McClymont v The Owners - Strata Plan No 12139

REASONS FOR JUDGMENT BUCHANAN J: 1 This appeal, from the Federal Magistrates Court of Australia (the FMCA) (with the substance of which I am not yet dealing), raises a limited legal issue arising under the Strata Schemes Management Act 1996 (NSW) (the Strata Act). The proceedings in this Court have already had a chequered interlocutory history. In form, the appeal is against a decision of the FMCA not to set aside a bankruptcy notice issued to the appellants. The bankruptcy notice was based upon two judgments of the Local Court of New South Wales which were subsequently upheld by the Supreme Court of New South Wales. The judgments in the Local Court concerned debts arising from ownership by the appellants of a home unit (Lot 5) in the Strata Plan administered by the respondent under the Strata Act. The indebtedness claimed in the bankruptcy notice was not disputed before the FMCA. Rather, the authority of the solicitors acting for the respondent to the present appeal to issue the bankruptcy notice in the first place was disputed. In turn that challenge depended upon a contention that no proper authority was given by the respondent (or any person or committee acting on its behalf) to commence bankruptcy proceedings against the appellants or issue the bankruptcy notice. Those same matters represent the core elements to be examined on the appeal. 2 It seems quite apparent that the conflict between the parties is in large measure fuelled by strongly held views about the merits of their respective positions. The detailed history of that conflict is not before the Court and there is no occasion for me to explore those matters. However, I note that on an earlier occasion Mr McClymont indicated to me that it was his intention, at some time of his own choosing, to meet the debt claimed. That circumstance emphasises the essentially technical nature of the issues ventilated in the FMCA and to be considered in the appeal. 3 Limited in scope although they are, the proceedings in this Court have so far prompted one party or the other to take various interlocutory steps. On 22 January 2010 the appellants gave notice of a motion to set aside a notice to produce which had been served upon them by the solicitors for the respondent on 23 December 2009. The notice to produce was designed to seek documents which would reveal whether the appellants had the capacity to meet an order for costs in the present appeal should the appeal be dismissed. At that time no security for costs had been sought. Security for costs was sought by a motion of which notice was given by the respondent on 11 February 2010. 4 It became unnecessary to make a considered decision about the motion for security for costs, or to deal with the notice to produce, because on 26 February 2010 the appellants offered to provide security for costs. The respondent had sought that security of $34,100 be provided. The appellants initially offered to provide security for $15,000, then $20,000, but made it clear, after further discussion, that they would agree to a figure of $25,000 if I thought it appropriate. I indicated that I thought that security for costs in the sum of $25,000 would be appropriate to provide a fund in court from which, if necessary, the respondent's costs of the appeal could be paid if the appeal was dismissed. The appellants accepted that indication and security in that amount was subsequently provided by them. 5 When it became apparent that the issue of security for costs had been in substance resolved, the respondent withdrew its notice to produce served on 23 December 2009. The appellants' notice of motion filed on 26 January 2010 to set aside the notice to produce was correspondingly dismissed. I should also mention that, shortly before the hearing on 26 February 2010, the appellants had filed a notice of motion challenging the retainer of the solicitors for the respondent to represent the respondent in connection with the appeal. On 26 February 2010 I gave leave for that motion to be withdrawn, such a step having been sought by the appellants. 6 One feature of the outcome of the proceedings on 26 February 2010, after these various events had occurred, is that they resulted in a position where, apparently, all interlocutory issues had been resolved and the appeal would be able to be heard without further distraction. However, it was not to be. 7 On 30 March 2010 the appellants filed a notice of motion to set aside the order which I made, with their agreement, that they pay security for costs. The basis upon which the appellants sought to set aside the order to which they agreed was that after the compulsory sale of their interest in the Strata Plan the proceeds were, together with discharge of a mortgage and council charges, wrongly applied to the satisfaction not only of the judgments giving rise to their indebtedness to the respondent but also to the legal costs incurred by the respondent in connection with earlier proceedings. The basis of this complaint will appear shortly. 8 When the notice of motion came before the Court for hearing, I permitted other issues to be ventilated and decided also. It is convenient to record those matters before returning to the issue of security for costs. 9 First, I permitted the appellants to file an amended notice of motion which sought, in addition, to supplement the grounds for the appeal and obtain some consequential directions about the content of the appeal books. I granted leave to supplement the grounds of appeal as sought because it seemed unlikely that to do so would add much extra time to, or unduly complicate, the hearing of the appeal. 10 Secondly, I dealt with an application by the appellants that they be permitted to adduce, at the hearing of the appeal, evidence which had not been before the FMCA. The evidence consisted of various invoices for legal services rendered to the respondent by its solicitors and consequential invoices issued by the respondent to the appellants. The documents were brought into existence, and dated, between September and November 2009. However, the only issue which was before the FMCA was whether the respondent's solicitors were authorised to issue the bankruptcy notice, which was dated 23 June 2009. The additional documents, upon which the appellants wished to rely, post-dated the issue of the bankruptcy notice. As the documents could not be relevant to the matter decided by the FMCA I ruled that the appellants would not be permitted to adduce that evidence on the appeal. 11 The question of security for costs raises more difficult issues. In support of the appellants' application to set aside the order that they provide security for the costs of the appeal, Mr McClymont gave evidence by affidavit (on which he was not cross-examined) from which the facts set out hereunder have been taken. Unbeknown to the appellants until at the earliest 19 February 2010, settlement of the mortgagee sale of their home unit (Lot 5 in the Strata Plan) occurred on 13 January 2010. Amongst the disbursements was a cheque for $92,520.37 to Strata Partners, the managing agent for the respondent. The appellants had not been aware of this payment at the time of the hearing on 26 February 2010. The payment was made from the proceeds of sale of their home unit pursuant to a notice issued by the respondent under s 109 of the Strata Act. Section 109 of the Strata Act provides: 109 Certificate by owners corporation as to financial and other matters relating to lot (1) Who may request certificate? An owner, mortgagee or covenant chargee of a lot or a person authorised by the owner, mortgagee or covenant chargee may request the owners corporation to give a certificate under this section in relation to a particular lot. (2) Form of request The request must be in writing and accompanied by the fee prescribed by the regulations. (3) Information relating to lot to be included in certificate The certificate must specify the following information in respect of the relevant lot: (a) the amount of any regular periodic contributions determined by the owners corporation under Part 3, the periods for which those contributions are payable and any discounts applicable for early payment, (b) whether there is any amount unpaid of any other contributions determined under Part 3 and, if so, the amount unpaid and, in the case of a contribution levied in respect of the sinking fund, the date on which any such contribution was levied, (c) whether there is any amount unpaid by an owner under a by-law to which Division 4 of Part 5 of Chapter 2 applies, (d) whether there is any amount unpaid of any contribution levied under section 76 (4) and, if so, the amount unpaid and the date on which it was levied, (e) whether there is any amount recoverable from the owner of that lot for work carried out by the owners corporation, (f) any amount and rate of interest payable in relation to any unpaid contribution referred to in this subsection, (g) whether there is any fine unpaid under this Act that is a charge on the lot, (h) such other information as is required to complete the certificate. (4) Information relating to management of strata scheme to be included in certificate The certificate must state, as at the date of the certificate, the name and address of each member of the executive committee and of any strata managing agent and caretaker appointed under this Act for the strata scheme. (5) Extra information required in relation to community schemes If the strata scheme is part of a community scheme, the certificate must also include: (a) the amount of any regular periodic contributions required to be made to the administrative fund, and the sinking fund, of the community association and the respective periods to which they relate, and (b) the amount of any such contribution that has not been paid, and (c) the date on which any regular periodic contribution to the administrative fund, and the sinking fund, of the association was levied, and (d) if the strata scheme is also part of a precinct scheme - the same information in relation to the precinct scheme as is required by paragraphs (a), (b) and (c) in relation to the community scheme. (6) Form of certificate The certificate must be in the form prescribed by the regulations. (7) When must certificate be given An owners corporation must give a certificate under this section not later than 14 days after receipt by it of an application for the certificate. Maximum penalty: 2 penalty units. (8) Certificate is evidence of matters stated in it A certificate given under this section is conclusive evidence, as at the date of the certificate, of the matters stated in it in favour of a person (whether or not the applicant for the certificate or a person referred to in the certificate) taking for valuable consideration: (a) an estate or interest in a lot in a freehold strata scheme to which the certificate relates, or (b) an estate or interest in a lease of a lot in a leasehold strata scheme to which the certificate relates. 12 Section 109(8) makes it apparent that the purpose to be served by s 109 is to identify outstanding liabilities relating to a lot in the strata scheme and prevent an owner's corporation subsequently making claims against a purchaser inconsistent with the content of the certificate. Presumably, although there is no evidence of this before me, the contract of sale permitted an adjustment, from the proceeds of sale, to discharge any unpaid amounts relevant to Lot 5 disclosed by such a certificate. So far as any amounts disclosed related to unpaid contributions, charges or amounts payable of the kind referred to in s 109(3)(a) to (g), there would appear little room for debate and there was no such debate before me. The issue raised by the appellants concerned whether s 109(3)(h) (such other information as is required to complete the certificate) was a sufficient foundation to support payment from the proceeds of sale, without reference to the appellants, of the judgment debts in the Local Court and other amounts claimed by the respondent on account of its costs of various proceedings. 13 When he became aware of completion of the sale, and the payment of money from the proceeds to the respondent, Mr McClymont requested, but was not given, a copy of the s 109 certificate. He calculated, however, that the amount remitted to the respondent's agent, pursuant to the respondent's certificate, must have included substantial amounts which were not referred to in s 109(3)(a) to (g), including amounts for legal costs that were not recoverable at law because they were not yet assessed or taxed. In response to his complaints, the solicitors for the respondent referred to, and apparently relied on, s 109(3)(h) as an adequate foundation for the certificate, although not disclosing its actual contents. Mr Mc Clymont takes the view that: s 109 of the Strata Act did not authorise identification of alleged liabilities which did not attach directly to Lot 5; did not authorise the payment of amounts to the respondent representing costs not recoverable, or yet recoverable; and, s 109(3)(h) did not authorise the identification, or payment to the respondent, of alleged financial liabilities not referred to in s 109(3)(a) to (g). His contention is that a substantial amount of the money paid to the respondent's agent from the proceeds of the sale of the unit is therefore held on constructive trust for the appellants. 14 So far as most relevant to their notice of motion, the appellants argued that, if they had known the respondent had arranged the payment to itself or its agent of money not properly the subject of the s 109 certificate, they would not have agreed to provide security for costs of the appeal as well. 15 Examination of the question of whether the appellants' concerns give a sufficient foundation to permit them to withdraw their agreement to provide security for costs has not been made any easier by the fact that the s 109 certificate has not been produced and, I infer, would not be produced except under compulsion. There are adequate grounds to suspect that refusal to provide a copy to Mr McClymont and unwillingness to produce it to the Court may conceal the fact, as Mr McClymont already believes, that its support for the payment made to the agent of the respondent may be flimsy. If that is so, he may be right to think that the respondent will have to account to the appellants for any money wrongly directed to the respondent and perhaps for its conduct. Those are not matters with which I can deal in the present proceedings. Their relevance for the present proceedings is that they provide, in my view, a respectable foundation for the submission that the appellants should not be held to their earlier agreement to provide security for costs. 16 On the other hand, resolution of the question of security for costs on 26 February 2010 permitted the resolution, at that time, of all other outstanding interlocutory issues. If the order for security for costs was now revoked, it seems inevitable that a further application would be made and resisted, and would be attended by efforts on both sides to examine the private documents of the other. In the end I may be persuaded that a further order for security for costs should be made. If so, time, energy and cost would have been needlessly expended. Even if I did not, after further interlocutory steps, order that security for costs be provided, that would do little to alter the legal liabilities of the appellants if they lose their appeal and costs are awarded against them. It might provide them with tactical opportunities to defer compliance with any order for costs but that is not a matter to which I am prepared to give much weight. 17 The purpose of an order for security for costs is to provide a fund under the control of the court from which an order for costs in favour of the respondent may, if necessary, be met. The fund is not under the control of the respondent. Payment out of the fund requires an order of the Court. The prejudice to the appellants from the requirement to establish the fund is slight in circumstances where their capacity to do so was, according to Mr McClymont's statements to the Court on 26 February 2010, not an issue. 18 My principal concern is with the orderly conduct of the appeal. Ultimately, the test to be applied is what the interests of justice require. I have decided on balance that the interests of justice in connection with the conduct of the appeal in this Court are best served by not revoking the order for security for costs made on 26 February 2010. It is open to the appellants, though doubtless highly inconvenient to them, to pursue their complaints about the respondent's conduct concerning the certificate under s 109 of the Strata Act in the appropriate forum or with the appropriate authorities. 19 The appellants' notice of motion filed on 30 March 2010 will be dismissed. Costs will be reserved. I certify that the preceding nineteen (19) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Buchanan.