Did the plaintiff comply with s.80D of the SSMA in relation to the commencement of the proceedings?
33The evidence disclosed that there has been a dispute between the plaintiff and defendant since about April 2006 in relation to levy arrears and other issues, including the cost of complying with the local Council's Fire Orders and the severance of Lot 13 from the balance of the Strata Plan. The history of the dispute was outlined in the affidavit of Mr Colin Tseris of 24 February 2011. Proceedings had previously been commenced against the defendant in 2006 and had been strenuously defended. The proceedings were discontinued but throughout 2006 and 2007 there was exchanged between the Owners' Corporation and solicitors acting for the defendant a series of letters regarding the basis upon which the defendant asserted that it was not liable.
34Indeed in September 2008, the executive committee, members of the Owners' Corporation and the strata manager knew there was at least the prospect of a dispute between the plaintiff and defendant over recovery of arrears for fire protection works, the costs of which exceeded $39,000.00. Following a costs disclosure for proposed proceedings from Bannermans Lawyers dated 2 February 2008, the executive committee resolved to put the commencement of recovery proceedings on the agenda for a general meeting. The general meeting resolved not to commence recovery proceedings.
35The plaintiff is a statutory corporation within the terms of the SSMA. It has a statutory obligation pursuant to s.62 of that Act to maintain the property. To the extent it does not do so, it is in breach of the Act and liable to suffer judgment: Seiwa Pty Ltd v Owners Strata Plan 35042 [2006] NSWSC 1157. In order to meet its statutory obligations, it must raise levies and when these are not paid, it has the power to bring proceedings to recover them: s.80 SSMA.
36There is a statutory bar to bringing proceedings pursuant to section 80D unless certain requirements have been met. However, s. 80D has no application if the anticipated cost of the proceedings would be less than $10,000.00: Regulation 15. (Regulation 15 has since been amended so that there is no limitation in relation to proceedings for recovery of strata levies).
37The plaintiff's strata manager, Stuart Debenham, in his affidavit sworn on 25 October 2010, set out the circumstances in which the three sets of proceedings were commenced and his belief at the time of commencement of the probable cost pertaining to them. The authority of Mr Debenham, as strata manager, to issue proceedings in appropriate circumstances, was not in issue. Nevertheless, his affidavit (paragraphs 8 and 9) set out the details of his delegated authority.. In paragraphs 59 and following, he set out the basis upon which he believed that the costs would not exceed the statutory threshold. He annexed the relevant costs invoices and disclosure statements.
38In a later affidavit of 15 March 2011, Mr Debenham said that in his experience as a strata manager he had given instructions to commence legal proceedings for the recovery of strata levies approximately 10 times per annum and in all, on about 30 occasions. The amounts for which those proceedings had been commenced (apart from the present) ranged from about $2,000.00 to $8,000.00. He said that he was "not aware" of any matter where the legal costs of the Owners' Corporation for the recovery of levies exceeded $10,000.00.
39The conditions for the operation of s.80D were not met. There was no resolution passed at a general meeting or meetings of the Owners' Corporation that approved the initiation of actions. If there was authority to commence the action, it had to derive from the operation of Regulation 15.
40The terms of s.80D and the (then) Regulation were considered in detail by Kirby J in Owners of Strata Plan 46528 v Hall [2009] NSWSC 278. That case involved an appeal from a Magistrate's decision in a dispute between an Owners' Corporation and one of the unit holders. The facts were not dissimilar to those of the present case. There was a history of disputation between the unit holder and the Owners' Corporation in respect of payment of levies; the owners issued proceedings in the Local Court. After a number of interlocutory skirmishes, the proceedings were consolidated and dealt with in the General Division of that court. The learned Magistrate identified a number of issues, one of which related to the proper construction of s.80D and in particular, whether its provisions were mandatory or merely directory. Another issue concerned the application of the relevant Regulation which exempted compliance with s.80D. The Local Court found in favour of the lot holder.
41On appeal, Kirby J held that the learned Magistrate was not in error in finding that there had to be evidence that the executive committee had made an estimate, specific to the case under contemplation, upon material which furnished some reasonable basis for concluding that the costs would be less than $10,000.00. One way in which the committee might demonstrate that it had made the estimate was by the production of a solicitor's cost estimate.
42In the present case, as I have noted, the strata manager held a specific delegation to commence proceedings for recovery of levies and thus he stood, for that purpose, in the shoes of the executive committee.
43He gave evidence as to the usual practice for recovery of unpaid levies. He said that a commercial debt recovery firm was engaged and that it prepared all the documentation for filing and then arranged for its review by a solicitor. He said: "It was my understanding that Grace Lawyers would not issue a costs agreement or costs disclosure until it was estimated that their costs would exceed $750.00 which would usually occur once a request for particulars was made by a defendant or a Defence and any other type of application/motion was filed to the Local Court proceedings."
44Did this "understanding" amount to an estimate, specific to the case under contemplation, upon material which furnished some reasonable basis for the conclusion that the costs would be less than $10,000.00?
45It seems to me that there was little or no consideration of the specific case under contemplation. Rather, it seems that the practice was to issue proceedings for recovery of levies and wait for a response from the defendant before obtaining an estimate of costs. This is underscored by a comparison with the actions of the executive committee in 2008 in which it is apparent that the committee, the strata manager and the owners in general were plainly made aware of the attitude of the defendant to payment of levies and of the need for consideration of the legal costs of proposed proceedings by the general meeting.
46An approach of this kind might arguably be adequate for some proceedings to recover levies, but consideration of the specific case would or should have alerted the strata manager to the fact that this particular owner was likely to engage in a lively dispute as to liability.
47Even if that were not the case, it seems to me that the practice of commencing proceedings and then obtaining an estimate if and when they were defended is a prime example of the practice which the section was enacted to overcome, and that is, to embroil the owners in litigation without any real or reasonable apprehension of the probable costs of doing so.
48An examination of the three sets of proceedings does not assist the plaintiff. The first Statement of Claim was filed on 16 January 2009. It was not until 11 February that a request for further and better particulars was made. In the meantime, on 3 February the second Statement of Claim had been filed. Thus at the commencement of the second proceedings, there had been no response at all to the first Statement of Claim. The plaintiff might have argued that it was justified in commencing the second proceedings on the basis that the first were not defended but for the fact that it failed to wait for 28 days to expire before filing the second Statement of Claim.
49In any event, in accordance with the practice, the request for particulars and the defence generated a costs estimate from Grace Lawyers. It was dated 18 February 2009 but did not specify to which proceedings it related. As of 18 February the plaintiff had received only the request for particulars in respect of the first proceedings, therefore it seems reasonable to conclude that the estimate pertained only to those proceedings. It estimated an amount of $3,525.00 inclusive of GST.
50It did not provide any detail as to how that sum was calculated except that it allowed for one day's hearing in court. On one hand, this estimate is fairly meaningless since it affords no analysis of the complexities of the likely issues. On that basis, it is difficult to see how it could provide the strata manager (or executive committee) with a reasonable basis for concluding that the costs would be less than $10,000.00. On the other hand, it is a difficult matter to estimate the likely costs of litigation when the only information available is the Statement of Claim and a request for particulars.
51In my view, based on Kirby J's dicta at paragraph [37] of Hall, s.80D requires the plaintiff's committee or strata manager to consider the circumstances of the particular case. In relation to recovery of strata levies, that would include consideration of whether the party in default is likely to defend the proceedings (as in Hall) or raise a Cross-Claim. Absent such a consideration I do not see how the committee or manager could be satisfied that the matter is likely to be a straightforward debt recovery.
52In any event, as I have noted, the first two proceedings were commenced without any apparent consideration of the likely costs. Even if the costs estimate forwarded by Grace Lawyers could, in the circumstances, provide the strata manager with reasonable grounds for concluding that the likely cost would be less than $10,000.00, it would only relate to the third proceedings.
53Returning to Hall, the next question is whether or not s.80D is in mandatory terms or is merely directory. Kirby J at [62-63] said: "Section 80D is concerned with the retention of lawyers to perform work, which may be costly. The section is not confined to taking legal action. There must be a resolution of the general meeting when seeking legal advice, the provision of legal services or the initiation of legal action. In the context of a strata scheme, it would be unusual for legal advice to exceed $10,000.00 so that generally such matters would come within the exemption provided by [Regulation 15]. The same is probably true of most legal services (such as drawing a deed). So usually a resolution would only be required under s. 80D when the Owners' Corporation initiated legal action.
That being the context, what inconvenience, if any, attends an interpretation of s.80D as a mandatory requirement, where the consequences of failure to seek authorisation (when the point is taken) is that the action must be dismissed. The inconvenience is that of having to seek the unit holders' authorisation in general meeting and start again...."
54After considering the consequences of the action being dismissed, His Honour said at [66]: "Accordingly, the inconvenience in giving the provision a mandatory interpretation, which the terms of the section suggest, is not substantial."
55The plaintiff argued that the evidentiary onus was on the defendant to demonstrate that the reasonably estimated cost of proceedings would have exceeded $10,000.00. It said that the plaintiff had adduced evidence as to the solicitor's costs disclosure and the practice of the strata manager and that the defendant had led no evidence as to cost or likely cost. Therefore, it said, the defendant had failed to discharge the onus of proof.
56It does not seem to me that the defendant bears the onus of proof in those circumstances. If the plaintiff does not comply with s.80D in circumstances where it ought to have done so, the evidentiary onus must be on it to demonstrate that the exemption afforded by the Regulation applies, if the point is taken by the defendant.
57Even if I am incorrect about this, in my view the plaintiff would still fail because the conclusion I have reached is that the strata manager did not turn his mind to the question of reasonable estimate of costs or did not adequately turn his mind to that issue.
58I find therefore that the terms of s.80D are mandatory and that failure to comply with them will result in the action or actions being dismissed. I find that the strata manager did not address or adequately address the question of the estimated cost of the particular proceedings against the defendant. Had he done so, he could not have failed to conclude that the defendant was likely to defend the proceedings and defend them strenuously. Whether or not to proceed in those circumstances was a matter which in my view should have been determined by the general meeting. Accordingly, in my view, the answer to the first and second questions in the defendant's notice of motion is 'no'.