Is There An Exemption For Costs Recovery in ACT Unpaid Unit Title Levies Cases?

Commercial

minutes reading time

DATE PUBLISHED: May 6, 2022

key takeaways

  • In the ACT Civil and Administrative Tribunal, you're generally unable to recover your legal costs unless in special circumstances.
  • However, the last few years have seen the Tribunal making exceptions to this rule for matters involving the recovery of unpaid strata levies.
  • In some cases, owners corporations are permitted to recover their 'expenses' from a member. These expenses can include legal costs and disbursements for pursuing members for not paying their levies.

In ACT Courts (except for special circumstances), a successful party to litigation is usually entitled to recover its legal costs from the unsuccessful opponent. However, a unique and distinguishing feature of the ACT Civil and Administrative Tribunal (ACAT) is that it is a no costs jurisdiction.[1] 

A no costs jurisdiction means that a party to a proceeding commenced in the ACAT is usually unable to recover, except in specific circumstances, its legal costs incurred in either prosecuting or defending a claim or proceeding.

Historically, permitted exceptions to the no costs rule have been limited, as evident from the most recent Tribunal decisions. However, it appears the Tribunal is prepared to make an exception to this rule in matters involving the recovery of unpaid strata levies. 


what are the laws on recovering legal costs?

Over the last few years, the Tribunal has demonstrated a willingness to permit the recovery of legal costs as ‘expenses’ incurred by owners’ corporations pursuant to section 31 of the Unit Titles (Management) Act 2011 (UTMA).

Section 31 of the UTMA provides that:

  1. This section applies if an owner’s corporation for a units plan has in carrying out its functions incurred an expense, or carried out work, that is necessary because of—
    1. A wilful or negligent act or omission of a member of the corporation, or an occupier of the member's unit; or
    2. 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 owner’s corporation from the member as a debt.
  3. If the owner’s 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.
  4. In this section:
    1. "Expense", includes a reasonable legal expense reasonably incurred, including a legal expense relating to a proceeding in the ACAT.
    2. "Work", carried out by an owner’s corporation, means maintenance or anything else the corporation is authorised under this Act to do.

Section 31(1) of the UTMA permits the recovery of ‘expenses’ incurred by an owners corporation from a member ‘as a debt’ pursuant to section 31(2)’ of the UTMA.[2] As discussed below, these ‘expenses’ can include an amount for legal costs and disbursements incurred by an owner’s corporation in pursuing members for non-payment of levies. This article explores the test applied by the Tribunal when awarding legal costs and disbursements pursuant to section 31 of the UTMA and, briefly, the types of legal costs and expenses so far permitted by the Tribunal to be recovered.


relevant principles

The proposition that legal costs may be recoverable pursuant to section 31 of the UTMA originates from the ACT Civil and Administrative Ruling Tribunal (Ruling Tribunal) In the matter of the Ruling Tribunal Section 31 of the Unit Titles (Management) Act 2011 [2017] ACAT 56 (Ruling Tribunal Decision). In this matter, the Ruling Tribunal held that legal professional costs and disbursements incurred by owners’ corporations in proceedings involving recovery of unpaid levies were considered ‘expenses’ for the purposes of section 31 of the UTMA if:

‘…it was reasonable for the owner’s corporation to incur expenses of the type described … and the amount of each component of the expenses sought is reasonable.’[1]

This test, as prescribed by the Ruling Tribunal, is known as the ‘double reasonableness test’. Simply put, the ‘double reasonableness test’, requires the legal costs and disbursements of an owner’s corporation to be:

  • Reasonably incurred; and
  • That the amount of each component sought to be charged at a reasonable rate.

On the assumption the above criteria are satisfied then, such legal costs and disbursements, according to the Tribunal, may be recovered as an ‘expense’ pursuant to section 31 of the UTMA. 


 

application - what does 'Reasonably incurred' mean?

In the matter of Black, the Tribunal held that for costs to be ‘reasonably incurred’, the costs were required to meet both the requirements of section 31 of the UTMA and the double reasonableness test.[4] In this regard, section 31 of the UTMA requires firstly, that the costs be ‘necessary’. In the Proprietors Units Plan No. 52 v Gold,[5] the Full Federal Court adopted the views expressed by Allen J in the State Drug Crime Commission of NSW v Chapman (1987) 12 NSWLR 447 at 452, being that the word ‘necessary’:

‘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 common-sense way.’[6]

The Full Court’s views posit that the benchmark for what will be found to be necessary appears to be that the work is reasonably required.[7] What is ‘reasonable’, however, is more complex. Referencing the Ruling Tribunal,[8] what is ‘reasonable’ will likely turn on the individual facts of the case having regard to:

  • The amount of the debt to be recovered;
  • The parties; and
  • Any other relevant considerations such as the amount of costs sought compared to the debt.[9] 

Further, the expense incurred must also be a reasonable ‘legal expense’ which means it must be incurred in the undertaking or completion of legal work.[10] With the ‘double reasonableness test’ at the front of mind, the question you must be asking is whether the Tribunal has given any indication as to the types of legal fees and disbursements it would consider to be ‘reasonably incurred’? The answer is yes. 

A review of the recent case law suggests that some of the legal expenses found to be reasonably incurred by the Tribunal have included tasks such as:

  • The drafting of correspondence;
  • Documents;
  • Telephone calls; and
  • Meetings between solicitors, clients or Counsel. 

They have not been found to include administrative tasks such as printing, filing and the drafting of file notes and the like.[11] 

Separate but in addition to the above, disbursements reasonably incurred have been found to include:

  • Company title and other searches;
  • Filing fees;
  • Hearing fees; and
  • Administrative costs such as agency fees.[12] 

The scope of legal costs and disbursements that could be found to be ‘reasonably incurred’ is potentially, and with reference to the above, very broad and likely limited only by the jurisdictional limit of the Tribunal.

To date, there are limited findings and/or discussions on the second limb of the ‘double reasonable test’ being the amount of each component sought to be charged and whether such components are charged at a reasonable rate. We attribute this to the likely existence of costs agreements between legal representatives and owners’ corporations which would govern the charge out rate to the applied and the basis upon which the owner’s corporation would be billed. 

Due to the ‘double reasonableness test’, discretions still exist for the Tribunal to find that the time taken to complete a task or the rate charged in association with that task was unreasonable. This means the legal costs or, indeed, disbursement would be unrecoverable.


[1] ACT Civil and Administrative Tribunal Act 2008 (ACT) s 48(1).

[2] The Owners – Units Plan No 3182 v Black & Anor (Civil Dispute) [2018] ACAT 6 at [10].

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

[4] The Owners – Units Plan No 3182 v Black & Anor (Civil Dispute) [2018] ACAT 6 at [39]

[5] Units Plan No. 52 v Gold (1993) 44 FCR 123.

[6] The Owners – Units Plan No 3182 v Black & Anor (Civil Dispute) [2018] ACAT 6 at [31].

[7] Ibid at [33].

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

[9] The Owners – Units Plan No 3182 v Black & Anor (Civil Dispute) [2018] ACAT 6 at [35], [44], [46].

[10] Unit Titles (Management) Act 2011 s31(4)(a).

[11] The Owners - Units plan No 1447 v Carroll (Civil Dispute) [2022] ACAT

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

conclusion

In light of the above, it's evident that a special exemption exists for the recovery of reasonable legal costs and disbursements in matters involving unpaid unit title levies. The scope of this exemption and whether legal costs and disbursements are ‘reasonably incurred’ appear subject to much discretion. Whilst it is unlikely that an owner’s corporation will recover the entirety of their costs, this exemption is certainly promising in terms of compensating an owners corporation for its costs incurred in the recovery of statutory funds from a member.

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