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

I hereby order that the application by the owner of lot 9 Gary Murphy (the applicant) for an interim order, that the Body Corporate be restrained from demanding the additional penalty interest and costs of recovery until the adjudicator can decide on the merits of this application with an opportunity for submissions by both parties, is dismissed.

I further order that the application by the applicant for final order that the Body Corporate be permitted to only recover those amounts permitted by the Body Corporate and Community Management Act 1997 and related Regulations, is dismissed.

STATEMENT OF ADJUDICATOR'S REASONS FOR DECISION - REF 0411-2006

The applicant, Gary Murphy, the owner of lot 9, has sought the following interim order of an adjudicator under the Body Corporate and Community Management Act 1997 (the Act) quote -

That the Body Corporate be restrained from demanding the additional penalty interest and costs of recovery until the adjudicator can decide on the merits of this application with an opportunity for submissions by both parties.

The applicant has further sought the following final order:

That the Body Corporate be permitted to only recover those amounts permitted by the Body Corporate and Community Management Act 1997 and related Regulations.

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)).

The scheme is a subdivision of 182 lots recorded under a building unit plan of subdivision. The regulation module applying to the scheme is the standard module.

It appears this dispute originated in 2001 after the applicant incurred damage to his unit from activities within the complex. The circumstances of the failure to pay contributions during that period is not detailed, however the applicant has since sold his unit in order to meet contributions. The evolution of the final sum of monies claimed by the Body Corporate is not known to the applicant, nor detailed by the respondent.

In essence the dispute concerns the ability of a body corporate to include on the applicant's contributions account, an amount in excess of $7,983.81. The amount over $7,983.81 apparently relates to penalty interest and certain costs incurred by the body corporate related to debt collection and legal proceedings. The amount in excess of $7,983.81 is somewhat of a moving feast, with penalty interest continuing to accrue and various collection expenses being incurred by the body corporate. The amount being claimed by the body corporate in a statement dated 13 June 2006, had reached $42,751.20.

The solicitor for the applicant has provided a factual backdrop along with legal argument citing both the Standard Module and various court precedents. They include arguments in relation to the age of the alleged debt (Section 99(2) of the Standard Module) and itemisation of the alleged debt for the purposes of Section 99(1).

The solicitor for the applicant refers to a claim made by the Body Corporate in the Small Claims Tribunal for $28,355.69. No supporting documentation for this is provided, however I did locate:

• A claim (1458/02) lodged by the applicant in the Small Claims Tribunal for $5,447 on 25 June 2002;

• A completed claim in the Small Claims Tribunal for $5,278 by the applicant. There is no evidence this was filed;

• Order of Small Claims Tribunal, striking out the claim for $5,447;

• Claim by the Body Corporate (2804/03) in the Southport Magistrates Court for $11,865.83;

• Claim by the Body Corporate (M13336/05) in the Brisbane Magistrates Court for $35,849.05.

In referring to the alleged Small Claims Tribunal action for $28,355.69, the solicitor states that the applicant should not be made responsible for costs incurred by the respondent erroneously lodging in the wrong jurisdiction.

In order to better identify the nature of the monies in dispute, the Body Corporate Manager and the Body Corporate's levy recovery specialist provided further information.

The Body Corporate Manager volunteered the observation that they were unable to locate the minutes where the Body Corporate resolved by ordinary resolution that penalty interest could be charged in accordance with Section 98 of the Standard Module. They provide minutes of meetings which they say support the assertion that it has always been the "policy" to charge penalty interest. They advise that the committee finds it outrageous that the applicant has enjoyed the use of facilities, but has refused to pay for them despite numerous personal approaches and reminders.

The levy recovery specialist (Collect Success) provides evidence of various legal actions surrounding the dispute but does not provide evidence of any orders so far. However they observe that the size of the arrears has caused the body corporate a great deal of hardship over the years. They state they regard this application as another means of avoidance. They state they are going to proceed to judgement and are in the process of retrieving previous records to forward to this office.

In a previous adjudication (no. 458 of 1997), Adjudicator Meek made the following observation in relation to one of the issues now in dispute, namely the inclusion of recovery costs on the applicant's contribution account.

Payment and recovery of contributions is dealt with in section 99 of the standard module. That section provides that outstanding contributions etc, are recovered as a debt.

In my view, legal costs do not become an amount payable by an owner in arrears, until the body corporate has in fact obtained judgement for the amount of the arrears, together with an order as to costs. If it were otherwise, then there would be no check on the ability of a body corporate to increase an owner's contribution by amounts that the body corporate considered outstanding. This would be unreasonable. To avoid this scenario, there must be an order for payment of the body corporate's legal costs, before such costs can be added to an owner's contribution account. ...

Since the making of this order, section 99 has been amended to be more specific, quote:

99 Payment and recovery of body corporate debts

(1) If a contribution or contribution instalment is not paid by the date for payment, the body corporate may recover each of the following amounts as a debt--

(a)

the amount of the contribution or instalment;

(b)

any penalty for not paying the contribution or instalment;

(c)

any costs ("recovery costs") reasonably incurred by the body corporate in recovering the amount.

(2) If the amount of a contribution or contribution instalment has been outstanding for 2 years, the body corporate must, within 2 months from the end of the 2 year period, start proceedings to recover the amount. ...

The section now directs a body corporate to commence proceedings to recover outstanding contributions and also specifically identifies the items or arrears the body corporate can in fact recover i.e. outstanding contributions, any penalty imposed and recovery costs reasonably incurred by the body corporate.

Each of the amounts claimed must be recovered as a debt and there is particular significance in this method of recovery. That is, that evaluation of the reasonableness of costs of recovery is for determination by a court. Given that this is the case, the body corporate cannot therefore include the costs of recovery on the account, until a court has determined that they are reasonable.

At this point, the basis of the authorisation of the penalty interest by the body corporate and the basis of calculation of the penalty interest are not proven. It is unclear whether any of the arrears included on the statement relate to the Body Corporate's claim filed on 30 June 2003 (2804/03). If so, a certain portion of the monies included on the statement may already have been quantified as payable by the Southport Magistrates' Court.

I agree that the Body Corporate cannot legitimately "demand" an amount for recovery costs that has not been determined as reasonable by a court. I further accept that the calculation of penalty interest does not have an identified basis (either legally or mathematically) at this point.

While (given appropriate evidence) the adjudicator has the power to decide the issue of penalty interest, the adjudicator does not have jurisdiction to make a full determination on recovery costs. Further, it may well be that once the body corporate provides the applicant with sufficient information on which to verify the interest calculations and carry over items, the issue of recovery costs may be the only issue requiring resolution.

The action in the Brisbane Magistrates Court was commenced by the Body Corporate in October 2005 and is entitled to continue on the issue of recovery costs. That court also has jurisdiction to determine the penalty interest issue, however the court will also need more historical data than has currently been provided to this office.

For the following reasons, I am not prepared to order the Body Corporate to withdraw its Magistrates Court action, pending a final determination by an adjudicator:

• The Magistrates' Court reports that it has recently been disposing of 92% of civil matters within 12 months. The hearing of this matter may be very close at this point and is likely to be heard before a final determination by this office;

• Factual matters relating to timing around the arrears (Sectio 99(2)) will need to be addressed by the Court and finding of facts in that regard should apply to both the recovery costs and penalty interest; and

• The outcome of the claim filed by the Body Corporate on 30 June 2003 in the Southport Magistrates Court is not known and may prove to be significant. It seems possible that the Body Corporate may have received a favourable outcome, but has not enforced the judgement by the appropriate means.

Given that the money being pursued by the Body Corporate can only be by way of debt, a court of competent jurisdiction will see to it that the body corporate may only recover those amounts permitted by the legislation. An order to that effect is of no value.