A Statement of Agreed Facts, as at 7 September 2010, was provided for the purposes of the Local Court proceedings. It was in the following terms:- "(1) The plaintiff is the relevant owner of Lot 18 for the purposes of the payment of fees levied. (2) Progressive Strata Services was at all material times the duly authorised strata managing agent of the Owners Corporation (the defendant). (3) The defendant claimed the following levies in summarised form:- (a) Quarterly administrative fund and sinking fund contribution, payable on 1 May 2008, 1 August 2008, 1 November 2008, 1 February 2009, 1 May 2009, 1 August 2009 and 1 November 2009 at a rate of $601.33 on each occasion; (b) Quarterly administrative fund and sinking fund contribution, payable on 1 February 2010 of $743.93; (c) Special levy contributions on: (i) 1 July 2008, 1 October 2008 and 1 January 2010 at a rate of $4,796.16 on each occasion; (ii) 1 June 2009 and 1 October 2009 at a rate of $7,194.24 on each occasion. (4) The defendant claimed interest in respect of those amounts per s.79(2) of the Strata Schemes Management Act 1996. (5) The defendant claimed costs in respect of legal fees and disbursements incurred in the recovery of levies from the plaintiff." 16The evidence included two letters of demand that were served on the plaintiff; the first on 11 November 2008 and the second on 18 January 2010. These were then followed by the commencement of proceedings in the Local Court.

Evidence on the appeal 17The proceedings in the Local Court and this Court has generated a very large volume of documents and accordingly it is as well to identify those materials that the parties relied upon for the purposes of the present proceedings. They are as follows:- (1) Tender bundle (comprising, inter alia, the pleadings, amended pleadings and affidavit evidence relied upon in the Local Court by the respondent, together with transcript of proceedings). (2) The affidavit of Charles George Roth, solicitor for the plaintiff, sworn 25 January 2011. That affidavit annexed a large number of documents which, to a significant extent, duplicate documents to be found in the tender bundle.

Submissions 18I have had the benefit of written and oral submissions on behalf of the parties. These include:- (1) Plaintiff's outline of submissions dated 9 March 2011. (2) Respondent's outline of submissions dated 20 April 2011 and filed on 21 April 2011.

The proceedings in this Court 19The summons commencing an appeal pursuant to Part 50 of the UCPR was filed on 3 November 2010. 20The plaintiff, Mr Catzel, sought to appeal from the whole of the decision of the Local Court (her Honour Magistrate O'Shane) made on 1 October 2010. 21The appeal grounds were stated to be:- "Magistrate O'Shane, on 1 October 2010 ... erred in law and denied the plaintiff ... procedural fairness by:- (a) striking out the Plaintiff's defence; (b) refusing leave for the Plaintiff to re-plead; (c) determining the proceedings with no evidence of the approval required for the Defendant ... pursuant to s.80D of the Strata Schemes Management Act 1996; (d) determining the proceedings with no evidence in relation to the matters referred to in cl.15 of the Strata Schemes Management Regulation 2005." 22The Summons were dated 3 November 2010 and were filed on that date.

Particulars of the claim before the Local Court 23The particulars of the contributions claimed by the respondent were set out in Schedule A to the Amended Statement of Claim. That schedule stated that, as at 14 April 2010, the outstanding contributions amounted to the sum of $24,870.33 and that s.80 expenses amounted to $3,857.09, totalling $28,727.42. 24In a later schedule entitled Annexure B, those amounts were adjusted so that the total amount of contributions outstanding as at 14 April 2010 was stated to be $24,870.33 together with costs directly incurred to that date of $4,147.49, making a total of $29,017.82. 25The amount of outstanding contributions claimed in the Amended Statement of Claim was subsequently reduced by payments further made by the plaintiff so that, as at the first day of hearing, the balance of outstanding contributions was $17,383.28 and ultimately the amount of contributions claimed and allowed for in the judgment was again reduced to $9,361.70.

Legal costs 26As at 14 April 2010 (the date of the filing of the Amended Statement of Claim), the respondent had incurred expenses including legal costs of $4,147.49. Accordingly, additional costs and expenses after 14 April 2010 up to the date of judgment on 1 October 2010 amounted to $22,434.36 as representing costs and expenses incurred between 14 April 2010 and the date of judgment. Accordingly, as earlier stated, the total costs and expenses of the respondent before and after the Amended Statement of Claim was filed totalled $22,434.36. Additional costs were thereafter incurred.

Issues between the parties 27At pp.18 to 21 of the annexures to Mr Roth's affidavit is a Statement of Agreed Facts which was filed in the Local Court on 7 September 2010 on behalf of the respondent. In paragraphs 1 to 7 of the statement, the essential matters said to give rise to the liability for contributions was set out. 28In a handwritten document entitled Statement of Agreed Facts and signed by Mr Roth as solicitor for the plaintiff, the following appears:- "The following facts were agreed:-

The facts set out in paragraphs 1 - 7 of the plaintiff's agreed facts. ...
The defendant admits he owes the balance of outstanding levies and interest to the plaintiff. The following issues are in dispute:-
Whether the legal costs claimed by the plaintiff are reasonable.
Whether the plaintiff is entitled to the whole of its costs in circumstances of the matters in dispute contained in the defence." 29I understand that that document was handed to the Magistrate during the hearing in the Local Court. 30Accordingly, on the basis of the Statement of Agreed Facts provided to the Court on behalf of the plaintiff, Mr Catzel, there was no issue and, therefore, no defence sought to be raised in relation to the following matters:- (1) That the levies had been validly imposed on lot owners. (2) That the plaintiff was a lot owner liable to pay the levies determined by the general meeting of the Owners Corporation. (3) That demands had been made upon him for payment of the levies. (4) That he had failed to make payments as required. (5) That he was liable to pay the amount of the levies claimed against him as sought in the proceedings by way of the Amended Statement of Claim. 31In those circumstances, the only issues are those identified in paragraphs (4) and (5) of the document partly reproduced in paragraph [28] above. 32In considering whether or not the Magistrate erred in striking out the Defence, it is necessary to have regard to what were, as at the date of hearing, identified to be real issues in dispute. 33Mr Eastman, of counsel, who appeared for Mr Catzel on the appeal, accepted that, for the purpose of the present proceedings, there was no issue arising concerning the entitlement of the respondent to:- (1) The outstanding levies claimed. (2) Interest on those levies. 34Accordingly, the only area of dispute, Mr Eastman confirmed, was the amount for which the plaintiff is liable under the judgment in respect of expenses including, in particular, legal costs. 35Judgment was given by the Local Court on 1 October 2010 in the amount of $38,558.96. That judgment was made up of the following:- (1) Outstanding contributions $9,361.70

(2) Section 80 expenses (including legal costs) $26,581.85

(3) Interest $1,453.41

(4) Filing fees etc $1,162.00

Appeal grounds 1(c) and 1(d) 36I will firstly refer to the statutory provisions concerning the approval of legal action under the Strata Schemes Management Act 1996. 37Legal action for the recovery of monies is to be approved by a general meeting of the Owners Corporation. The relevant provisions are in s.80D which are as follows:- " 80D Legal action to be approved by general meeting (1) An Owners Corporation or Executive Committee of an Owners Corporation must not seek legal advice or the provision of any other legal services, or initiate legal action, for which any payment may be required unless a resolution is passed at a general meeting of the Owners Corporation approving the seeking of the advice or services or the taking of that action . (2) The Regulations may make provision for or with respect to exempting any type of legal service or legal action from the operation of this section." ( emphasis added) 38Part 4 of the Strata Schemes Management Regulation 2005 is entitled Restrictions on exercise of functions by Owners Corporations and Executive Committees . 39Clause 15 of the Regulation, Exemptions from need for approval for certain legal action , is in the following terms:- "15(1) The seeking of legal advice, the provision of legal services or the taking of legal action is exempt from the operation of s.80D of the Act if the reasonably estimated cost of seeking the legal advice, having the legal services provided or taking the legal action would not exceed:- (a) an amount equal to the sum of $750 for each lot in the strata scheme concerned (excluding parking and utility lots), or (b) $10,000, whichever is the lesser. (2) In a case where the cost, or estimated cost, of seeking legal advice, having legal services provided or taking legal action has been:- (a) disclosed by the legal practitioner concerned in accordance with the Legal Profession Act 1987 , or (b) set out in a proposed cost agreement under that Act, the reasonably estimated cost of seeking the legal advice, having the legal services provided or taking the legal action is taken, for the purpose of this clause, to be the cost or estimated cost so disclosed or set out." 40The plaintiff contended that there was no evidence of compliance with the requirements for approval imposed by s.80D. 41In response, the respondent relied upon a resolution passed at an Annual General Meeting of the Owners Corporation of the strata scheme held on 6 March 2007. A copy of the minutes of that meeting is set out at pp.180 to 182 of the Mr Roth's affidavit. 42Clause 10 of the minutes records:- " LEVY ARREARS RECOVERY IT WAS RESOLVED that the Owners Corporation:- (1) commence debt recovery action under the Strata Schemes Management Act against any lot owner who is in default of levy contributions in the following way:- (a) statement of arrears after 39 days (b) formal letter from the managing agent after 53 days of the due date (c) commencement of legal proceedings including court action after 67 days of the due date. Such legal action to be undertaken by lawyers or debt collection company." 43In relation to this resolution, I note that it provides authority for the commencement of recovery action in respect of "levy arrears" . Accordingly, the resolution by its terms conferred authority to take action in respect of specific types of debts due and owing to the Owners Corporation, in particular, an on-going authority to recover specific amounts, being levies that are outstanding or in arrears from time to time. 44In the course of oral submissions, Mr Eastman stated that he essentially relied on two issues as follows:- (1) A denial of procedural fairness in striking out the Defence and not allowing Mr Catzel leave to re-plead a defence to the proceedings. Mr Eastman stated that, having struck out the Defence, the learned Magistrate proceeded then to determine the proceedings on the evidence rather than on an application for summary judgment (transcript 29 April 2011 at p.3):- "... So although there is no defence she continued to, as it were, entertain a hearing on the merits. So one of the issues in your Honour's determination on this aspect of the denial of procedural fairness might be the GIO v Stead-type line of authority about whether or not it would have made a difference, given that her Honour, to some extent, had a hearing on the merits anyway. I will address your Honour on that." (2) The second issue was based on the contention that the Magistrate determined the proceedings with "no evidence of the approval" required pursuant to s.80D of the Strata Schemes Management Act and with "no evidence" in relation to the matters referred to in clause 15 of the Strata Schemes Management Regulation . 45In relation to the relief sought in the summons, in particular, that the proceedings be remitted for determination by the Local Court, Mr Eastman confirmed that such remittal would not be for the purposes of determining the claim in respect of outstanding levies and interest on those levies so that the Magistrate's judgment, in those respects, would remain. The residual part of the proceedings which would be remitted would essentially relate to the question of costs and expenses under the provisions of s.80D. In that respect, it was suggested that reliance could be placed upon what was said to have been payment arrangements entered into with the plaintiff (two arrangements referred to in evidence). On that basis, it was suggested that it may have been open to Mr Catzel to plead "accord and satisfaction" . That would raise an issue that could have meant that there would have been no need for the proceedings to have been brought in the Local Court. Accordingly, the plaintiff's grievance was essentially concerned with the order of the Local Court which went to the question of costs. 46It may be briefly stated at this point that, although the Owners Corporation entered into two arrangements for payments to be made by Mr Catzel over specified periods of time, the fact is that the evidence indicates that he breached both arrangements by failing to maintain payments. In those circumstances, breaches of a fundamental term as to payment would, at least prima facie, constitute a repudiation of the agreement, which the Owners Corporation accepted. On that basis, the plaintiff's repudiation of the arrangements led to their termination. 47It is, accordingly, for that reason, if the proceedings were to be remitted, that the only issue would be the question of costs awarded by the Local Court.

The first issue for determination on the appeal 48I return to consider whether or not the inclusion of the amount of $26,581.85 in respect of expenses and legal costs in the Local Court's judgment was made on the basis of "no evidence" as contended. 49Mr Eastman, in respect of the first issue, relied upon the following:- (1) There was no evidence of a resolution that dealt with the recovery of outstanding levies specifically from Mr Catzel. (2) In those circumstances, the question is whether or not the resolution passed at the general meeting of the Owners Corporation held on 6 March 2007, to which I have earlier referred, was sufficient to satisfy the requirements of s.80D. 50On this latter question, Mr Eastman submitted that the words of s.80D apply to "the taking of specific action" (transcript, p.9). He further contended:- " It is not an authorisation of action to be taken at large on any type of occasion, and if any qualification or understanding of that is assisted by clause 15 of the regulation - which are the exceptions referred to in subsection (2) ... it relates to very specific actions, that is, where the legal services provided are less than $750 per member of the scheme, effectively, or, alternatively, $10,000." 51Mr Eastman emphasised the phrase "that action" appearing at the end of s.80D(1). Those words were said to indicate that there needed to be a resolution by the Owners Corporation approving a particular action. Mr Eastman, properly, accepted that if the phrase "that action" , could encompass all actions relating to levy recovery, then the plaintiff could not succeed on that point. 52I have concluded that, on a proper construction of the provisions of s.80D(1) of the Strata Schemes Management Act , it was open to the Owners Corporation to pass a resolution authorising the seeking of legal advice or the provision of any other legal services or the initiation of legal action where the subject matter related to a particular or discrete matter (eg, levies) and, in particular, arrears of levies due and owing by lot owners. The resolution in question was not a general open-ended one. Its authorisation was restricted to a specified form of debt. There is no warrant, in my respectful opinion, in confining the terms of s.80D(1) in the way contended for in the present proceedings by the plaintiff. 53Section 80D takes its place in that part of the Act concerned with the approval of legal action and it is to be seen as a facilitative provision in circumstances in which there may at any particular time be default by lot owners in meeting their commitments in the payment of levies. There is, in other words, no warrant for suggesting that in each and every case when a lot owner falls into arrears that there must be specific authority conferred by the Owners Corporation (or the Executive Committee of such Corporation) in authorising the recovery of a particular levy or levies by a particular lot owner. 54I do not consider that the terms of the section of the Act are capable of being read down by subordinate legislation, in this case, clause 15 of the Strata Schemes Management Regulation . There is considerable authority against an approach to construction of that kind. 55Accordingly, I consider that the first issue raised in support of the order sought should be decided in favour of the Owners Corporation, the defendant. 56It follows from the conclusion I have expressed on the question of construction that the Owners Corporation were exempt from the operation of s.80D in accordance with clause 15(1) and (2) of the Act. The evidence indicates that there had been, in any event, disclosure by the legal practitioner in accordance with the requirements of the Legal Profession Act 1987. 57In The Owners - Strata Plan No 36131 v Dimitriou (2009) 74 NSWLR 370 at [33] it was held that s.80 of the Strata Schemes Management Act permitted expenses including costs and disbursements to be included in the claim made for levies. 58Accordingly, s.80 made such expenses a debt recoverable. Hodgson JA expressed agreement with the Magistrate in that case to the effect that expenses incurred in recovering contributions would extend to legal costs and disbursements only to the extent that such costs and disbursements are reasonably incurred and reasonable in amount and the Owners Corporation claiming such costs and disbursements would have to prove this in order to obtain a judgment for them ( Dimitriou (supra) at [37]). In that case, Hodgson JA stated at [48]:- "In such proceedings, there could be a claim made for all legal costs and expenses up to and including the hearing of the proceedings, with the plaintiff giving the best particulars it can of those costs and expenses at appropriate times. An Owners Corporation seeking a judgment for expenses would generally need to be in a position to prove, at the hearing of the proceedings, what expenses had been incurred, that such expenses had been reasonably incurred and that the expenses were reasonable ..." 59Basten JA (dissenting on other issues) expressed a similar view, as did Handley AJA. 60In the present case, there was affidavit evidence before the Local Court in relation to the costs that were included in the judgment. In particular, I refer to the affidavits of Daniel Radman, solicitor, sworn 26 July 2010 and on 14 September 2010. 61It is to be noted that at the hearing Mr Roth, solicitor, then appearing for Mr Catzel, identified, as one issue in dispute, the reasonableness of the costs sought to be recovered. However, Mr Radman was not required for cross-examination on his affidavits and there was no contrary evidence as to the reasonableness of the costs or the reasonableness for them having been incurred. 62Mr Radman, in his second affidavit, stated, based upon a review of the invoices attached to his affidavit, that the amounts charged for work undertaken were reasonable and that the costs had been reasonably incurred. 63Accordingly, there was evidence before the Magistrate to satisfy the reasonableness of the costs and there was no contrary evidence on that subject. 64I am, accordingly, of the opinion that there is no foundation to the plaintiff's challenge as to the order made in respect of the costs included in the judgment. 65I turn to the second issue. This related to the contention that, in striking out the Defence and not allowing the plaintiff the opportunity to re-plead, the plaintiff was denied procedural fairness. 66It is, however, important to observe the history and, in particular, the failure by Mr Catzel to file a notice of motion, as he had been directed, to put on any Amended Defence. The proceedings had been listed for hearing and it became clear at the hearing that there was, in fact, no issue on the primary liability for levies or interest claimed against the plaintiff. Accordingly, that left only the question of the legal costs, to which I have earlier referred. 67It is well accepted that, even if a breach of procedural fairness requirements occurs, that does not, of itself, entitle a plaintiff to relief. It is necessary to establish that, had there not been a breach of procedural fairness, a different practical outcome or result could have occurred. 68In the circumstances in which:- (1) there was no contest on the primary question of the plaintiff's liability for the levies and interest, (2) there was evidence supporting that the costs claimed were reasonably incurred and were reasonable in amount, and (3) there was no challenge made to the affidavit evidence to that effect, I do not consider that the striking out of the Defence in those circumstances and the failure to provide an opportunity to re-plead, was a denial of procedural fairness that resulted in any prejudice or adverse outcome to the plaintiff. 69It is also to be borne in mind that the plaintiff was represented by a solicitor on the first and second days of hearing and that, no doubt, his interests were advanced on the only bases that appeared to be available which were, essentially, the "no evidence" points to which I have earlier referred. There being no substance, as I have determined, in relation to either point, no practical adverse outcome has been established by reason of the alleged denial of procedural fairness. 70In those circumstances, the plaintiff is not entitled to the relief sought.

Orders 71Accordingly, I make the following orders:- (1) The summons commencing an appeal filed on 3 November 2010 is dismissed. (2) In accordance with the costs follow the event rule, the plaintiff is to pay the defendant's costs of and incidental to the proceedings.

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: 05 May 2011

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Judgment (16 paragraphs)

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