The Owners - Strata Plan No 15924 v Vladimir Romualoas Onuskevicius-Jacyna by his Tutor the Protective Commissioner

CATCHWORDS: Strata, Procedural, Transfer of Proceedings

LEGISLATION CITED: Strata Schemes Management Act 1996 Local Courts (Civil Procedure) Rules 2005

McClymont v The Owners of Strata Plan No 12139 NSWSC 276 Owners of Strata Plan 36131 v Dimitriou [2009] NSWCA 27 CASES CITED: Coshott v The Owners of Strata Plan No. 48892 [2006] NSWSC 308 Coshott v The Owners SP 48892 [2008] NSWSC 854 The Owners of Strata Plan 66459 v Paul John Clancy 69642/08 26 May 2009 - Unreported

REPRESENTATION: Mr Radman Mr Raine

ORDERS: On the preliminary question - for the Plaintiff

Reasons for Decision Introduction 1 The plaintiff is an owners corporation, where the defendant owns Lot 5. There are ten lots in the strata scheme. The plaintiff obtained judgment against the defendant in 2005 and 2006 for unpaid levies (which were from as early as 2004), and then sought and obtained a sequestration order in an effort to recover the debts. The Protective Commissioner became involved, and the road to recovery of the debts was long and costly for the plaintiff. Eventually the debts were paid in November and December of 2008. This payment included levies, interest and costs up to the date of bankruptcy but not after that date. The defendant failed to make other levy contributions and the plaintiff commenced these proceedings to recover them. In addition, in these proceedings, the plaintiff seeks to recover the legal costs incurred since the date of bankruptcy for the 2005 and 2006 judgments. Thus the amended claim seeks

1. $2,151.11 for unpaid levies, and 2. Legal costs incurred by the plaintiff between 7 August 2007 and 27 January 2009 in the sum of $20,103.17 for the 2005/2006 debts.

3. Costs of these proceedings of $6,278.90, plus unquantified costs of this hearing.

4. Interest. 2 By agreement, the first, third and fourth claim categories have been left until after the determination of the second.

3 The defendant has not taken issue with the reasonableness of the quantum of the costs.

4 This judgment is written without the benefit of transcript of the submissions. In deciding this case I have considered each of the exhibits, the written and oral submissions of the parties, and the pleadings.

Issues 5 The issue for determination is whether the plaintiff can recover the legal costs incurred enforcing the 2005/2006 matters in these proceedings. The defendant contends that they cannot, firstly on the basis of the majority decisions in Owners of Strata Plan 36131 v Dimitriou [2009] NSWCA 27. Secondly, the defendant contends that they cannot on the correct interpretation of s80 of the Strata Schemes Management Act 1996.

6 Section 80 of the Strata Schemes Management Act 1996: 80 How does an owners corporation recover unpaid contributions and interest? (1) An owners corporation may recover as a debt a contribution not paid at the end of one month after it becomes due and payable, together with any interest payable and the expenses of the owners corporation incurred in recovering those amounts. (2) Interest paid or recovered forms part of the fund to which the relevant contribution belongs. 7 The facts in Dimitriou were that there were unpaid levies sought in the sum of $1214.93 in the small claims division of the Local Court. There were proceedings in the CTTT disputing the validity of the levy, which led to the small claims matter being stayed. The CTTT proceedings were dismissed in favour of the owners corporation, with no order as to costs. The small claims proceedings were reignited, and amended to include the costs of the CTTT and further outstanding levies, so that the proceedings were for a sum over the small claims jurisdiction and thus the matter was transferred in to the general division. Dimitriou confessed to the levies, but contested the legal expenses. The Magistrate held that s80 permitted the expenses claim, and found in favour of the plaintiff.

8 On appeal Malpass AJ held that the word "expenses" did not include legal costs. On further appeal to the Court of Appeal, Hodgson JA, Basten JA and Handley AJA disagreed with the judgment of Malpass AJ and found that that the word "expenses" includes legal costs - Hodgson JA at [33], Basten JA at [62] to [63] and Handley AJA at [116].

9 The Court of Appeal was also clear that expenses are recoverable if reasonably incurred and reasonable in quantum - Hodgson JA at [37], Basten JA at [64] and Handley AJA at [130]. In this regard, Dimitriou was consistent with two earlier decisions of single judges in the Supreme Court: Coshott v The Owners of Strata Plan No. 48892 [2006] NSWSC 308 and Coshott v The Owners SP 48892 [2008] NSWSC 854.

10 There were significant differences in approach as to the calculation of the quantum of costs, however the general thrust of Hodgson JA and Basten JA, consistent with the two Coshott decisions, is that an owners corporation is entitled to all of its reasonable expenses which can be proved at final hearing.

11 There are further differences in approach on the issue of whether the costs ought be recovered in the one, or subsequent cases. In both Coshott cases, the finding was that the owners corporation could recover all its expenses in either the current or subsequent proceedings. There was recognition in those cases that the clear intent of parliament was that an owners corporation would not be left out of pocket where a unit owner failed to pay levies.

12 In Dimitriou, Hodgson JA found that the legal costs must be recovered in the same proceedings as the claim for contributions, with the owners corporation giving "the best particulars it can of those costs and expenses at appropriate times" at [46]. Must expenses be claimed in the same proceedings? 46 In my opinion, the words "together with" do mean that the claim for expenses, including legal costs and disbursements, must be made in the same proceedings as the claim for the contributions. This is what the words suggest; and if there is any uncertainty or ambiguity about them, I do not think it could have been intended to confer a legal right to bring proceedings in respect of any expenses incurred prior to the payment of contributions when no proceedings are brought for the contributions themselves, or in respect of expenses incurred in other legal proceedings. Even though the principles in Port of Melbourne Authority v Anshun Pty Limited HCA 45 ; (1981) 147 CLR 589 would apply to limit multiplicity of proceedings, in my opinion there would otherwise still be the possibility of unreasonable proliferation of proceedings.

47 Thus on this aspect also I disagree with the view of Cooper AJ in Coshott. On the view I take, payment of arrears of contributions before proceedings are commenced would preclude an action for recovery of associated expenses. However, payment of arrears of contributions after proceedings have been commenced would not preclude continuation of those proceedings to obtain a judgment for expenses including legal costs.

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. Such proof could extend to the costs of the hearing itself, but not the costs of enforcement of any judgment, which at that stage would be speculative. If, as apparently happened in this case, that proof was not available at the hearing, the owners corporation may have to seek an adjournment to obtain the necessary evidence, which adjournment could of course be refused. Alternatively, as pointed out by Handley AJA, the magistrate could exercise the power under s 353(2) of the Legal Profession Act so that the legal expenses are referred for assessment.

49 Although it is not necessary to express a concluded view on this in the present case, I am inclined to think that an owners corporation could claim, and at the hearing seek, an order reserving liberty to apply subsequently in the same proceedings in the event that substantial expenses are incurred in enforcing the judgment; in which case, the court would have a discretion subsequently to permit such a claim for a further judgment to be made in the same proceedings. This would raise the possibility of indefinitely extended proceedings; but at least this possibility could be controlled by exercise of discretion, whereas if separate proceedings could be brought whenever expenses are incurred, there would be no such control. 13 Hanley AJA at 137, broadly agreed.

137 There has been some difference of judicial opinion on whether s80(1) confers an independent right to recover expenses incurred in recovering contributions or only a composite right to recover those expenses with contributions and interest. The question does not strictly arise in this case because the judgment in favour of the corporation included amounts of all three kinds. However since differing views have been expressed by other members of the Court I should also express my own.

138 In my judgment the ordinary meaning of "together with" requires the linked subjects to both be present at the relevant time. If I say that I went up the mountain together with Jack and Jill I intend to convey that we went up as a group at the same time. This view is supported by authority. 14 His Honour then refers to Grindell v Brendon (1859) 28 LJCP 333 and In Re Joel [1943] Ch 311.

15 Basten JA had an approach consistent with the Coshott decisions at [105 - 107].: The phrase "together with" undoubtedly connotes a form of connection or association, but not one necessarily requiring the contemporaneous exercise of the power of recovery. The language is expansive: the section confers a power to recover contributions "and extends to" any interest and relevant expenses. In this respect, the conclusion reached by Cooper AJ in Coshott v The Owners of Strata Plan No 48892 NSWSC 308 at - was correct. Question (4) should be answered, no. However, nothing would seem to turn on this for the outcome of the appeal. 16 The majority view was noted by McCallum J in McClymont v The Owners of Strata Plan No 12139 NSWSC 276.

27 It should be noted that the Court also held, by majority, that the claim for expenses, including legal costs and disbursements, must be made in the same proceedings as the claim for the contributions. Hodgson JA expressed the view at [47] that the payment of arrears of contributions before proceedings are commenced would preclude an action for recovery of associated expenses. His Honour said, however, that payment of arrears of contributions after proceedings have been commenced would not preclude continuation of those proceedings to obtain a judgment for expenses including legal costs: see also Handley AJA at [142]; Basten JA contra at [106].

The Defendants Submissions: 17 The primary defence submission is that the decision in Dimitriou is clear and binding -the costs cannot be recovered in these proceedings. Mr Raine for the defendant put it this way: "It would be a brave decision not to follow the clear majority in Dimitriou in the Local Court". Mr Raine submitted "the post recovery bankruptcy costs are recoverable, just not in these proceedings". Hodgson J foreshadowed a process, (at 49) that at the hearing the plaintiff could seek an order for liberty to apply to reopen the case to recover costs involved in the enforcement of the proceedings. The defence submits that this is what should have occurred in this case, rather than claiming for costs in the current unrelated proceedings.

18 The defence further submits that the very wording of s80 does not permit the plaintiff to recover legal costs from a previous court matter. Section 80 refers to "those amounts", which limits the claim to the levy and interest and expenses in the current matter, but not to expenses in any other matter.

19 The defence further submits that the s80 expenses for the previous matters are unreasonable, in that they have no connection to the current outstanding levies.

20 The plaintiff contends that the comments in Dimitriou as to whether legal costs and disbursements must be sought in the same proceedings is not binding on the Local Court because it was not necessary for the court to determine the matter. The plaintiff concedes that they are persuasive. The grounds of appeal from the decision of Malpass AJ did not include that issue - Dimitriou at 21.

21 The plaintiff contends that it could not have been the intention of Hodgson J and Hanley J for the law to have retrospective effect in the circumstances of this case - that is to limit the ability of the plaintiff to recover debts when the interpretation of the law was different. There was no reason to seek liberty to apply to reopen proceedings in respect of the 2005 and 2006 judgments (at that time) and thus none was sought. Similarly there was no need to include costs of enforcement in those claims. The plaintiff contends that the court, in respect of the judgments of 2005 and 2006 are functus. On this point, the defendant did not disagree. Even if a power could be found to reopen the proceedings, this would not fulfil the "just quick and cheap" provisions of the Civil Procedure Act.

22 The court in Dimitriou allowed costs incurred partly in the CTTT, which were separate proceedings. In other words, the court permitted the recovery of costs incurred in another jurisdiction. It is unclear whether these proceedings only involved the same outstanding levies or other levies as well.

23 The plaintiff has no alternative to the current proceedings. It is not possible to reopen the previous proceedings. These costs were incurred when no proceedings were actually on foot. If these proceedings are not successful the plaintiff has no other remedy and the other unit holders will have to pay the costs. In this case that is a substantial burden. Yet there is no dispute that the costs were properly incurred in seeking to recover the judgment debt. A verdict for the defendant would thwart the clear intention of parliament, and the expressions of public policy from each of the cases referred to above, that the owners corporation should not be out of pocket in these circumstances.

24 The plaintiff also contends that the inability to initiate separate proceedings would encourage recalcitrance in judgment debtors. There are literally thousands of un-enforced judgment debts against unit holders. If debtors are aware that any costs associated with the recovery of those debts cannot be recovered, why would they pay?

25 In response, the defence claims that the court ought not be concerned with public policy, if there is a gap in legislation that is for parliament to fix, not for the Local Court to ignore clear rulings from the Court of Appeal.

26 I have carefully considered the issue raised by the plaintiff and the defendant with respect to the decision of Dimitriou. I have re-read the decision, and the proceedings and judgments leading to that decision. In my view, the issue of 'same proceedings' does not form part of the ratio of that case. That is clearly expressed by Basten J at 106 where he states that "the issue does not arise and need not be determined". It is also clearly expressed by Handley AJA at 137 where he says the issue "does not strictly arise". Hodgson J makes it clear his comments are in the context of where a person pays the levies but not the legal costs.

28 I agree that the decisions in the Coshott cases, although decisions of single Supreme Court judges, are directly on point and are binding - See Coshott One at 75 and 81 to 86 and Coshott Two at 6 and 20. Indeed, the first Coshott case specifically considered whether the costs incurred in enforcement by bankruptcy were recoverable.

30 The defendant did not cavil with the submission by the plaintiff that the Local Court was functus. Rule 36.15 would not apply, as the judgment was not given irregularly, illegally or against good faith. Rule 36.16(2) may apply if it is a default judgment. Although not put in submissions, there is possibly a power to reopen under Rule 36.16(3). However I can find no authority for the proposition that a successful plaintiff can apply to set aside a judgment (default or otherwise) to add legal costs incurred while seeking to enforce a bankruptcy. Once bankrupted, the original defendant may not have standing in the reopened proceedings.

32 The alternative proposed by Hodgson J in relation to the original proceedings, even if the functus problem could be overcome, would lead to the following. Firstly, the plaintiff would need to put on a motion to reopen the proceedings. This would need to be served, in the case of a bankrupt, on the trustee. The original claim would then need to be amended to include the costs of enforcement, and the costs of the reopening of proceedings, and the costs of the fresh proceedings. In this case, there would need to be two sets of proceedings reopened. Somehow the plaintiff would need to divide the enforcement costs between any individual cases that were conglomerated to make up the bankruptcy debt, and be able to argue that one item of costs was incurred in the 2005 matter, and one in the 2006 matter. The matters would then need to be transferred to the general division. Defences to the amended statements of claim may be served. This process is hardly quick, just or cheap. 35 This is a court which necessarily places great emphasis on the practical, rather than the procedural. In that sense, the defendant, in submitting that "the costs in relation to the bankruptcy are recoverable, just not in these proceedings", are 36 seeking that the court place procedural before substantive relief. Just at the Downing Centre, there are over 100,000 civil claims filed each year, and a substantial number of them are recovery of levies in strata matters. Any process where the substantive issue between the parties is fairly, justly and quickly put before the court in one simple action, is to be preferred over a cumbersome impractical process.

38 In Local Court Practice Note 1 of 2005 at 2.3 the court is to give effect to the time standards for finalisation of civil matters, which are 90% within six months and 100% within one year. The regular reopening of proceedings to deal with enforcement costs does not, in my view, assist in the compliance with this practice direction.

39 In my view it is relevant that the 2005/06 proceedings were determined well before Dimitriou and in the reign of the Coshott decisions. I am of course aware of the principal of common law where a change in the interpretation of the law by a higher court is deemed to be retrospective as though that was how the law always was. However, there are a significant number of matters which are transitional, such as this, where the courts ought to be flexible in circumstances where the law is somewhat of a moving feast. Thus, post Dimitriou, strata cases are including a claim for the costs of proceedings and for leave to reopen regarding enforcement costs. However, for past cases, in my view, flexibility and a practical approach ought to be applied.

41 Thus I have concluded that, in this case, the plaintiff may recover the post bankruptcy enforcement costs of the 2005/06 proceedings in these proceedings. This is a conclusion I have reached paying due regard to the highly persuasive judgments of the majority in the Court of Appeal, and the on-point single judgments of the Supreme Court. It is not a question of bravery or impertinence from the Local Court, but trying to weave a way through the competing interpretations of five Supreme Court decisions which point in different directions to arrive at a resolution which applies the law in accordance with parliamentary intention and practicality. In The Owners - Strata Plan No 2795 v Luke Conrad and Natasha Grace [2009] NSWLC 21 I wrote at 29:

43 Put simply, this is an area that cries out for legislative reform to clarify the situation in small claims matters. There are difficult policy issues to be determined. On the one hand, it is arguable that owners corporations should not be in any stronger position with respect to costs in the small claims division than other litigants. On the other hand, it is difficult to see fairness in a situation where a recalcitrant unit holder pays their contributions during litigation and the other unit holders must bear the burden of the outstanding legal costs. However, should parliament not act, then lawyers seeking to recover contributions will be left with little choice but to test the waters with different types of pleadings that seek to comply with the latest judicial finding from Assessors to Judges of the Court of Appeal. 45 In my view, the same applies to the issues in this case - in the absence of legislative action litigants and the courts will be handicapped by uncertainty in resolving problems which ought to be simple, quick and cheap.

Finally, a correct interpretation of s80, and in particular the words "those amounts" do not preclude legal costs from past matters being recovered concomitantly with other outstanding levies. The pleadings in this case clearly delineate the amounts being sought. That is all that is required. Similarly, an owners corporation may recover two outstanding levies and the legal costs for both at the same time. The interpretation favoured by the defendant on this issue is too narrow and restrictive. Findings 47 The plaintiff may recover the legal costs incurred by the plaintiff between 7 August 2007 and 27 January 2009 in the sum of $20,103.17 in these proceedings.

The outstanding matters in issue between the parties will, if necessary, be set down for hearing on a date to be fixed.

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