Legislation cited: ACT Civil and Administrative Tribunal Act 2008 ss 15, 16, 22, 24, 48

Corporations Act 2001 s 473

Legal Profession Act 2006 ss 261A, 300

Magistrates Court Act 1930 s 261

Unit Titles (Management) Act 2011 ss 31, 50, 51, 109, 115

Subordinate

Legislation cited: Court Procedures Rules 2006 sch 4, s 4.1

Cases cited: Conlon (as liquidator) of Rowena Nominees Pty Ltd v Adam [2008] WASCA 61

Ford v The Owners Units Plan 259 [2012] ACAT 59

Frank Jasper Pty Ltd v Glew (No 3) [2012] WASC 24

Frinty v Landmax Developments [2010] NSWSC 734

In the Matter of Ruling Tribunal Section 31 of the Unit Titles (Management) Act 2011 [2017] ACAT 56

Independent Contractor Services (Aust) Pty Limited ACN 119 186 971(in liquidation) (No 2) [2016] NSWSC 106

Mantoufeh v Enterprise Finance Solutions Pty Ltd [2009] NSWSC 1144

Pires v DibbsBarker Canberra Pty Limited [2014] ACTSC 283

Sanderson as Liquidator of Sakr Nominees Pty Ltd (In liquidation) v Sakr [2017] NSWCA 38

The Proprietors Units Plan No. 52 v Gold [1993] FCA 385; (1993) 44 FCR 123

The Owners - Strata Plan 36131 v Dimitriou (2009) NSWLR 370

The Owners - Units Plan 840 v Richardson [2015] ACAT 77

Westralian Farmers Ltd v Commonwealth Agricultural Service Engineers Ltd (in Liq) [1936] HCA 6; (1936) 54 CLR 361

Young v Queensland Trustees Ltd [1956] HCA 51; (1956) 99 CLR 560

Papers/texts

cited: Dal Pont, G. E. Law of Costs (Lexis Nexis, 3rd Ed)

1. Within 28 days the respondent pay the applicant the amount of $1067.00.

1. On 2 August 2017 the ACT Civil and Administrative Ruling Tribunal (Ruling Tribunal) sitting in In the matter of the Ruling Tribunal Section 31 of the Unit Titles (Management) Act 2011 [2017] ACAT 56 (Ruling Tribunal Decision), determined that legal professional costs and disbursements, company title and similar searches, filing and hearing fees and administrative costs (for example, charges for the owners corporation managing agent and the collections agency) incurred in bringing Tribunal proceedings to recover unpaid unit title levies are 'expenses' for the purposes of section 31 of the Unit Titles (Management) Act 2011 (UTM Act) if:

...it was reasonable for the owners corporation to incur expenses of the type described and the amount of each component of the expenses sought is reasonable.[1]

1. This test may be described as the 'double reasonableness test'.
2. The Ruling Tribunal also determined that legal and administrative costs incurred in enforcement proceedings in the Magistrates Court against the same owner in relation to the enforcement of debts incurred in relation to previous proceedings in the Tribunal were recoverable in subsequent Tribunal proceedings as 'expenses' under section 31 of the UTM Act, despite no order for costs having been made in the enforcement proceedings, provided the same 'double reasonableness' test is met.
3. Following the delivery of the Ruling Tribunal Decision, the Referring Tribunal asked the applicants' representatives to identify a number of cases that were illustrative of the kinds of expenses that were typically claimed in these matters. The parties identified eleven matters. The expenses claims in each of these eleven matters were heard together on 9 November 2017 before this Tribunal.
4. This decision finalises one of those eleven matters. It is not possible to finalise all eleven matters at this time, as further clarification is required in relation to some of the information provided by the other applicants. Orders and/or reasons in the other ten cases will be published separately, following clarification of the outstanding issues. The reasons in the other ten matters will draw upon the background and reasons in this decision. A schedule of the ten related cases may be found at the end of this decision.
5. The purpose of these reasons, and of the decisions in the other ten matters, is twofold. Firstly, these reasons will determine in each of the eleven matters whether it was reasonable for the relevant owners corporations to incur the expenses claimed and whether each component of the expenses sought is reasonable. Secondly, although it must be emphasised that this Tribunal has no authority to bind the Tribunal in other matters, it is anticipated that these reasons will provide guidance as to the kind of expenses that will be recoverable in similar matters.

1. The hearing of the expenses applications in all eleven matters took place on

9 November 2017. The majority of the applicant owners corporations were represented by Mr Graeme Blank of Counsel, instructed by CCA Legal. A minority were represented by Kerin Benson Lawyers. No respondent was in attendance. All eleven applications were heard 'ex parte'. 2. Applications for the recovery of unpaid unit titles levies are regularly (indeed, usually) heard ex parte or result in default judgments. While some respondents to these applications may have had legitimate reasons for non-participation, and others may have simply chosen not to participate, there is a real possibility that many were confused or intimidated by the process. As such, while these matters were heard ex parte, the Tribunal has given what consideration it reasonably can to the positions that may be open to the respondent.

1. Section 31 of the UTM Act provides that:
   1. Recovery of expenditure resulting from member or unit occupier's fault

_(1) This section applies if an owners corporation for a units plan has in carrying out its functions incurred an expense, or carried out work, that is necessary because of - _

(a) a wilful or negligent act or omission of a member of the corporation, or an occupier of the member's unit; or

(b) a breach of its rules by a member of the corporation, or an occupier of the member's unit.

(2) The amount spent or the cost of the work is recoverable by the owners corporation from the member as a debt.

(3) If the owners corporation recovers an amount under subsection (2) from a member for an act, omission or breach of an occupier of the member's unit, the member may recover the amount from the occupier as a debt.

work, carried out by an owners corporation, means maintenance or anything else the corporation is authorised under this Act to do.

1. This is an unusual provision. It provides, relevantly, that where the provisions of section 31(1) of the UTM Act are met, the 'expenses' incurred by an owners corporation may be recoverable from the member 'as a debt' pursuant to section 31(2). The consequence of this was stated by the Ruling Tribunal as follows:

Accordingly, if the amount to be recovered is less than $25,000 (or any excess is abandoned), the owners corporation can make a 'debt application' under Part 4 of the ACAT Act. An owners corporation seeking to recover a sum in excess of $25,000 must commence proceedings in the Magistrates Court."[2]

1. What does this process mean in practice?
2. Part 4 of the ACT Civil and Administrative Tribunal Act 2008 (ACAT Act) deals with "Civil Disputes", including "an application for the recovery of a debt".[3] Under section 22(1) of the ACAT Act, the Tribunal has, in relation to a civil dispute, the same jurisdiction and powers as the Magistrates Court has under the Magistrates Court Act 1930 Part 4.2 (Civil Jurisdiction) (Magistrates Court Act), subject to any rule[4] that provides that certain provisions of that Act do not apply. No such rules have been made.
3. For its part, the Magistrates Court Act simply provides, relevantly, that:

_(1) The Magistrates Court may, in a proceeding in the court, declare that - _

(a) a person is or is not indebted to someone else; or

(b) a person is or is not indebted to someone else in a stated amount; or

(c) a person is or is not indebted to someone else in an amount that is more than a stated amount.

1. That power in section 261 of the Magistrates Court Act is, of course, in addition to whatever other powers the Magistrates Court (and hence the Tribunal) have to deal with civil disputes.
2. There is no definition of 'debt' in the ACAT Act or the Magistrates Court Act. The Lexis Nexis Encyclopaedic Legal Dictionary defines the term, relevantly, to mean:

debt

A legal obligation to pay a sum of money to another: R v Brown [1912] HCA 6; (1912) 14 CLR 17 ; 18 ALR 111 .

A debt is a form of chose in action: Loxton v Moir [1914] HCA 89; (1914) 18 CLR 360; Torkington v Magee[1902] 2 KB

1. An action for recovery of a debt may be distinguished from an action for damages for, for example, a breach of contract. As the High Court explained in Young v Queensland Trustees Ltd [1956] HCA 51; (1956) 99 CLR 560 at 567:

The common law does not and never did conceive of indebtedness in a sum certain for an executed consideration as a mere breach of contract: it is rather the detention of a sum of money and that was so whether the creditor enforced his demand by an action of debt or by indebitatus assumpsit.

A debt recoverable under an indebitatus count was not and is not now conceived of simply as a cause of action for breach of duty or obligation. In other words it is a mistake to regard the liability to pay a debt of a kind formerly recoverable in debt or indebitatus assumpsit as no more than the result of a breach of contract, a breach which the creditor must affirmatively allege and prove.[5]

1. One key difference between proceedings for debt and damages is that where proceedings are for debt, the plaintiff does not need to prove that payment has not been made, but rather the respondent must prove that payment has been made and the debt has been fully satisfied.[6] In other words, there is a reversed onus of proof.
2. There are some authorities that indicate that to be recoverable as a 'debt', a sum sought must be an ascertained, liquidated sum at the time of making the application.[7] Notwithstanding this, a practice has arisen within this tribunal (if not elsewhere) that, where claims for recovery of unpaid levies and other debts owed by an owner to the owners corporation are accompanied by a claim for the payment of associated (but unquantified and in some cases not yet incurred) expenses pursuant to section 31, those expenses may be quantified and awarded in the same proceeding. This may result in a 'debt' being declared against a respondent in circumstances where the respondent has not been issued with an accurate letter of demand in relation to that debt.
3. From a natural justice perspective, the approach is hardly ideal. Still, it must be weighed against the two alternative approaches to recovery of section 31 expenses: the first would require that an application be repeatedly amended to reflect changes in the debt claimed as expenses are accrued; the second would require that expenses accrued in relation to one proceeding must be recovered through a separate proceedings, rather than in the proceeding in which they were incurred. The consequence of either alternative would be increased cost and inconvenience for all parties. The tribunal has an interest in minimising unnecessary parallel proceedings, and there is nothing in the ACAT Act, Regulations, Rules or Procedural Directions that expressly require that the debt be quantified prior to the commencement of debt recovery proceedings, and therefore we see nothing to prevent the quantification of these expenses at the conclusion of the hearing process.
4. In any case, the Ruling Tribunal acknowledged that this approach is acceptable, observing that:

For the most efficient disposition of applications to the Tribunal, these expenses (including amounts incurred in relation to the hearing) should be identified at the time of the hearing before the Tribunal. Although, some of the expenses incurred at that date might not have been paid in advance of the hearing, the calculation of the amount owed will allow the Tribunal to make a final order, obviating the need for subsequent proceedings (and potentially additional expense) to quantify the amount spent and recoverable as an 'expense.'[8]

1. Where section 31 expenses are sought in a proceeding, the onus is on the applicants to provide a clear, updated costs assessment at the final hearing.
2. Importantly, this approach allows debts to be claimed where they arise out of the same proceeding. It does not extend to the recovery of debts incurred in other proceedings that have arisen since the commencement of the application. In the matters currently before the Tribunal, the applicants have also sought to recover 'debts' said to accrue by reason of the Ruling Tribunal proceedings. We do not believe that these amounts fall within the scope of section 31, and doubt in any case that such expenses can or should be recovered in these proceedings. Our reasons are further discussed below.

1. Section 31 provides for the recovery of 'expenses'. The term 'expenses' is not defined in the UTM Act, but its meaning was the subject of consideration by the Ruling Tribunal, which opined that the term should be given its 'ordinary meaning', which:

includes legal costs and associated costs incurred by an owners corporation in obtaining a judgment for the outstanding contributions and the cost of enforcing judgment.[9]

1. Adopting this approach, the expenses in the eleven matters before the Tribunal in these proceedings fall into three broad categories:
   • (a) Legal professional costs and disbursements.
   • (b) Credit collection agency administrative and investigation costs.
   • (c) Strata manager/owner corporation administrative expenses.
2. The expenses arise at different stages of what appears to be a generic levy recovery process.
3. The administrative costs arise early on when non-payment of levies is identified by the owners corporation or its manager. Usually, a series of arrears letters are sent out, by either the corporation or its manager. If the owner does not pay the levies in accordance with the letters, recovery proceedings are commenced.
4. Recovery proceedings may take one of two forms. In the majority of the matters before the Tribunal, the owners corporation or its manager referred the matter to a credit collection agency, which then instructed related lawyers to recover the unpaid levies. These owners corporations have incurred credit collection agency fees and legal professional costs and disbursements. We will refer to these as the 'CCA cases'. In a smaller of number of other cases, the owners corporations authorised the strata managing agents to instruct lawyers directly to recover the outstanding levies and have incurred legal professional costs and disbursements. These are the 'Kerin Benson' cases.
5. In our experience, these two processes are the most common processes utilised in unit title levy matters that come before the tribunal. We will deal with each of these categories of costs separately, starting with legal costs and working 'backwards' in time.

Question One: What legal costs are recoverable?

1. Legal costs represent the amount a client is obliged to pay to their lawyer as the price of professional work.[10] They include solicitor-client costs as well as disbursements paid to third parties, such as counsel fees. The Ruling Tribunal determined that the legal costs recoverable under section 31 as 'expenses' are not limited to those costs that would be awarded pursuant to an assessment or taxation, but that they must meet the 'double reasonableness' test.[11]

1. Section 31 of the UTM Act requires that the 'expenses' (or the work in respect to which they were incurred) be 'necessary' because of the defaulting act of the respondent. In the context of these matters, that means that the costs must be necessarily incurred as a consequence of the respondent's failure to pay their levies.
2. In considering whether legal professional costs were 'necessary' in the context of section 48 of the then-applicable Unit Titles Act 1970[12] the Full Federal Court in The Proprietors Units Plan No. 52 v Gold[13] (Gold) observed that:

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'.[14]

...that 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.[15]

1. To be 'necessary', therefore, the expense or work must be reasonably required to recover the unpaid levies.
2. Turning to the meaning of 'reasonable', Handley AJA's decision in The Owners - Strata Plan 36131 v Dimitriou[16] (Dimitriou) provides some limits on what constitutes 'reasonably incurred' expenses in the context of unpaid levies, including the following:

The corporation's conduct in commencing recovery proceedings must also be reasonable. A corporation may not be entitled to recover the expenses of proceedings commenced the day after the contribution became due against a lot owner with a reasonable payment record who promptly pays the contribution.[17]

1. Gold and Dimitriou were cited by the Ruling Tribunal as the expounding the "test of reasonableness...moderat[ing] any excessive claims by owners corporations."[18] Together, these cases establish that even actions by the owners corporation that are 'necessary' for the recovery of unpaid levies must be done in a manner that is reasonable, having regard to the circumstances of the case and the parties, the nature of the debt, and any other relevant considerations.
2. Ultimately, whether any costs were reasonably necessary will depend on the individual facts of the matter. However, two observations may be usefully made.
3. First, formal proceedings for debt recovery should generally not be a first resort. In most cases, where levies are unpaid, the first step should be informal preliminary action to find out why the levies were not paid, and whether they will be paid imminently. Even where the default continues or is unexplained, the usual and preferable course would be to pursue other options, including reminder letters and letters of demand, and perhaps informal arrangements for payment, followed by legal action only if those letters are not actioned or some agreement not reached. Where no preliminary steps are taken, it will be open to the respondent to argue that commencing formal proceedings was premature and that any legal expenses are therefore not 'necessary' as required by section 31.
4. Secondly, just because it is necessary to commence formal proceedings does not mean it is necessary to continue them. In Ford v The Owners Units Plan 259[19], Appeal President Stefaniak proceeded on the basis that "...it is a general rule... that costs have to be deemed to be reasonable..."[20], but he did not think it was appropriate to order that the appellant pay all of the respondent's costs of the appeal in circumstances where further work needed to be done after the original hearing and once an appeal from the decision had been brought to finally determine the amount owed by the appellant. He considered this work should have been done prior to the original hearing or at the very latest during the original hearing before lawyers were retained to act in the appeal. This means that in a particular case it may be open to a party to argue that the continuation of proceedings was unnecessary or unreasonable and costs should not be payable beyond a certain point. Again, none of the present eleven cases appear to fall within this description.
5. Assuming that it was reasonable to commence legal proceedings, the next question is: is the engagement of legal professionals to conduct those proceedings a necessary expenditure?
6. Kerin Benson Lawyers submitted that once it is reasonable to commence legal proceedings, a decision by an owners corporation to retain solicitors to undertake those recovery proceedings is, of itself, reasonable. It was submitted that this is because the owners corporation, being a statutory construct, can only act through its executive committee or a delegated agent (an executive committee member or manager) and it is prudent and practical to retain lawyers to act in respect of the claim. Mr Blank largely supported these submissions.
7. Unfortunately, there being no respondents present, no counter-argument was put by any other party. Still, what the respondents could have argued, were they present, is obvious. The Tribunal is broadly a no costs jurisdiction.[21] Its processes are designed to be informal[22], and parties are regularly, and perhaps even usually, self-represented (at least in the civil jurisdiction). Debt-recovery rarely involves complicated legal issues, and many individuals and laypersons navigate Tribunal processes without undue difficulty. In such circumstances, it may be argued, would it not be reasonable to expect an owners corporation to similarly represent itself?
8. The counter-argument is that an owners corporation, and the executive committee that oversees its day to day affairs, are usually composed of volunteers drawn from the owners, most of whom will have other commitments. Although some executive committee members may be willing and able to 'step up' and represent the corporation in Tribunal proceedings, at no cost (other than inconvenience to themselves), many executive committees, particularly of smaller complexes, may not have such persons available. Indeed, the prospect of appearing in tribunal proceedings may also act as a disincentive to involvement with the corporation or the executive committee.
9. Moreover, even where a unit complex does have willing advocates amongst its members, it may still be more practical for the owners corporation to engage an agent to appear. Some law and collection firms have such a volume of matters and familiarity with the process that they offer economies of scale, the ready assistance of investigators or other information sources, and resulting cost savings. Assuming such agents are permissible, this argument would go, there is no reason why that agent cannot be a commercial third party, such as a debt collection firm or indeed a lawyer.
10. In the circumstances, we broadly accept that there is nothing prima facie unreasonable about an owners corporation engaging a law firm or a debt recovery firm to pursue recovery of unpaid levies. The ultimate question, in our view, is not the identity of the entity that undertakes the necessary work, but whether the costs incurred by using that entity are reasonable.
11. There was nothing to suggest that the engagements of those firms in the eleven matters before this Tribunal was unreasonable
12. However, the Tribunal does not accept that it will always or inevitably be reasonable for every owners corporation to instruct a legal representative or collection agency to represent it in debt collection proceedings. In cases where the debt is relatively small, where no complex legal issues arise, and where the company has engaged a management company, particularly one whose fees already cover the cost of some recovery action, it may not be reasonable for that company to engage external assistance, unless that assistance were actually more cost effective than the alternative. Again, none of the eleven cases appeared to be fall within any of these categories.

1. There is considerable case law that looks at the meaning of 'reasonable expenses' in the context of legal professional costs and disbursements, but as the majority of these cases relate to costs arrangements between solicitors and their clients, the extent to which they are applicable to the present circumstances is not always clear.
2. There is a process in the Legal Profession Act 2006 (LPA) by which clients, and third parties who are obliged to pay legal bills, may seek a review of those bills. There may be a question as to whether an owner who is ordered to pay a legal bill is a "third party payer" for the purposes of section 261A of the LPA, but this is not something the Tribunal can consider. As was observed by Refshauge J, in Pires v DibbsBarker Canberra Pty Limited [2014] ACTSC 283 (Pires), the power to review a bill under this section is the exclusive province of the Supreme Court:

83. Both in the original decision and the appeal decision of the ACAT, it held that it had no jurisdiction to assess the costs as to whether they were fair and reasonable. I agree.

84. Although it does not say it explicitly, the structure and terms of the Legal Profession Act makes it clear that this is the exclusive work of the Supreme Court. Section 300C of the Act provides that the amount assessed is taken to be a judgment of this Court and may be enforced accordingly. That assessment, under s 300 includes a determination of whether it was reasonable to carry out the work to which the legal costs relate.

1. That said, as the Ruling Tribunal made clear, what the Tribunal is being asked to do under section 31 is not to assess legal 'costs', in the sense of what would be recoverable through a formal taxation or assessment process pursuant to an order for costs made by a Court or Tribunal, but rather to consider whether the 'expenses' claimed by the owners corporation are 'properly incurred' such that they may be recovered as a statutory debt under that section.[23] In order to be properly incurred, those costs must meet the requirements of section 31, and the double reasonableness test.
2. In Gold the Full Federal Court rejected an argument that the 'reasonableness' of incurring costs in litigation is only established by an order of the Court and the taxing of a proper bill.[24] This is especially true in the context of Tribunal proceedings such as these. Not only is taxation primary concerned with 'legal costs', and not with expenses, but the cost and time typically involved in the process would make an assessment impracticable and disproportionately expensive in most recovery cases before the Tribunal.
3. Still, while an assessment is not necessary, for the test of reasonableness to be of real substance, there must be a consideration of whether "the expenses [are] fair and reasonable in terms of the rates charged and the work done"[25], even if they would not necessarily be recoverable as legal 'costs'. But how should the Tribunal assess what is a 'fair and reasonable' expense, without conducting some kind of de facto assessment of the legal bill?
4. In his submissions before the Tribunal, Mr Blank very usefully suggested four methods used in other contexts that may assist the Tribunal in determining what expenses are reasonable.
5. The four contexts are:
   • (a) section 300 of the LPA;
   • (b) liquidator's/receiver's remuneration under the Corporations Act 2001;
   • (c) allowable costs in Schedules 3 and 4 of the Court Procedures Rules 2006 (CPRs); and
   • (d) allowable costs in Schedule 3 of the Federal Court Rules 2011.
6. Additionally Kerin Benson lawyers suggested that section 4.1 of Schedule 4 of CPRs could be used as an appropriate guide to the assessment process.
7. Section 300(2) of the LPA deals with the criteria for costs assessment by the Supreme Court when a client or third party payer requests an assessment of the legal costs they are asked to pay a lawyer. In considering whether costs are fair and reasonable the court may have regard to a number of matters including:

(e) the retainer and whether the work done was within the scope of the retainer;

(f) the complexity, novelty or difficulty of the matter;

(h) the place where, and circumstances in which, the legal services were provided;

(i) the time within which the work was required to be done;

1. Section 4.1 of Schedule 4 of the CPRs sets out a list of matters relevant to the Registrar's assessment of an amount allowable for 'solicitor's care and conduct' when assessing the costs of a proceeding. These include:

(b) the difficulty and novelty of any question raised in the proceeding;

(c) the importance of the proceeding, including to the party;

(e) the skill, labour, specialised knowledge and responsibility involved in the proceeding on the part of the solicitor;

(f) the number and importance of the documents prepared or perused, without regard to the length of the documents;

(h) research and consideration of questions of law and fact.

1. Section 4.1 of Schedule 4 of the CPRs and section 300 of the LPA are intended to facilitate an examination of a costs agreement or arrangement between a client and their solicitor. Both provisions are concerned with the concept of 'costs' in a legal sense, rather than with expenses more broadly, and neither the words of the legislation nor the associated case law can be directly applied to the present circumstances. Still, in our view, both lists of factors provide a reasonably objective basis for an assessment of whether legal expenses incurred in a particular matter may be unreasonable, and these factors are applicable no matter how those legal expenses are being recovered.
2. Under the Corporations Act 2001, liquidators are entitled to certain compensation as determined by agreement, or by the Courts. Prior to amendments made in 2017[26], section 473 of the Corporations Act 2001 provided that a Court must have regard to a range of factors in determining the appropriate rate of remuneration for liquidators. The list of criteria was broadly similar, although not identical to, the considerations in the LPA and the CPRs, but the differences are not material to these reasons.
3. The application of the Corporations Law provisions has been the subject of numerous decisions, but the principles relevant to the approach were summarised by the Western Australian Court of Appeal in Conlon (as liquidator) of Rowena Nominees Pty Ltd v Adam[27] as follows:

28 The court in Venetian Nominees considered the remuneration provision in s 473(2) of the Corporations Law which, although it related to a provisional liquidator, is in materially the same terms as s 473(3) of the Corporations Act. The court identified the relevant principles and procedures as follows. A liquidator is entitled to remuneration that is fair and reasonable and the liquidator carries the onus of establishing that entitlement. The court also said that in determining the remuneration to which a liquidator is entitled:

- a summary procedure is involved, not unlike that applicable to the taxation of solicitors' costs, which is not necessarily subject to all the rules that would apply in an action;

- it is the function of the court to determine the remuneration by considering the material proffered and bringing an independent mind to bear on the relevant issues, the initial task being to consider whether, prima facie, the liquidator has made out a case for the determination of the amounts claimed. The court must make an independent assessment even in the absence of objectors, appropriately detailed objections or arguable objections;

- if the liquidator has made out a prima facie case for determination and there are objections, special directions should be given as to the mode in which the account is to be taken...;

- an objector should specify the grounds of objection well in advance of the hearing.

- if cross-examination of the liquidator is allowed, notice should be given of the points on which the liquidator will be cross-examined.

1. These principles were approved in passing by the NSW Court of Appeal in Sanderson as Liquidator of Sakr Nominees Pty Ltd (In Liquidation) v Sakr [2017] NSWCA 38 (Sakr Nominees). We accept these principles as also providing a useful guide for the approach to be taken to an assessment under section 31 of the UTM Act - that is, the Tribunal must "bring an independent mind to bear on the relevant issues", and even in the absence of any objection, must be satisfied that the owners corporation has at least a prima facie case for the recovery of the expenses claimed. Where objections are to be made to a claim, these will need to be specified by the objector - although in the context of proceedings before the Tribunal, a less formal approach may (at the discretion of the presiding member) be taken to both the notice requirements and the requisites to any cross examination of the corporation's representatives.
2. It is worth noting here an interesting approach taken by Justice Brereton of the New South Wales Supreme Court in Independent Contractor Services (Aust) Pty Limited ACN 119 186 971(in liquidation) (No 2)[28]. In that case, his Honour determined that a percentage of total realisations was more appropriate than an hourly rate, observing that:

Having regard to the size of the estate, the totality of work undertaken and time expended by the Liquidator and his staff (including that for which he has not specifically claimed), the challenges presented, and the extent to which others (including lawyers and debt collectors) were engaged and remunerated for associated work, the Liquidator should be allowed remuneration of $30,000 (which equates to about 14% of gross realisations), plus GST."[29]

1. This ad valorem approach has a certain attractiveness, given the costs involved in many of the eleven matters exceed the debt very considerably. An approach that considers the relative proportionality of the cost of recovery of the unpaid levy would require owners corporations to take a commercial approach to debt recovery and weigh up the relative value of the levy against the costs of recovering it. On the other hand, it may perhaps result in owners also weighing the relative risks of not paying, and would likely shift some of the costs of defaulting members to paying members of the corporation. Still, whatever its merits or otherwise, this approach was overturned by the NSW Court of Appeal in Sakr Nominees. In that case, their Honours were of the view that the relevant question was whether the remuneration claimed is reasonable, having regard to the evidence of work necessarily done, not whether the amount is reasonable having regard to the amount of funds available for distribution.[30] The reasoning arguably applies just as strongly to section 31 of the UTM Act, and indeed, Mr Blank expressly submitted[31] that proportionality should, in any case, be an even "less significant factor" in cases such as this where the levy is relatively small but the opportunities to recover it are limited. No contrary argument was advanced by an objector. We have therefore considered this approach no further.
2. The third suggested option for assessing costs was, Schedule 3 of the CPRs. This sets out the 'scale of costs' that the Supreme Court has regard to when assessing legal costs payable in a debt or liquidated damages matter. Schedule 4 of the CPRs contains further prescribed costs for contested matters, and includes criteria for assessing an amount for 'reasonable skill and care', as set out above. Schedule 3 of the Federal Court Rules 2011 is in similar terms and prescribes fixed lump sum amounts for costs in insolvency matters where a matter had followed the usual procedural steps to conclusion.
3. All the abovementioned schedules are schedules of what are called 'scale costs'.
4. In Frank Jasper Pty Ltd v Glew (No 3)[32] Martin CJ set out the purpose of scale costs as follows:

[Scale costs] serve a number of purposes. The purposes ... include the purpose of regulating the costs properly and reasonably incurred recoverable by a successful party to litigation, and the purpose of enabling parties to litigation to make an approximate assessment of their exposure to an adverse costs order....[and] the purpose of encouraging legal representatives to only undertake work, and incur costs that are properly and necessarily incurred in the conduct of litigation, as considerable gaps between costs claimed on a solicitor and client, and a party and party basis, may give rise to client dissatisfaction.

1. Scale costs, as noted by his Honour Martin CJ, represent costs that are recoverable by one party from another - not necessarily the full costs that are incurred between the solicitor and client pursuant to a costs agreement. The costs that may be recoverable under these schedules are often considerably less that the costs that may be payable under a costs agreement between a solicitor and client.
2. We accept that the concept of 'expenses', as contemplated by section 31 of the UTM Act, is not constrained to scale costs, or indeed to what may be recovered in an assessment more broadly and therefore it is not appropriate that the scale be adopted in its entirety. However, we are also of the view that the scales represent a baseline for the kind of costs that would, in the usual course, be reasonable (even if greater expenses may also be reasonable).
3. Relevantly, the scale costs in Schedule 3 of the CPRs provides that the amount recoverable for proceedings in the Magistrates Court for debts or liquidated demands under $10,000 as currently as follows:
   • (a) Issuing claim - $491
   • (b) Entering default judgment - $637
   • (c) Obtaining enforcement orders - $832 (with an agent - $605.00 without an agent).
4. Mr Blank submitted that if the legal expenses claimed in an application for default judgment did not exceed the amounts set out in Schedule 3 of the CPR, it was open to the Tribunal to find the costs claimed were reasonable in amount. We agree. Where the amounts claimed on any application under section 31 fall within the prescribed scale costs for recovery of debts and liquidated claims of up to $10,000, the Tribunal will usually be satisfied that the costs are prima facie reasonable, subject to provision of evidence of the actual costs incurred, and subject to any actual objections made by the respondent.
5. We note that Schedule 3 also sets out varying amounts for claims of greater than $10,000.00. In our experience, claims made for unpaid levies rarely exceed the sum of $10,000, and even in those cases where they do, there is rarely any additional amount of complexity involved in the matter. Accordingly, the Tribunal is of the view that it would be appropriate to use the costs amounts for the recovery of liquidated debts of up to $10,000 as prescribed from time to time in Schedule 3 of the CPRs as a guide to what will be considered, in the absence of argument from either side, to be reasonable costs for recovery matter, whatever the amount of the debt.
6. Where a claim for costs exceeds the scale costs in Schedule 3 of the CPRs, but the claim is not opposed and no objection made, the Tribunal must nonetheless review the costs on the basis of the material provided, and it must, consistent with Venetian Nominees, bring an independent mind to bear on whether the applicant has, prima facie, made out a case for the determination of the amounts claimed. The considerations in the LPA and schedule 4 of the CPR will provide a basis for any assessment, but the available costs are not limited to scale costs
7. Where a respondent to a proceeding does object to a claim for expenses, the Tribunal will expect the respondent to set out their objections, such that an independent assessment can be undertaken in accordance with the double reasonableness test. Again, the considerations in the LPA and Schedule 4 of the CPRs will provide a basis for any assessment, and the Tribunal will look to those considerations, but the available costs are not limited to scale costs, and any relevant matter may potentially be considered.
8. Having regard to the above, the Tribunal takes the opportunity to make the following observations in this regard to the assessment of legal expenses more broadly:
   • (a) Applications for the recovery of unpaid levies are rarely complicated, and only in exceptional circumstances do they raise difficult or novel issues or serious questions of law.
   • (b) The matters proceed relatively quickly either to default judgment and an assessment hearing or to a final hearing. They rarely require written advice.
   • (c) The processes and procedures of the Tribunal are not difficult to follow or comply with, and the Tribunal's procedures are designed to make it possible for even self-represented litigants to comply with and to minimise cost, formality and delay. Debt recovery processes will rarely justify the involvement of more experienced, and expensive, legal personnel.
   • (d) In the matters before the Tribunal the work is being carried out by solicitors/paralegals with experience in debt recovery matters and it would be reasonable to expect this to lead to efficiencies in scale and cost.

When are credit collection agency expenses recoverable?

1. The CCA matters broadly involve both legal expenses, and additional expenses associated with credit and debt collection activities that predate the commencement of legal proceedings. While the credit collection expenses are similar in nature to legal expenses, they also include a small number of distinct costs, including most particularly the costs of investigations.
2. In some of the relevant CCA example cases (the reasons for which will be published separately), CCA on several occasions used investigators to locate otherwise uncontactable unit holders. One of the investigators used by CCA was called to give evidence as to the kind of activities he undertook. He gave as an example of the kind of work that he does[33] of undertaking two visits to the premises of the debtor in order to serve documents, and then undertaking 'office investigations', which involved internet and database searches to try to locate alternative addresses.
3. Is it reasonable to incur such expenses? In most cases, yes. An owner of a unit in a corporation has an obligation to advise the corporation of any change in their address for correspondence within 14 days of the change happening.[34] Where an owner fails to do this, and then fails to pay their levies, it would usually be reasonable for the owners corporation to take steps to find the owner so as to serve them with the appropriate notices, or take legal action is necessary. These costs, if reasonable, may ultimately be recovered from the owner pursuant to section 31 of the UTM Act.
4. Other investigations undertaking by the investigators engaged by CCA involved obtaining relevant details about employment or other income received by owners that can be redirected to pay the debt once judgment has been entered by the Tribunal. This is part of the enforcement process. Again, the steps taken need to be reasonable, as does the commencement of the enforcement process itself. It would, for example, not usually be appropriate to commence enforcement proceedings without first offering an owner an opportunity to pay a judgment debt.
5. We are satisfied that the investigations undertaken in the eleven matters before us were reasonable, and in any case no objections were made. The costs incurred by the investigators do not appear to be in any way excessive, and were considerably lower than the costs that would be incurred by, for example, a paralegal in a law firm. Nonetheless, whether such investigations are necessary in other cases will vary depending on the circumstances.

When are strata manager/owners corporation expenses recoverable?

1. The strata manager expenses vary from one management company to another. The Tribunal had some, limited, evidence of differing arrangements before it that illustrated this point, although the documentation was in no way comprehensive.
2. Strata management is a commercial enterprise, and it is to be expected that companies operating in the market offer different kinds of arrangements, including alternative arrangements for debt recovery. For example, most strata management companies appear to charge for sending arrears letters. The charges seem to range from $33-$55 for the first arrears letter and $33 - $110 for the second or third arrears letter. One manager also charges a fixed fee of $500 for the work involved in referring a matter to their credit collection agency/lawyers and liaising with the credit collection agency to be kept up to date on progress in the matter.
3. The process for engagement of a manager is set out in Division 4.2 of the UTM Act. The corporation may enter into a management contract by ordinary resolution[35], for a period of up to three years.[36] This process for appointment is clearly intended to allow the members of the relevant corporation to determine which manager, and hence which management fee scale, is appropriate for their purposes. Dissatisfied owners may potentially seek a review of any resolution to appoint a particular agent under section 109 of the UTM Act, but outside of the review process provided in section 109 of the UTM Act, it is not the role of the Tribunal to second guess this process or decide that one form of costs structure is preferable to another. Consequently, the Tribunal is neither minded nor empowered (at least in the context of a civil proceeding) to engage in reviews of what management companies charge their corporations.
4. That said, notwithstanding that an owners corporation may make its own decision about the management company it engages, and the costs that manager may charge to recover unpaid levies, the owners corporation may only pass the costs of that recovery onto individual members where the costs are both reasonable in quantum and reasonably incurred. It is always open to a respondent to proceedings to contest a manager's expenses, and where a respondent does this, the Tribunal will consider whether the expenses are both 'reasonable' in quantum and 'reasonably necessary', having regard to the approach set out above.
5. None of the eleven matters before the Tribunal were subject to any objection. Still, we must bring an independent mind to the expenses. The largest component of the managers' claims before the Tribunal was for the sending of arrears letters. The Tribunal accepts that it is reasonable to charge for sending arrears letters. The Tribunal also accepts that it is reasonable to charge for the work a manager does in liaising with credit collection agencies/lawyers who are instructed to recover the debt owed by the owner. However, we had some concerns about quantum.
6. For example, in considering whether the amounts charged for arrears letters are reasonable, the Tribunal makes the following observations:
   • (a) The amounts charged for the first or second arrears letter ($33-$55) are not unreasonable - this is generally a form letter but it still needs to be customised and debts calculated and confirmed.
   • (b) However, in some cases, where a further arrears letter is sent, that letter incurs a greatly increased cost - up to $110.
   • (c) The explanation given by one manager in her evidence before the Tribunal for the increased charge made for a second arrears letter was that the owner's account requires closer monitoring after the first arrears letter is sent, and the manager must obtain instructions from the owners corporation to instruct lawyers and confirm the amount that is owed.
7. Having regard to the observations set out above, the Tribunal considers it is not reasonable to increase the charge for a second arrears letter to the extent that some companies do, notwithstanding that some further work that may need to be done prior to sending the second letter. The reductions in the amount recoverable as debts under section 31 of the UTM Act will be discussed in the individual matters, when reasons are published are published.
8. One management company also charged a fixed fee of $500 for liaising with credit collection agencies/lawyers. The evidence does not disclose how the amount is arrived at, for example hourly rate or some other calculation. It appears that much of the work charged for involves requesting updates, receiving updates and reporting back to the owners corporation to obtain instructions and then convey those instructions. This work, at least on the evidence provided, is not onerous and the Tribunal considers the charge of $500 is not reasonable. The Tribunal would allow an amount of $250. It is, of course, open to an owners corporation in another matter to provide further evidence that the amount is reasonable in the context of that case, but that evidence was not provided in these proceedings.
9. Finally, one management company charged $457 for registering a charge on the owner's title to the property. There was no evidence before the Tribunal as to how this amount was calculated. It appears that the charge was registered by the strata manager while work was being done by the lawyers retained in the matter to garnishee or redirect the owner's income to satisfy the judgment debt. The actions of the management company in seeking a charge over the property were in addition to actions by the collection company to recover the debt through other means. No evidence was provided as to why this was necessary. In the Tribunal's view the charge of $457 is not reasonable and it is disallowed.

Determination of expenses in Units Plan No 3182 v Black & McClelland (XD 85/2016)

1. The respondent was ordered to pay the applicant to sum of $5,452.21 for unpaid levies, interest and the application fee. Additionally, the applicant claimed the following expenses:

1. Taking into account the guiding principles outlined earlier in this decision, the Tribunal accepts that it was reasonable for the corporation to:
   • (a) engage an agent to make investigations to take steps to recover the debt,
   • (b) issue proceedings; and
   • (c) recover the registration fee for enforcement of previous proceedings against the same debtor in this proceeding.
2. The next question is whether the amounts claimed are reasonable.
3. The respondent did not argue that any of the expenses claimed were excessive or unreasonable. Still, the Tribunal has considered the amount claimed in light of the framework considered above, and particularly in light of the considerations in the LPA. In particularly, we have taken into account the following:
   • (a) The claim was not a complex one and proceeded to default judgment and an assessment hearing.
   • (b) Tribunal processes and procedures which are designed to minimise cost, formality and delay have been followed - in particular, phone and email demands were made to minimise costs.
4. We are satisfied that the legal and collection costs claimed for issuing the debt application, attending the assessment hearing, and the registering and serving of the previous decision should be allowed full.
5. The distinctive element of this case is the investigation fees claimed. It is evident from the material supplied to the Tribunal that the investigations were necessary in order to enforce the previous orders of the Tribunal and commence this application. The amounts claimed were not large, particularly given the many hours involved. The respondents made no objection to the costs claimed. The Tribunal is prima facie satisfied that these costs were reasonable and, having been presented with no reason why they are not, allows the amount claimed in full.

Costs of the matter listed before the Ruling Tribunal

1. Considerable costs were incurred by the owners corporations in relation to the appearance before the Ruling Tribunal. There is a serious question as to whether these 'expenses' may reasonably be recovered from the various respondents to the referred matters pursuant to section 31 of the UTM Act. This is not the correct proceeding in which to answer that question.
2. We observe, in passing, that section 31 of the UTM Act only applies to costs that are "necessary because of - (a) a wilful or negligent act or omission of a member... or ... a breach of its rules by a member of the corporation." It is arguable that the proceedings before the Ruling Tribunal were not work that was "necessary ... because of a wilful or negligent act or omission of a member of the corporation ...or ... a breach of the rules by a member of the corporation."
3. Prior to the commencement of the Ruling Tribunal process, there was some legal uncertainty as to the interaction of section 31 of the UTM Act and section 48 of the ACAT Act. The Tribunal's decision in The Owners - Units Plan 840 v Richardson [2015] ACAT 77 (Richardson) had held that section 48 of the ACAT Act prevailed over section 31 of the UTM Act, and legal costs were not recoverable unless the provisions of section 48 were met. We accept that Richardson caused some inconvenience to the corporations. We accept that the Ruling Tribunal served a purpose of clarifying the legal position as to whether legal and enforcement expenses were recoverable under section 31 of the UTM Act. However, while gaining that certainty was undoubtedly beneficial to the owners corporations, obtaining that certainty was not, in our view, a necessary prerequisite to recovering the unpaid levies.
4. However, even assuming that the expenses arising from the Ruling Tribunal proceedings can be recovered under section 31 of the UTM Act, we are satisfied that they cannot be so recovered in the context of this proceeding, as that debt is currently not an issue in these proceedings.
5. As noted above, a practice has developed in the Tribunal of permitting an application for the recovery of debts owed by an owner to an owners corporation to include a yet-to-be quantified amount for legal expenses (including expenses yet to be incurred) directly associated with the application. However, that practice does not extend to permitting the recovery of unquantified costs associated with another, separate and subsequent proceeding. At the very least, to recover such a debt, the original applications would need to be amended to expressly include it. Not only has this not been done, but it is questionable whether it can or should be done where, as here, the substance of the original matters has already been determined.
6. If the owners corporations wish to recover of the costs of the Ruling Tribunal proceedings, they will need to quantify those costs, identify which of the respondents they intend to recover them from, and commence separate collection proceedings, and if necessary proceedings before the Tribunal, accordingly.

1. In our view, some of the same considerations as set out in paragraphs 94 to 99, above, apply to the owners corporations' applications to recover the costs associated with the assessments of 9 November 2017. In each of the eleven matters before the Tribunal on that occasion, the owners corporations already had orders requiring the respondents to pay the unpaid levies. The respondents are entitled to all reasonable and reasonably incurred expenses leading to those substantive orders. However, the continuation of these proceedings, and hearing of 9 November 2017, were not a consequence of the wilful or negligent act or omission of a member, or a breach of the rules by a member, but were rather the result of a desire to resolve any legal uncertainty arising from the Richardson decision. Accordingly, the Tribunal is not satisfied that the costs incurred in relation to the final hearing of 9 November 2017 are recoverable under section 31 and declines to make any orders in relation to those expenses.

The Owners - Units Plan No 3788 v Black & McClelland

The Owners - Units Plan No 546 v Donnelly & Hamilton

[1] In the Matter of Ruling Tribunal Section 31 of the Unit Titles (Management) Act 2011 [2017] ACAT 56 at Order 1; [55], [104]

[4] 'rules' means the rules of the Tribunal made under section 24 of the ACAT Act

[5] See Frinty v Landmax Developments [2010] NSWSC 734 per Ball J at [12]-[13]

[6] Ibid; Mantoufeh v Enterprise Finance Solutions Pty Ltd [2009] NSWSC 1144 at [10]

[7] Westralian Farmers Ltd v Commonwealth Agricultural Service Engineers Ltd (in Liq) [1936] HCA 6; (1936) 54 CLR 361; see discussion in Mantoufeh v Enterprise Finance Solutions Pty Ltd [2009] NSWSC 1144

[8] In the Matter of the Ruling Tribunal Section 31 of the Unit Titles Management Act 2011 [2017] ACAT 56 at [103]

[10] Dal Pont, G. E. Law of Costs (3rd ed) LexisNexis page 2

[11] Ruling Tribunal Decision at [55]

[13] [1993] FCA 385; (1993) 44 FCR 123

[14] The Proprietors Units Plan 52 v Gold [1993] FCA 385; (1993) 44 FCR 123, 126

[15] The Proprietors Units Plan 52 v Gold [1993] FCA 385; (1993) 44 FCR 123, 126

[16] (2009) NSWLR 370

[18] Ruling Tribunal Decision at [101]

[19] [2012] ACAT 59

[20] Ford v The Owners Units Plan 259 [2012] ACAT 59 at [5]

[23] Ruling Tribunal Decision at [92], [93]

[24] The Proprietors Units Plan No 52 v Gold [1993] FCA 385; (1993) 44 FCR 123, 126

[25] The Owners - Strata Plan No 36131 v Dimitriou (2009) NSWLR 370, 402 at [130]

[26] Insolvency Law Reform Act 2016

[27] [2008] WASCA 61

[28] [2016] NSWSC 106

[29] Independent Contractor Services (Aust) Pty Limited ACN 119 186 971(in liquidation) (No 2) [2016] NSWSC 106 at [54]

[30] See applicant's submission by Mr Blank at [21] to [24]

[32] [2012] WASC 24(s); see Dal Pont, 3rd ed, 15.58

[33] In the context of The Owners Unit Plan No 3609 v Chen XD 85/2016