The Owners - Strata Plan No 2795 v Luke Conrad and Natasha Grace

CATCHWORDS: Strata, Procedural, Transfer of Proceedings

LEGISLATION CITED: Section 80, Strata Schemes Management Act 1996Regulation 7, 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 for the Plaintiff Mr Russo for the Defendant

· that these proceedings be transferred to the general division of the Local Court from the small claims division of the Local Court · that the plaintiff be granted leave to file an amended statement of claim within 14 days. Legal Background

2 The motion comes about as a direct result of differing opinions and approaches in relation to 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.

3 This section is relatively straightforward where the unpaid contribution is litigated in a jurisdiction in which there are unlimited costs provisions. However, there is a significant complication where these matters are litigated in the small claims division of the Local Court, because costs are limited.

4 The typical case of this type involves the owners corporation suing for up to $3000 for unpaid contributions. The owners corporation briefs its lawyers to recover the contributions, and in the vast majority of cases are successful, and obtain an order for the contribution and a limited costs order. However, the question then arises as to the additional legal costs, which may run into thousands of dollars. This is because the proceedings are sometimes defended, or take up a significant amount of legal resources. Usually, the bill is sent to the owners corporation, who then recover that as a debt under s80(1). They then may sue for that debt, successfully, but incur further costs above the amount allowed. Eventually, this spiral continues until the matter arrives in the general division of the Local Court, where the full costs can be ordered in one fell swoop.

5 Unsurprisingly, there have been a series of cases in the Supreme Court which are discussed in detail in the plaintiff's submissions. Indeed, the issue reached the Court of Appeal in Owners of Strata Plan 36131 v Dimitriou [2009] NSWCA 27.

6 The facts of that case were that there were unpaid levies sought in the sum of $1214.93 in the small claims division. 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. 7 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].

8 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, Dimitruou was consistant 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.

9 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.

10 There are further differences in approach on the issue of whether the costs ought be recovered in the one, or subsequent cases. In the Coshott cases, the finding was that the owners corporation could recover all its expenses in either the current or subsequent proceedings. 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 [48]. Hanley AJA at 137, broadly agreed. Thus, even if the contribution debt were paid, the expenses could still be recovered in the ongoing proceedings. Basten JA had an approach consistent with the Coshott decisions at [105 - 107].

11 Thus for practitioners and Magistrates in the general division of the Local Court, the preferred position is that in the principal proceedings, amendments to pleadings ought be permitted to allow for expenses right up to judgment day. There are two reasons for this. Firstly, the legal position with respect to subsequent actions to recover the costs is uncertain. The situation with subsequent proceedings as envisaged by Basten JA and the two Coshott cases must be viewed as doubtful in the light of the views expressed by Hodgson JA and Handley AJ. Secondly, in the interests of the quick, just and cheap disposition of the matters, it is more efficient and expeditious to deal with it all at the one time. Otherwise, there could be a spiral effect of more actions to recover the costs from the last court case ad nauseam.

12 However, the situation in the small claims division is more difficult because the costs are limited. Hodgson JA at 36 and Handley JA at 137 make their views clear: 36 If it were considered that there was any ambiguity or uncertainty about the meaning, the view I take would be supported by the second reading speech, relied on in Mr Christie's submissions; and also by the consideration that recalcitrant strata unit owners could cause ongoing legal expenses to their fellow unit holders which would otherwise be largely irrecoverable, particularly having regard to the limitation on the award of costs in the Small Claims Division of the Local Court. This could in turn discourage pursuit of contributions, and encourage further recalcitrance.

127 In my judgment, again in agreement with Hodgson JA, s80(1) confers a right on a corporation to recover these expenses in the principal judgment of the court, independently of any costs orders that may or may not be made. Again in my judgment no question of implied repeal arises. Section 80(1) does not amend s 34(1A) so as to enable the Small Claims Division to make an order for costs it could not otherwise make. It allows the Division to give judgment for a debt which includes an amount for legal expenses.

128 This is a substantive right which is cumulative upon any other right to a costs order: compare Westminster City Council v Porter [2003] Ch 436, 452 para [7]. Because the rights are cumulative the corporation can enforce its more beneficial right under s80(1) but must give credit for payments received under any costs order.

13 Basten JA took a contrary view, finding that the owners corporation was not entitled to recover its legal expenses in the CTTT and was limited to the costs as prescribed by the rules in the Local Court.

14 The majority view was upheld and applied by McCAllum J in McClymont v The Owners of Strata Plan No 12139 NSWSC 276. In that case, contributions and costs were claimed, and the quantum of the costs was above the limited amount provided. The appellants argued that the small claims division of the Local Court has no power to determine a claim for legal costs under s80. This argument was principally based on the terms of s 67(3) of the Local Courts Act 1982 which provides: "Except as may be provided by the rules, a Court sitting in its Small Claims Division has no power to award costs to or against a party to proceedings in the Division".

15 McCallum J found as follows: As to the question whether the Small Claims Division of the Local Court has power to determine a claim to recover legal costs and disbursements as "expenses" under s 80, the Court of Appeal held by majority that s 80(1) confers a right on a corporation to recover legal costs as expenses as a component of the principal judgment of the Court, independently of any costs orders that may or may not be made in those proceedings: at [34]-[36] per Hodgson JA; at [127] per Handley AJA; Basten JA contra at [102].

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].

28 In the present case, Mr and Mrs McClymont alleged that they had paid the outstanding contributions prior to the commencement of the first set of proceedings. However, the Assessor held against them on that issue. In any event, they did not pay the whole amount claimed. It follows that the owners corporation had a complete cause of action to recoup the expenses of recovering the unpaid contributions the subject of the first set of proceedings at the time it commenced those proceedings. It was accordingly entitled to continue those proceedings after payment of only part of the claim: Dimitriou per Handley AJA at [142].

29 Accordingly, the decision of the Court of Appeal in Dimitriou is authority for the proposition that the Small Claims Division of the Local Court does not lack jurisdiction to determine the owners corporation's claim under s 80 for its legal costs incurred in recovering unpaid contributions from Mr and Mr McClymont. This ground of appeal must be rejected.

16 Finally, there is the decision of Assessor Olischlager in The Owners of Strata Plan 66459 v Paul John Clancy 69642/08 26 May 2009. . In that case the plaintiff issued a statement of claim for unpaid contributions and for expenses pursuant to s80. Assessor Olischlager adopted the minority view of Basten JA, and found that legal expenses were limited to the scale of fees allowable in the small claims division. I note that this decision does not refer to McClymont, presumably because it had not been decided when the Clancy case was argued. The Current Proceedings.

17 The plaintiff sues to recover $3150.90 as unpaid levy contributions and expenses under s80. The statement of claim was filed on 13 May 2009, and included a claim for $75.44 in interest and the scale fee of $572.44. A defence was filed on 4 June 2009 denying the debt. Prior to hearing, the full amount sought was paid, including the scale fee. The plaintiff is seeking to amend its claim now to recover the costs it has incurred since commencing the proceedings. These costs are in the vicinity of $1500. There have been further costs since then.

18 And so the battle lines are drawn. The defendant contends that the claim as sought has been paid in full, including the costs as claimed. The plaintiff still has legal costs outstanding, and is concerned that unless it can amend its claim and include those, it may not be able to recover them, given the majority in Dimitiriou, in any other proceedings. The Transfer of Proceedings to the General Division

19 The key provision is Regulation 7 of the Local Courts (Civil Procedure) Rules 2005: 7 Transfer of proceedings from Small Claims Division to General Division: complexity, difficulty or importance of matters in dispute (1) Proceedings are to be transferred to the Court's General Division if, at any time before judgment is given, the Court is of the opinion that the matters in dispute are so complex or difficult, or are of such importance, that the proceedings ought more properly to be heard in the Court's General Division. (2) Proceedings that have been transferred to a Court's General Division under subrule (1) may be transferred back to its Small Claims Division if the Court considers it appropriate to do so. (3) An application for proceedings to be transferred under subrule (1) or (2) may not be made by a party to the proceedings later than 28 days before the day fixed for the trial of the proceedings.

Submissions of the Parties 20 The plaintiff seeks to have the matter transferred for the following reasons: Firstly, the decision of Assessor Olischlager is contrary to authority, and espouses the view that the small claims division lacks the jurisdiction to determine claims for legal expenses pursuant to s80, unlike the general division. If this view is correct, and if there is doubt that separate proceedings will be successful, then the matter ought be transferred to allow the plaintiff to recover their costs.

21 At paragraph 76 the plaintiff submits: "While the only assessor of the Downing Centre Local Court holds this contrary view and the view that the Small Claims Division of the Local Court lacks the jurisdiction to deal with claims for legal expenses arising out of section 80, then pursuant to ss 56, 57, 58, and 64 of the Civil Procedure Act 2005 the court must allow these proceedings to be transferred into the General Division of the Local Court.

22 At 92 the plaintiffs submissions read: "The decision in the Clancy case, based on the Supreme Court Authorities has, with respect to Assessor Olishlager been wrongly decided and accordingly some guidance on the application of the section 80 cases in the Supreme Court and their applicability to Local Courts should be made by a Magistrate sitting in the Local Courts General Division.

23 Secondly, the plaintiff submits that transfer would facilitate the just quick and cheap resolution of the matter and gets to the real issue to be determined. Thirdly the plaintiff submits that the legal issues are so complex, difficult and of importance in other similar cases, that the proceedings ought be transferred.

24 The plaintiff claims that they ought be granted leave to amend the statement of claim to include legal costs up to and including the final hearing. At the time of filing the claim, the plaintiff claims it could not include such a claim as no further expenses had been incurred, and it was unknown whether such expenses would be incurred, whether a defence would be filed and the decisions in the Supreme Court and Court of Appeal were not known. It would be absurd for all such claims to be filed as unliquidated claims.

25 The defendant contends that as the proceedings will not go to trial, the time for the application has passed. As the defendant had paid the full amount of the claim and claimed additional expenses and legal costs by 4 August 2009, and that payment has been accepted, the court has no jurisdiction pursuant to UCPR r 1.5 and 1.6. The court is functus officio. The defendant further contends that as the defendant had paid the full amount of the claim and claimed additional expenses and legal cost by 4 August 2009, and that payment has been accepted, the plaintiff is estopped from filing the motion. The defendant further contends that the motion is an abuse of process as the legislature has clearly limited the power to award costs. The Plaintiff made an error in initiating the proceedings in the small claims division, and should have initiated them in the general division as an unliquidated claim.

26 The defendant submits that Dimitriou has no application as the "facts are not similar, those proceedings concerned an amended Statement of Claim where the claim for costs had not been discharged". Further, in Dimitriou, the whole of the expenses were claimed on an unliquidated basis. In the present case, the plaintiff claimed an exact amount for costs, which were paid in full.

27 Further, the defendant relies on a passage by Handley AJA at 127 that "Section 80(1) of the Strata Act does not amend Section 34(1A) so as to enable the Small Claims Division to make and order for costs that it could not otherwise make".

28 The defendant submits that should the plaintiff succeed, it would open the door to Strata Corporations abusing the legislative intent to limit costs. Determination of Issues

29 Prior to dealing with these submissions in detail, it is appropriate to make a comment on the difficulties obviously encountered by the current motion for practitioners, Assessors and Magistrates. 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.

30 Unless good reasons are shown, matters ought be dealt with in the jurisdiction to which the claim belongs - in this case the amount is well within the jurisdictional limit of the small claims division.

31 In my view, the first submission of the plaintiff is misguided. This court is not an appeal court from the assessor. McClymont has now clarified the situation, and I trust that any future determinations in the small claims division will reflect this decision. Nor is the role of this court to provide "guidance" to an assessor. In any event, that is not a criteria of Regulation 7.

32 As to the second and third submission of the plaintiff, the issues can be determined quickly, cheaply and justly in the small claims division given the McClymont decision. Given the McClymont decision, the matter is not complex or difficult. That case is authority for the proposition that the small claims division has the power to make an order for costs beyond the scale fees.

33 The defendant's submissions are simply incorrect at law. The authorities make it clear that paying the claim sought does not extinguish the proceedings, and they can continue to claim outstanding costs, even those incurred up to the very end of any hearing. It is impractical and unnecessary for all such claims to be unliquidated. They ought be liquidated, with a claim for expenses pursuant to s80 to be determined at the hearing. After all, the claim is for a set amount, it is the costs which are unknown, as they are in every liquidated claim filed in the general division. The defendant, somewhat mischievously, only partially quotes paragraph 127 of Handley JA in Dimitriou. The last sentence of that paragraph makes the position clear: It allows the Division to give judgment for a debt which includes an amount for legal expenses.

34 In the ordinary course of events I would not transfer this matter into the general division. However, I am moved to do so, reluctantly, by the submissions by the plaintiff relating to the quick, just and cheap expedition of this matter. This has been somewhat of a test case, and the legal argument, written submissions and consideration have been lengthy. If I did not transfer it, the reality is that these arguments would need to be made again before an assessor. Further, the legal costs of the motion would be added to the costs incurred, and an application to amend the claim would also need to be argued afresh. That is a colossal waste of time and money, given that the argument has been extensively canvassed here. 35 In transferring this matter, I am specifically rejecting the arguments relating to guidance to or review of the Assessors decision in Clancy. Amendment

36 The general rule is that a party ought be able to amend a pleading provided there is no prejudice to the other party, or that such prejudice can be ameliorated by costs or other orders. This is an unusual situation, where the amendment sought is after the claimed liquidated debt and specified costs have been paid in full, but before judgment has been entered. I can find no authority for this situation, nor was any provided, and it was not clearly envisaged by the majority in Dimitriou. If the amendment is not allowed, it is unlikely that the additional costs can be recovered in separate proceedings. That would leave the owners corporation in the very position which the majority in Dimitriou sought to avoid. 37 The essence of the Coshott, McClymont and Dimitriou cases are that the owners corporation ought not be out of pocket for reasonable expenses, and the courts ought be flexible in allowing pleadings to be amended to account for additional costs. The authorities, contra Basten JA in Dimitriou, find that costs limits ought not prevent the owners corporation from recovering its costs. During the course of these proceedings the law has changed. Pleadings that reflect that change ought be allowed. 38 In this case it is perfectly clear from the plaintiffs submissions that they had alerted the defendant to their outstanding additional s80 expenses and costs from a very early stage. The defendant has not been caught by surprise in any way. If the pleadings were not amended, then the consequences are either the owners corporation would be out of pocket, or separate proceedings would need to be commenced - with all the legal uncertainty involved. 39 It may have been more prudent for the plaintiff to include a pleading for costs and expenses pursuant to s80 in their initial claim. This would be the appropriate approach to ensure that the other party, and the court, is on notice that additional expenses beyond the scale costs may be sought. However, the law is somewhat of a moving feast on these issues, and that lack of prudence has only become more apparent with the determinations of the Supreme Court.

1. The proceedings are transferred to the general division

2. The plaintiff's claim may be amended to include s80 expenses

3. The amended claim is to be served on the defendant within 14 days, any amended defence is to be filed by 11 Jan 2010.

4. The matter is listed for directions on 19 January 2010 at 12 noon.
5. Subject to any submissions to the contrary, costs of the motion shall be costs in the cause.

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