Validity of the resolution of 27 February 2013
87Ms Moallem sought a declaration that the resolution of the owners corporation made at the extraordinary general meeting on 27 February 2013 is valid. As noted above at [37], on that day the owners corporation resolved to levy an amount of $47,012.53 on lot 2. Costs of $43,753.90 that were the subject of that levy related to costs of the Supreme Court proceedings payable by Dr Xabregas. The balance of the contribution the subject of that special levy, namely $3,258.63, was described as costs charged by David Le Page Solicitor Pty Ltd and incurred by the owners corporation in relation to the exclusive use by-law referred to in clause 10 of the deed of 14 October 2011.
88In Owners, Strata Plan 50411 v Cameron North Sydney Investments Pty Ltd the successful respondent was a lot owner of a strata plan and entitled to an order for costs. Section 229 of the Strata Schemes Management Act has been set out at para [31] above.
89The Court of Appeal ordered pursuant to s 229 that the costs payable by the owners corporation be paid from contributions levied from lot owners other than the successful respondent.
90Section 229 deals with how the burden of costs payable by the owners corporation under a costs order may be borne between lot owners. It does not deal with the burden of the costs incurred by the owners corporation in the proceedings. Section 230 of the Strata Schemes Management Act provides in substance that in proceedings brought by an owners corporation or against an owners corporation under Chapter 5 of that Act, the owners corporation cannot levy a contribution on another party who is successful in the proceedings, and an owners corporation that is unsuccessful in the proceedings cannot pay any part of its costs and expenses from its administrative fund or sinking fund, but may make a levy for that purpose. The section does not deal with costs incurred by an owners corporation in proceedings that were not proceedings brought by or against it under Chapter 5 of the Strata Schemes Management Act.
91In Owners, Strata Plan 50411 v Cameron North Sydney Investments Pty Ltd, Heydon JA (with whom Santow JA agreed) said (at [170]):
"... the court has, under s76(1)(b) of the Supreme Court Act 1970, 'full power to determine by whom and to what extent costs are to be paid'. It would be quite unjust if the successful plaintiff had to assist in the payment of the costs of the first claimant through levies based on unit entitlement, or had to suffer indirectly as a result of existing assets of the first claimant being diminished for that purpose. The same is true of Service Corp International Australia Pty Ltd, the remaining lot holder. Accordingly it is appropriate to order that, in respect of the costs incurred by the first claimant in this Court, the first claimant is not to levy a contribution on the opponent or on Service Corp International Australia Pty Ltd, nor to use any administrative fund, sinking fund or other existing assets for the purpose of meeting those costs."
92Heydon JA observed that the question of costs had not been the subject of submissions. The costs orders were stayed for 28 days to allow the parties the opportunity to file written submissions if different orders as to costs were sought. It does not appear that any different order was made.
93In Symes v Proprietors, Strata Plan 31731 Heydon JA, (with whom Sheller JA and McClellan J agreed) reiterated the view he had expressed in Cameron North Sydney Investments and said (at [83]):
"... So far as it is unclear that the proceedings in the Equity Division are not proceedings under Chapter 5 of the Strata Schemes Management Act 1996, a source of power to make the second proposed order is s76(1)(b) of the Supreme Court Act 1970, which gives the court 'full power to determine by whom and to what extent costs are to be paid'. It would be unjust if Mr Symes had to assist in the payment of the costs of the body corporate through levies based on unit entitlement, or had to suffer indirectly as a result of the existing assets of the body corporate being diminished for that purpose."
94The orders made included an order that costs of the respondent incurred in the proceedings were not payable in any part by the successful appellant.
95It was implicit in the orders made in Cameron North Sydney Investments and Symes that the owners corporation could impose levies on the lot owners other than the named party to meet its costs. That is because in the case of the order in Cameron North Sydney Investments the owners corporation was expressly prohibited from using an administrative fund or sinking fund or other existing assets for the purpose of meeting its costs. It was necessarily implicit in the finding that s 76 of the Supreme Court Act conferred power on the court to restrain a body corporation from imposing a levy on a successful party so as to recover its own costs, or a proportion thereof, from the successful party and could not have recourse to the administrative fund or sinking fund or other assets, that s 76 also empowered a body corporate to impose a levy on other lot owners to meet its costs, notwithstanding that such a levy would not be proportionate to the lot owners' unit entitlement. If that were not so the owners corporation would have no means of paying debts properly incurred to its lawyers for its legal costs and the lawyers would have no means of recovering their debts.
96It appears from the transcript of 5 December 2012 and the orders made on that day that this was the view of Bergin CJ in Eq. I am also of the view that this conclusion follows from the decisions of the Court of Appeal referred to above.
97Section 98 of the Civil Procedure Act is in materially the same terms as s 76 of the Supreme Court Act.
98The owners corporation argued that this construction of s 76 or s 98 failed to have regard to the fact that the power conferred on the court to determine by whom, and to what extent, costs are to be paid, was a power that was subject to any other Act. As s 78(4) of the Strata Schemes Management Act required levies raised under s 76 to be raised proportionately to the lot owners' unit entitlement, s 98 of the Civil Procedure Act, so it was argued, could not authorise an order that purportedly empowered the owners corporation to raise a contribution for its costs otherwise than from lot owners proportionately to their unit entitlement. Section 229 made express provision for the levying of contributions otherwise than from lot owners in accordance with their unit entitlements where an order was made for the payment of costs by the owners corporation with a further order that the costs payable by an owners corporation be paid from contributions levied only in relation to certain lots. The owners corporation argued that the absence of a provision modifying the application of s 78(2) in relation to costs incurred by an owners corporation shows that the power under s 98 does not authorise the making of orders that would allow an owners corporation to impose a levy otherwise than on the lot owners proportionately in accordance with their unit entitlement. Therefore, the resolution of 27 February 2013, although made in accordance with the orders of Bergin CJ in Eq of 5 December 2012, was not authorised by any legislation.
99There is no occasion to consider the merits of this submission except to observe that it is not consistent with the decisions of the Court of Appeal. Nor need I explore the possible sources of power for the second part of order 2 made on 5 December 2012, that is, the order in relation to the making of levies concerning the costs referred to in clauses 10, 12(iii), 14, 15(ii) and 20 of the deed of 14 October 2011. That is because the orders of 5 December 2012 are binding on the parties and effective in accordance with their terms as an order of a superior court of record.
100The costs of $43,753.90 the subject of the separate levy of 27 February 2013 are in an amount well below the amount that a costs assessor has determined is payable by Dr Xabregas in respect of the costs orders made against her. That certificate of assessment was not provided until 24 October 2013. The time for seeking a review of the costs assessor's determination has not expired, but there is no reason to doubt that Dr Xabregas is liable to the owners corporation for at least the amount of $43,753.90. No issue was raised before me, nor it seems before the Strata Schemes Adjudicator, that the moneys sought to be levied on 27 February 2013 for legal costs incurred in relation to the exclusive use by-law were not owing.
101However, unlike the orders of the Court of Appeal in Cameron Investment Services and Symes which impliedly conferred an unqualified power on the owners corporation to raise levies on other lot owners to meet costs that could not be raised from the successful party or, in the case of Cameron, from the administrative fund, sinking fund or other existing assets, the orders of 5 December 2012 do contain such a qualification. The order that the owners corporation costs of the proceedings and the costs referred to in clauses 10, 12(iii), 14, 15(ii) and 20 of the deed are only to be levied "insofar as it may be necessary" against lot 2, defines the extent of the power of the owners corporation to raise levies against lot 2 in respect of such costs. That is, contribution for such costs may only be levied against lot 2 insofar as that may be necessary. Given that a levy will bind not only Dr Xabregas, but also Mr Marcos and any person who becomes the owner of lot 2 at a time when Dr Xabregas and Mr Marcos are liable in respect of the lot to pay a contribution, the limitation "insofar as it may be necessary" is important.
102"Necessary" here means indispensable, essential or requisite for the recovery of the amount owed: not something desirable or convenient for the recovery of the amount owed.
103The obligations of Dr Xabregas and Mr Marcos under the deed, including Dr Xabregas' obligations to pay the costs of the proceedings on the solicitor/client basis, were secured by a charge. There was no evidence before me as to what steps if any the owners corporation took to seek to recover moneys payable by Dr Xabregas or Mr Marcos that were subject to the levy of 27 February 2013 before the levy was raised. It has not been shown that at that time the levying of the contribution was necessary for the owners corporation to recover the amount owing. As Ms Moallem sought a declaration that the resolution was valid, she needed to establish that the levying of the contribution as at 27 February 2013 was necessary in order for the owners corporation to recover an amount owing. As that has not been established the declaration sought in para 5 of the summons should be refused.
104In its submissions the owners corporation said that it wanted clarity as to its ability to raise levies having regard to the conflicting orders of Bergin CJ in Eq of 5 December 2012 and the adjudicator's orders of 3 July 2013. The owners corporation did not file a cross-summons seeking any declaratory or other relief.
105It does not follow that because it has not been shown that the levy on lot 2 was necessary as at 27 February 2013 to recover the contribution, that a levy could not now be raised against lot 2 for an amount owing by Dr Xabregas or Mr Marcos, or for an expense that the owners corporation is required to meet for which they, or either of them, is liable pursuant to the costs orders or the deed. Westpac has gone into possession of lot 2 as mortgagee. It had listed the lot for sale by auction. I assume Westpac has a registered mortgage and therefore could sell the property free of the charge given by Dr Xabregas and Mr Marcos pursuant to the deed of 14 October 2011. No payments have been made by either Dr Xabregas or Mr Marcos in respect of amounts they owe under the deed or the amounts Dr Xabregas owes under the costs orders.
106There is no evidence as to the value of lot 2, or the amount of the debt owed to Westpac, or as to the likely amount of any net proceeds of sale that may be available after discharge of Westpac's mortgage and any other prior security pursuant to the owners corporation's charge. I think a reasonable interpretation of the orders of 5 December 2012 as to when a levy is necessary is that the owners corporation should not be exposed to the vagaries of a mortgagee sale. If Dr Xabregas or Mr Marcos contended that the security by way of charge was so sufficient that a levy could not be considered as necessary to protect the owners corporation's position to ensure recovery, the evidentiary onus would be on them to adduce evidence of those matters. No such case has been put.
107It is true that the owners corporation did not put its case on this basis, but during the course of submissions I clearly raised the question as to the effect of the words "insofar as may be necessary" in the order of 5 December 2012. It was open to Dr Xabregas or Mr Marcos to seek to adduce evidence to establish that it is not necessary for the owners corporation to be able to impose a levy on lot 2 because it has sufficient security by way of its charge. No such contention was raised.
108In my view a levy could justifiably be made now in accordance with the orders of Bergin CJ in Eq of 5 December 2012 as such a levy could now be regarded as necessary for the recovery of amounts owed pursuant to the deed and the costs orders. I make no declaration about that as none was sought.
109It was for these reasons that I made orders in accordance with paragraphs 1, 2, 3, and 4 of the summons and refused the relief in order 5.
110I also made an order in substance as sought in paragraph 7 of the summons. I ordered that the owners corporation, Dr Xabregas and Mr Marcos pay Ms Moallem's costs of the proceedings (including costs in connection with the claim for relief in paragraphs 7, 9, 10 and 11 of Ms Moallem's notice of motion of 18 October 2013 in the 2011 proceedings). I ordered that none of the costs payable by the owners corporation to Ms Moallem and none of the costs incurred by it in relation to the proceedings, was to be levied against Ms Moallem. Nor was the owners corporation to use the administrative fund, sinking fund or other existing assets for the purpose of paying or meeting those costs.
111It was not just that Ms Moallem be required to bear any of the costs payable or incurred by the owners corporation in respect of her proceeding. Her proceeding was only necessary because the owners corporation had acted contrary to the orders of Bergin CJ in Eq of 5 December 2012.
112I have not made an order that such costs can be levied against lot 2. The question of whether the burden of the costs payable by the owners corporation and the costs incurred by the owners corporation should be borne by Dr Xabregas and Mr Marcos and any subsequent owner of lot 2, or whether the burden of those costs should be borne wholly or in part by Progressive Strata is a question yet to be decided.
113It is for these reasons that I made the orders of 4 November 2013.
ANNEXURE A
4 November 2013
1 HIS HONOUR: Time does not permit my giving full reasons for the orders I will make. Instead I will provide a summary of my conclusions which provide the basis for those orders.
2 I will deal first with the orders of the Strata Schemes Adjudicator, Mr Geoffrey Smith, of 3 July 2013. I have concluded that those orders should be quashed. This is because, first, the material in the application lodged by Dr Xabregas showed that the strata plan related to a building with dual occupancy with two lots and showed that the owner of lot one would be affected by the orders sought. I conclude that either the Registrar failed to form an opinion as to whether any other person would be affected if the orders sought in the application were made, or if he or she did consider that question, I conclude that an opinion that no other person would be affected was so manifestly unreasonable that no reasonable decision maker in the Registrar's position would have formed it. Accordingly, s 135(1) of the Strata Schemes Management Act was not complied with.
3 Ms Moallem's evidence that she did not receive the application to the Strata Schemes Adjudicator was not challenged. I am not persuaded by the evidence of Ms Heinz that the owners corporation did serve a copy of the application on Ms Moallem.
4 I do not conclude that if there is any failure to comply with the requirements of subsection 135(1) or 136(1) that this would necessarily vitiate the Strata Scheme Adjudicator's decision. However, in this case I conclude that Ms Moallem was denied procedural fairness. That conclusion is arrived at notwithstanding her evidence that she had heard in about May 2013 that Dr Xabregas had instituted some applications to the Strata Schemes Adjudicator. I have regard to her evidence, that was not challenged, that she was not aware of the details of the applications at that time and was under the impression that in the light of s 163(4)(d) any application by Dr Xabregas would be dismissed because she was in arrears in relation to payment of levies.
5 This is the first ground for setting aside the orders of 3 July 2013. The second ground is that the adjudicator did not consider that the provisions of the Strata Schemes Management Act had not been complied with in relation to the document 27 February 2013, as distinct from his considering that the resolution passed by the owners corporation through its strata managing agent did not comply with the provisions of the Act.
6 Section 153(1) only gave the adjudicator jurisdiction invalidating the resolution if he had considered that the provisions of the Act had not been complied with in relation to the meeting. There was, therefore, no jurisdiction to make the orders that he made.
7 The third ground for quashing the orders of 3 July 2013 is that the adjudicator erred in his reasons concerning the binding nature of the orders of Bergin CJ in Eq on 5 December 2012.
8 In relation to the resolution of 20 June 2013 determining that the special contribution of $135,035 be levied on the owners of both lots, I have concluded that that resolution should be set aside. That is so, first, because as to a sum of at least $40,457.52 the resolution is contrary to the orders of this Court of 5 December 2012.
9 There is a dispute as to the correctness of what is asserted to be the quantum of legal costs that the solicitors and the owners corporation contend have been incurred, or which are estimated to be incurred, that they say fall outside the terms of the cost orders and the relevant clauses of the deed of 14 October 2011.
10 The owners corporation contended that the costs of obtaining an assessment of costs payable by Dr Xabregas were not covered by the orders of 5 December 2012. That is incorrect. It is not possible to say how much, if any, of the levy purportedly raised could have been raised without infringing those orders.
11 A question may also arise as to whether costs in relation to matters that are not within the scope of the orders of 5 December 2012 may nonetheless be the subject of the releases in clause 25 of the deed of 14 October 2011. However, I have heard no argument on that question, nor as to the enforceability of clause 25 if its effect is prejudicial to the creditors of the owners corporation.
12 The resolution of 20 June 2013 should be set aside as being contrary to the orders of 5 December 2012.
13 I turn next to the resolution of 18 September 2013. That resolution should be set aside at least as to the levies of $9,025 for legal work in relation to the recovery of strata levies against Ms Moallem and $10,000 in relation to the taking of proceedings to seek the amendment or rescission of the orders of 5 December 2012.
14 The proposed action to recover strata levies from Ms Moallem was misconceived because the owners corporation was not entitled to levy the contributions sought to be recovered. The application to set aside the orders of 5 December 2012 was also misconceived. In any event, pursuant to the orders of Windeyer AJ on 25 October 2013 the owners corporation's costs of that application can only be levied against Dr Xabregas.
15 No separate submissions were made in respect of the levy of $7,875, the subject of the resolution of 18 September 2013. That is to say, it was not submitted that that levy could stand even if the balance of the resolution should be set aside.
16 That levy was said to be in relation to an application to be made to the Consumer Trader and Tenancy Tribunal seeking the appointment of a compulsory strata manager or in the alternative an extension of time of a previous order appointing a compulsory strata manager and matters incidental thereto.
17 Prima facie neither the owners corporation nor the existing compulsory strata manager would have the standing to make an application under s 162. In the absence of any argument separately addressed to that levy, I consider that it also should be set aside.
18 I turn next to the resolutions of 14 October 2013. The levy of a special contribution of $24,750 should be set aside. It is unclear how much of the contribution sought was to meet legal costs in relation to matters that were the subject of the orders of 5 December 2012. Similar issues could arise in relation to a levy for so much of the legal costs as were not the subject of the orders of 5 December 2012, but otherwise were the subject of the releases in clause 25 of the deed as could arise in relation to the earlier levy. No submissions were made as to the effect of the release in clause 25 of the deed. The levy actually struck was contrary to the orders of 5 December 2012. Accordingly, that levy will be set aside.
19 In relation to the declaration sought in para 5 of the summons that the resolution of 27 February 2013 is valid my conclusions are as follows.
20 First, there is binding authority of the Court of Appeal that s 76 of the Supreme Court Act 1970 conferred power on the Court to restrain the body corporate from imposing a levy on the successful party in order to recover its own costs or a proportion thereof from the successful party. There is also binding authority of the Court of Appeal that s 76 of the Supreme Court Act empowers the making of orders to empower a body corporate to impose a levy on other lot owners to meet the body corporate's costs, notwithstanding that such a levy would not be proportionate to the lot owner's unit entitlement. There is no material difference between the wording of s 76 of the Supreme Court Act and s 98 of the Civil Procedure Act.
21 The costs of $43,753.90 that were the subject of the separate levy of 27 February 2013 related to the costs of the Supreme Court proceeding. That sum is well below the amount of costs a costs assessor has determined is payable by Dr Xabregas in respect of the costs orders made. Whilst the time for seeking a review of the costs assessor's determination has not expired, there is no reason to doubt that she is liable to the owners corporation for at least that sum in respect of the costs orders made.
22 The balance of the contribution the subject of the special levy of 27 February 2013 was the sum of $3,258.63. This was described as the legal costs charged by David Le Page Solicitor Pty Limited and incurred by the owners' corporation in relation to the exclusive use bylaw referred to in clause 10 of the deed of 14 October 2011. No issue was raised before me, and nor I think before the Strata Schemes Adjudicator, that the money sought to be levied was not owing under the deed. That part of the levy was the subject of the orders of Bergin CJ in Eq of 5 December 2012. It is unnecessary and it would be inappropriate for me to explore the possible sources of power for the second part of order 2 made on 5 December 2012, that is, the order in relation to the making of levies concerning the costs referred to in clauses 10, 12(iii), 14, 15(ii) and 20 of the deed of 14 October 2011.
23 The order is binding on the parties and is effective according to its terms as an order of a superior court of record. However, unlike the orders of the Court of Appeal in Owners of Strata Plan No.50411 v Cameron North Sydney Investments Pty Ltd [2003] NSWCA 5 and Symes v Proprietors of Strata Plan No. 31731 [2003] NSWCA 7 the orders of 5 December 2012 did not confer an unqualified power on the owners corporation to raise levies on the lot owner who was the unsuccessful party. The order that the owners corporation's cost of the proceedings and that the costs referred to in the relevant clauses of the deed are only to be levied (insofar as it may be necessary) against lot 2, defines the extent of the power of the owners corporation to raise levies against lot 2 in respect of such costs. That is to say, contribution for such costs may only be levied against lot 2 insofar as that may be necessary.
24 This is an important qualification given that the levy will bind not only Dr Xabregas, but also Mr Marcos, and any person who becomes the owner of lot 2, at a time Dr Xabregas and Mr Marcos are liable in respect of the lot to pay a contribution. "Necessary" here means indispensable, essential or requisite for the recovery of the amount owed and not something desirable or convenient for the recovery of the amount owed.
25 The obligations of Dr Xabregas and Mr Marcos under the deed, including Dr Xabregas' obligation to pay the costs of the proceedings on the solicitor/client basis, were secured by a charge. There is no evidence before me as to what steps, if any, the owners corporation took to seek to recover the moneys payable by Dr Xabregas and Mr Marcos that were subject to the levy of 27 February 2013 before the levy was raised.
26 It has not been shown that as of 27 February 2013 levying the contribution was necessary for the owners corporation to recover the amount owing. Therefore, I will refuse the declaration sought in paragraph 5 of the summons.
27 In its submissions, the owners corporation said that it wanted clarity as to its ability to raise levies, having regard to the conflicting orders of the Chief Judge in Equity of 5 December 2012 and, the Strata Schemes Adjudicator of 3 July 2013. The owners corporation did not file a cross-summons seeking any declaratory or other relief.
28 It does not follow that because it has not been shown that the levy on Lot 2 was necessary on 27 February 2013 to recover the contribution, that a levy could not now be raised against Lot 2 for an amount owing by Dr Xabregas or Mr Marcos, or for an expense that the owners corporation is required to meet, which they, or either of them, is liable pursuant to the costs orders or the deed. This is because Westpac Banking Corporation has gone into possession of Lot 2 and has listed the lot for sale by auction. I assume it has registered a mortgage and could sell the property free of the charge given by Dr Xabregas and Mr Marcos by deed of 14 October 2011.
29 No payments have been made by them in respect of the amounts they owe under the deed, or the amounts Dr Xabregas owes under the costs orders. There is no evidence as to the value of Lot 2 or the amount of the debt owed to Westpac, or the likely amount of any net proceeds of sale that after the discharge of Westpac's mortgage and any other security that might have priority to the charge, that may be available to discharge their obligations to the owners corporation.
30 I think a reasonable interpretation of the orders of Bergin CJ in Eq of 5 December 2012 as to when a levy on Lot 2 may be necessary is that the owners corporation should not be exposed to the vagaries of a mortgagee sale. I think the evidentiary onus is on Dr Xabregas and Mr Marcos to adduce evidence as to these matters if they contended that the security by way of charge was sufficient, so that a levy could not be considered necessary to protect the owners corporation's position to ensure recovery. No such case has been put.
31 It is true that the owners corporation also did not seek to put a case on this basis, but I clearly raised the question, during the course of the submissions, as to the effect of the words "insofar as may be necessary" in the order of 5 December 2012. No contention was raised by either the owners corporation or Dr Xabregas or Mr Marcos about that. However, as no declaratory or other relief was sought as to the current ability of the owners corporation to levy the contribution against Lot 2, pursuant to the orders of 5 December 2012, it is not appropriate that I make a declaration about that.
32 The orders that I make are as follows.
33 First, I make orders in accordance with paragraphs 1, 2, 3 and 4 of the summons filed in proceedings 2013/00327776.
34 I refuse the application in paragraph 5 of the summons.
35 Prima facie the owners corporation, Dr Xabregas and Mr Marcos should pay the plaintiff's costs. If such an order is made, I will also make the order sought in paragraph 7 of the summons.
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Decision last updated: 20 November 2013