Home and Commercial Units - whether legal costs incurred by body corporate in recovering arrears of levy contributions from member constitute expenditure incurred and rendered necessary by reason of a wilful act or omission, or breach of a provision of the articles, by the member - reasonableness of incurring costs - whether court order for payment of costs is required before they are recoverable under s.48 of Unit Titles Act (ACT) 1970

State Drug Crime Commission of NSW v Chapman (1987) 12 NSWLR 447.

Re McGreavy; ex parte McGreavy v Benfleet Urban District Council (1950) 1 Ch 269.

Counsel for the appellant: Mr P Biscoe QC and Mr T M Johnstone

Solicitors for the appellant: Gallens Crowley and Chamberlain

Solicitors for the respondent: Meyer Boettcher and Clapham

2. That the orders of the Supreme Court of the Australian Capital

Territory made 16 October 1992 be set aside and in lieu thereof

the appeal to that court be dismissed.

3. That there be no order as to the costs of the appeal to this Court

or the proceedings before the Supreme Court of the Australian

Capital Territory.

Note: Settlement and entry of Order is dealt with in O.36 of the Federal Court Rules.

GALLOP, RYAN AND O'LOUGHLIN JJ This appeal raises a narrow point of construction of s.48 ofthe Unit Titles Act (ACT) ("the Act"). That section provides:

"Where a corporation has incurred any expenditure or performed any

repairs, work or act that it was required or authorized by its

articles or by or under this Act or any other law in force in the

Territory to perform, the expenditure, repairs, work or act having

been rendered necessary by reason of any wilful or negligent act

or omission on the part of, or breach of any provision of its

articles by, a member of the corporation, the amount of that

expenditure or any money expended by it in performing the repairs,

work or act is recoverable by it from the member as a debt."

2. The respondent, as the proprietor of Unit 20 on Units Plan No 52, has at all material times been a member of the appellant which is a corporation within the meaning of the Act. The respondent failed to pay contributions due by way of levy exacted by the appellant for some period before 1987. The appellant commenced proceedings in the Magistrate's Court to recover those contributions. Those proceedings, at the request of the respondent, were transferred to the Small Claims Court which entered summary judgment for the appellant for the amount claimed. Pursuant to s.29(1) of the Small Claims Act 1974, the Small Claims Court made no order as to costs. Thereafter, the solicitors who had acted for the appellant rendered to it a bill of costs amounting to $1,836.60 in respect of suing for and recovering the amount claimed.

3. Subsequently, the respondent failed to pay further levy contributions for the years commencing on 1 July in each of 1988, 1989, 1990 and 1991. The appellant instituted proceedings in the Magistrate's Court to recover those contributions together with interest and the sum of $1836.60 which had been incurred as legal costs in recovering the earlier unpaid contributions. The prayer for relief appended to the particulars of the appellant's claim in those proceedings was in these terms:

"AND the plaintiff claims against the defendant the sum of

$3,970.60 together with interest in the sum of $807.83 calculated

as follows:-

(a) $2,134.00 - unpaid levy contribution pursuant to

Section 38 of Unit Titles Act 1970.

(b) $1,836.60 - unpaid legal fees pursuant to Section 48

of the Unit Titles Act 1970.

(c) $807.83 - unpaid interest pursuant to Article 6 of the

plaintiff's Articles and accruing at $2.61 per day

until payment or judgment."

4. On 24 February 1991, judgment was entered in the Magistrate's Court for $3,970.00 which included the sum of $1,836.60 represented by the costs detailed in the bill of 1 October 1987.

5. On 13 March 1992, a Notice of Appeal was filed in the Supreme Court of the Australian Capital Territory on behalf of the respondent. So far as is relevant, that Notice was in these terms:

"The abovenamed appellant appeals from the following part of the

judgment of Magistrate Dingwall given on 24 February, 1991 at

Canberra in which judgment was in favour of the defendant, the

respondent to this appeal:

1. The sum of $1,836.60 awarded against the defendant pursuant

to section 48 of the Unit Titles Act, 1970 being expenditure

incurred by the then plaintiff by reason of the then

defendant's wilful or negligent act or omission by failing

to pay the previous levy contribution."

6. That appeal was upheld and the judgment which had been entered in the Magistrate's Court was reduced by the sum of $1,836.60 being the amount of costs which the appellant had incurred in prosecuting the earlier proceedings. In the judgment on the primary appeal it was noted that the consequence of the transfer of the earlier proceedings to the Small Claims Court was that the appellant was not able to obtain an order for its costs of those proceedings. His Honour contrasted that consequence with the wider discretionary powers to make an order for costs which would have been exercisable in favour of the body corporate had its earlier proceedings remained in the Magistrate's Court or been commenced in the Supreme Court of the Australian Capital Territory. His Honour then concluded:

"The usual case to which s.48 (UTA) is directed is where damage is

caused to common property by the wilful or negligent act of a unit

holder or of a person for whose acts the unit holder is liable.

In those cases, s.48 does not create such a liability, it merely

provides a means by which such a liability may be enforced. It

simplifies enforcement by deeming the quantum of the liability to

be a debt due from the member rather than an unliquidated claim.

I do not see why a liability for legal costs incurred by the

respondent should be in any different position than any other

expense which it incurs. In the absence of express agreement, a

liability imposed under its Articles or a Court order, there is no

antecedent liability by reference to which the respondent could

recover its solicitor's costs from the appellant. Section 48 is

not intended, in my view, to create such an antecedent liability.

Nor do I believe it does so.

It may, of course, be objected that a unit holder who has created

by her own wrong-headed act a liability for the body corporate,

should recompense the body corporate for that expense. I agree.

However, the extent of that liability is another matter. A unit

holder who carelessly damages common property, for example, ought

not to be liable to a greater extent than a similarly careless

citizen not a unit holder.

In this case, the body corporate could have created a liability

for the costs of recovery of outstanding contributions by

proceeding in the Magistrates Court and persuading that Court to

order costs. It chose not to. It ought not to be able to avoid

the consequences of that decision by using s.48.

In my opinion, s.48 does not permit the recovery of the costs in

question."

7. It is clear, in our view, that the appellant body corporate, in paying $1,836.60 to its solicitors to defray the costs of recovering earlier arrears of levies from Mrs Gold "has incurred ... expenditure" within the meaning of that expression in s.48 of the Act. It is also clear, we consider, that it was expenditure occasioned by Mrs Gold's breach of a provision of the body corporate's Articles. The full text of those Articles is not in evidence but Article 6 which was inserted by an amendment on 16 June 1986 is obviously predicated on an obligation imposed on each member to pay contributions by an ascertainable due date.

8. There next arises for consideration whether the body corporate's expenditure of money in payment of the legal costs of recovering arrears of levy contributions from Mrs Gold was "rendered necessary" by her breach of the Articles of the body corporate. We adopt a similar view of the word "necessary" in this context to that expressed by Allen J in State Drug Crime Commission of NSW v Chapman (1987) 12 NSWLR 447 at 452:

"As to the word 'necessary' it does not have, in my judgment, the

meaning of 'essential'. The word is to be subjected to the

touchstone of reasonableness. The concept is one as to what

reasonably is necessary in a commonsense way. As Pollock CB said

in Attorney General v Walker [1849] EngR 223; (1849) 154 ER 833 -

'It may be stated as a general rule that those things are

necessary for the doing of a thing which are reasonably

required or which are legally ancillary to its

accomplishment'".

9. Counsel for the respondent did not urge any different interpretation of the expression "rendered necessary" in s.48 of the Act, but contended that the element of "reasonableness" of incurring costs in litigation is only established by an order of the Court and the taxing of a proper bill. We reject that argument. It may well be unreasonable for a body corporate, where a defaulting member has belatedly paid arrears of contributions, to pursue that member to the point of obtaining an order for costs in a court of competent jurisdiction. However, the amount reasonably expended in legal costs up to the time of payment would still be recoverable under s.48 of the Act. If the member wishes to contend that the amount of those legal costs is exorbitant, resort can be had to s.110A of the Legal Practitioners Act (ACT) which relevantly provides:

"110A (1) A person who is liable to pay or, being so liable, has

paid, a solicitor's costs or disbursements may request in writing

the solicitor to give to the person an itemised statement of the

costs and disbursements.

(2) The person making the request shall, if that person is

not the client, cause a copy of the request to be given to the

client.

(3) Where -

(a) a solicitor receives a request pursuant to subsection

(1) from a person who has paid the costs and

disbursements to which the request relates; and

(b) the solicitor does not, within 3 months of the date of

receiving the request, give to the person an itemised

statement of the costs and disbursements,

the solicitor is liable to repay the amount of the costs and

disbursements to the person.

(4) Where a solicitor receives a request pursuant to subsection

(1) and the client is given a copy of that request pursuant to

subsection (2) -

(a) any proceedings instituted in respect of those costs and

disbursements are stayed; and

(b) proceedings may not be instituted for the recovery of those

costs and disbursements,

until the expiration of one month after the solicitor gives an

itemised statement of those costs and disbursements to the person

who made the request."

10. A facility is then established by ss. 111-119 for a person to whom an itemised statement has been given to have the amount payable by that person determined by taxation.

11. It was also suggested on behalf of the respondent that litigious costs in the amount of $1,836.60 were not known to have been "necessarily incurred" in the sense in which we have found that expression to be used in s.43 of the Act. In this regard, Counsel for the respondent adverted to the possibility that the body corporate might have made a variety of other, non-litigious and less expensive, responses to Mrs Gold's persistent refusal to pay the levy contributions. The short answer to this submission is that a finding of fact to support a conclusion that the incurring of the costs was reasonably necessary was implicit in the Magistrate's order that Mrs Gold pay those costs. No attack on that finding was made in the notice of appeal to the Supreme Court of the Australian Capital Territory and it was not reviewed by that Court on appeal.

12. We regard the finding as reasonably open in the circumstances revealed to this Full Court, but, for the reasons just indicated, we do not propose to examine it for ourselves. As appears from the passage from the reasons which is quoted above, Mrs Gold's appeal was upheld on the single ground that s.48 of the Act does not create a liability by way of debt. In his Honour's view, the section merely simplifies enforcement of an antecedent liability which, in the circumstances of this case, could not have come into existence without a court order for payment of the costs.

13. With respect, we are unable to share this view. In our opinion, s.48, like many similar provisions, creates a statutory debt for which a member is liable as soon as the amount of the body corporate's expenditure has been ascertained. In Re McGreavy; ex parte McGreavy v Benfleet Urban District Council (1950) 1 Ch 269 it was held that an analogous statutory liability to pay municipal rates, although non-actionable at the suit of the local authority, was a debt on which it could present a petition under s.4(1) of the Bankruptcy Act 1914. In the present case, of course, s.48 expressly makes the debt recoverable at the suit of the corporation.

14. For these reasons, we would allow the appeal, set aside the order of the Supreme Court of the Australian Capital Territory and restore the order of the Magistrate's Court that Mrs Gold pay to the appellant an amount including the sum of $1,836.60 in respect of the costs of the earlier proceedings.

15. Since Mrs Gold had been made bankrupt on the petition of the appellant on 21 June 1993, leave to proceed with this appeal was granted by Neaves J on 24 June 1993 on the appellant's undertaking that it would not seek from this Court an order for the payment of the whole or any part of its costs of and incidental to the said appeal. That undertaking was extended in the course of the hearing of the appeal to the appellant's costs of the hearing before the Supreme Court of Australian Capital Territory and any costs incurred by it from the date of the sequestration order. Accordingly, we make no order as to the costs of the proceedings in the Supreme Court of the Australian Capital Territory or the appeal to this Court.