this product is unavailable for purchase using a firm account, please log in with a personal account to make this purchase.

Due process: Clarifying fee recovery

Feature Articles

Cite as: October 2009 83(10) LIJ, p32

Although the Owners Corporations Act 2006 has led to greater accountability of owners corporations and greater transparency in dispute resolution procedures, there are real problems with fee recovery action.

By Anthony Wilkinson

The purpose of the Owners Corporations Act 2006 (the Act) is threefold: "to create a legal framework for the governance of owners corporations in Victoria, to define the management powers and functions of owners corporations and to provide for the resolution of disputes relating to owners corporations".1

More than a year and a half has passed since the commencement of the Act on 31 December 2007. Industry stakeholders have generally welcomed it for providing clarity in the management and operation of an owners corporation and defining processes for dispute resolution. However, few other provisions in the Act have received as much criticism as those relating to the dispute resolution provisions and the recovery of outstanding owners corporation fees.

Before the commencement of the Act, nearly all fee recovery disputes2 between persons or bodies affected by an owners corporation were heard in the Magistrates' Court of Victoria. Since its commencement, a majority of fee recovery disputes are now heard in the Victorian Civil and Administrative Tribunal (VCAT). In these circumstances, to what extent can owners corporations recover the following fees and costs:

  • outstanding owners corporation fees;
  • interest accumulated on outstanding owners corporation fees;
  • charges applied by an owners corporation manager in attempting to recover these amounts; and
  • legal costs incurred in the recovery of all of the above?

The fee recovery process

The fee recovery process under the Act is statutorily prescribed and must be strictly followed. An owners corporation may only set annual fees and extraordinary fees pursuant to ss23 and 24 of the Act.3 To collect these fees, a fee notice must be issued in the approved form and struck in accordance with lot liability.4

If a lot owner does not pay on the fee notice within 28 days of the due date, the owners corporation may issue a final fee notice in the approved form which must state, among other things, that it intends to take action under Part 11 to recover the amount due if the amount stated is not paid within 28 days after the date the final fee notice is given.5

These requirements for fee notices and final fee notices must be met as they are strictly applied by VCAT. A failure to issue either notice in the approved form as provided by Consumer Affairs Victoria will result in a dismissal of the claim at a substantive hearing at VCAT.6 The layout of the approved forms for fee notices and final fee notices can be varied to suit computer systems, mailing and payment processes, but must contain all information specified in the approved forms. Any fee notice or final fee notice containing information that differs from the approved form may be invalid.7 If an owners corporation relies on an invalid final fee notice in legal proceedings that are dismissed on that same basis, it may become liable for costs incurred by the lot owner in defending such.

Except for a number of procedural defences to a fee recovery claim, an incorrect address on a notice or wrong lot identified, there are few substantive defences to a fee recovery claim by an owners corporation. Substantive defences against fee recovery claims are beyond the scope of this article.

Which venue: Magistrates' Court or VCAT?

If a lot owner fails to pay on a final fee notice, the owners corporation must determine what further action it is to take. It is here that the problems begin with fee recovery action under the Act.

Under the previous legislation (the Subdivision (Body Corporate) Regulations 2001), nearly all fee recovery disputes were issued in the Magistrates' Court. Under the Act, however, it is not an open and shut case when it comes to determining whether proceedings should be issued in the Magistrates' Court or VCAT.

Section 30 stipulates that, subject to ss31 and 32 and Division 1 of Part 11 of the Act, the owners corporation may recover any money owed to it in any court of competent jurisdiction. However, s18 of the Act requires a special resolution to be passed to issue legal proceedings unless the legal proceeding is issued in VCAT for the recovery of fees and other money. Legal proceedings in the Magistrates' Court are not applications to VCAT under Part 11 of the Act, thus a special resolution is necessary to issue a proceeding.

Even if an owners corporation obtains a special resolution to issue legal proceedings, it still has to get around the fact that in its final fee notice it intends to take action under Part 11 of the Act to recover the amount due if the overdue fees and charges and interest owing are not paid within 28 days after the date the final fee notice was given.8 The Magistrates' Court has not yet ruled on whether an owners corporation can issue fee recovery proceedings in its jurisdiction after making such a representation. A lot owner could potentially defend such a case on a number of grounds, including the owners corporation engaging in misleading and deceptive conduct or the Magistrates' Court not having jurisdiction to hear the dispute.

Even if an owners corporation can get around its representation to issue proceedings in VCAT, it is still practically impossible for owners corporations with more than 30 lots to obtain a special resolution to issue proceedings in the Magistrates' Court. This is because lot owners are generally apathetic towards the operation of owners corporations unless it personally involves them. Thus, from a practical viewpoint, VCAT is effectively the exclusive jurisdiction for fee recovery disputes for developments with more than 30 lots.

There are further differences which are discussed later, but for practical purposes it is preferable that fee recovery disputes are heard by VCAT.

Process of service at VCAT

Where a fee recovery dispute is filed with VCAT, it is listed for a substantive hearing once VCAT has served the application at the lot owner's physical address within Australia. Section 140 of the Victorian Civil and Administrative Tribunal Act 1998 (VCAT Act) does not require personal service, so the application may be served by ordinary prepaid post. In most circumstances this is significantly more cost-effective for the owners corporation, but a number of problems arise when effecting service in VCAT as:

  • the Act only requires a lot owner to provide a mailing address for service of notices - there is no distinction in the Act as to whether the mailing address must be a domestic physical address or any kind of address anywhere;9
  • VCAT cannot serve an application on a post box address or outside Australia;10 and
  • VCAT cannot order substituted service within Victoria where the person proposed to be served was out of Victoria when the initiating process was issued and is still outside of Victoria.11

With the advent of large multi-storey, multi-purpose and multi-lot developments in Victoria, it is not uncommon for a significant number of lot owners to live outside Australia. Were this dispute in the Magistrates' Court, the owners corporation could avoid the above problems more easily, but not necessarily at less cost, as substituted service and international orders still require special applications to the Court.

For the time being, and until the Act is amended, an owners corporation must locate the lot owner's usual or last known physical residential or business address in Australia. Where a lot owner has appointed an agent to lease out the lot that is the subject of fees claimed, they have then engaged in a commercial activity and the agent's physical address may be considered the lot owner's "usual business address" for the purpose of service under the VCAT Act.12

There is little difference between the legal procedure at VCAT and the Magistrates' Court in practice when it comes to effecting service. In both jurisdictions, if one wishes to effect service on a person (as distinct from a corporation) and the person or their physical domestic address cannot be located for personal or post service, then the owners corporation will need to make a special application to the Court or VCAT13 respectively for service to be effected in another manner.

Recovery of legal costs at VCAT

The recovery of legal costs is possibly the most heated issue with regard to fee recovery disputes under the Act. Legal costs are those of a lawyer.14 Recovery expenses of an owners corporation may include investigation fees, credit checks, owners corporation manager's fees, search fees and other like expenses incurred by a person who is not a solicitor.

In the Magistrates' Court, legal costs are ordinarily awarded to the successful litigant in accordance with the applicable scale of costs. If it wishes to obtain an order that includes recovery expenses incurred before or during the proceeding, the owners corporation cannot use the summary judgment procedure, but must attend a hearing to establish that the recovery expenses are fair and reasonable. This is very time consuming.

At VCAT, s109(1) of the VCAT Act provides the presumption that parties bear their own costs at VCAT. However, VCAT may make an order for costs after considering:

  1. the relative strengths of the claims made by each of the parties, including whether a party has made a claim that has no tenable basis in fact or law;
  2. the nature and complexity of the proceeding; and
  3. any other matter that VCAT considers relevant.15

As there is no summary jurisdiction at VCAT, each fee recovery dispute is heard at a substantive hearing where the owners corporation must prove its case. So, when the owners corporation claims legal costs, it should be aware that success in a proceeding does not in itself justify an order for costs. Something more must be shown.16 It must establish how it suffers damage or a loss by this act of the lot owner and illustrate the inequity of it not recovering legal costs incurred in the matter.

The ability of the owners corporation to obtain a costs order in a fee recovery dispute relies heavily on its capacity to prove factors apparently irrelevant or inconsequential to the dispute. For example, a fee recovery dispute is normally a simple task, but due to the owners corporation having to prepare documents and evidence for a substantive hearing, it may be considered complex and its nature onerous.17 This issue is related to whether a solicitor should appear at VCAT on behalf of an owners corporation. Although managers may be able to prepare for and attend a substantive VCAT hearing, the average manager does not have the necessary skills. Although VCAT does not normally grant an order for a manager's charges to an owners corporation for conducting a fee recovery proceeding as they are not a professional advocate within the meaning of the VCAT Act,18 this position is not yet fixed. It is not uncommon for managers to recover some of their charges to an owners corporation in a VCAT order.19 In the end, it is always subject to the discretion of the presiding member in a proceeding.

Many other factors are relevant to whether an owners corporation is entitled to a costs order at VCAT, including:

  • no costs order means other lot owners bear the expense of another lot owner's fault;
  • the rules of the owners corporation could state that it is entitled to recover all legal costs incurred as a result of a breach of a member (this rule may not be enforceable, but that has not been determined in Victoria yet);
  • costs ordinarily follow the event in other jurisdictions for disputes of this nature; and
  • the owners corporation needs to fulfil its statutory obligations.

For the time being, if it is necessary and/or reasonable to instruct a solicitor to prove a fee recovery claim at VCAT, it is significantly more likely than not that legal costs will be obtained. The only uncertainty, of course, is the amount that may be recovered, which is determined on a case-by-case basis.

Recovering expenses that are not legal costs at VCAT is simpler than at the Magistrates' Court as there is no need to change the manner in which a proceeding is conducted. At a substantive hearing, by s165 of the Act, VCAT may in one sitting determine an award for damages in addition to the fees, interest and legal costs claimed. As with legal costs, it must establish the basis for which recovery expenses should be ordered as damages. VCAT will only allow such recovery expenses where authorised by agreement and if it is reasonable to do so.

Conclusion

It would appear that the Owners Corporations Act 2006 has made the fee recovery process more complicated and uncertain compared to its predecessor, although it has made owners corporations accountable for their actions and brought clarity to the fee recovery process. Although there are problems with the Act, it does provide a fair and transparent mechanism for both owners corporations and their members to air their disputes. Further, it virtually ensures that owners corporations can recover their reasonable legal costs in fee recovery disputes where it is necessary to instruct a solicitor.


ANTHONY WILKINSON is a solicitor at TEYS Legal Pty Ltd, practising in strata, commercial and construction law in the Docklands, Melbourne. He has issued over 200 fee recovery proceedings at VCAT since the commencement of the Owners Corporations Act 2006.

1. Victoria, Parliamentary Debates, Legislative Assembly, 24 August 2006, 3082.

2. "Fee recovery dispute" means the litigious recovery of ordinary or extraordinary annual fees struck pursuant to the Act from a member of an owners corporation.

3. Owners Corporations Act 2006 (Vic), ss23(1) and 24(1).

4. Note 3 above, s31.

5. Note 3 above, s32.

6. Owners Corporation Nos 1, 2 and 3 PS503695G v Leach (Civil Claims) (unreported, 1 September 2008).

7. For further information on approved fee notices and final fee notice, go to www.consumer.vic.gov.au.

8. Note 3 above, s32(c).

9. The mailing address should be a physical Australian address, but there has been no ruling on this issue yet.

10. Apollo Marble and Granite Imports Pty Ltd v Industry + Commerce (Civil Claim) [2008] VCAT 2298 (14 November 2008).

11. Laurie v Carroll (1958) 98 CLR 310.

12. Owners Corporations Nos 1 & 2 PS501391P v Nguyen (Civil Claims) [2009] VCAT 450 (18 March 2009).

13. Note 12 above, para 22.

14. Fasham Johnson Pty Ltd v Ware [2004] VCAT 1708 (3 September 2004).

15. VCAT Act, s109(2) and (3).

16. Note 14 above, paras 7 and 12.

17. Owners Corporation No 1 PS432205W v Petrou & Petrou (Civil Claims) [2008] VCAT (unreported, 8 September 2008).

18. Owners Corporation 6514 v Carlson (Civil Claims) [2009] VCAT 889 (15 May 2009).

19. So that owners corporations are not unfairly penalised for another person's faults, s62(8)(d) of the VCAT Act should be amended so that the word "substantial" is replaced with "reasonable" as it would allow owners corporations managers to equitably establish that they have the necessary experience to properly perform the job necessary for their client. Thus the cost provisions under s109 of the Act could also extend to managers. The spirit of the VCAT Act would not be prejudiced by this amendment and innocent parties may not be as harshly penalised.

Comments




Leave message



 
 Security code
 
LIV Social
Footer