Case Note: Owners Corporation 1 Plan No. PS735439F v Singh (Owners Corporations) [2022] VCAT 389

Case Note: Owners Corporation 1 Plan No. PS735439F v Singh (Owners Corporations) [2022] VCAT 389

This article was written by Justine Nguyen of our Melbourne office and published on our web site on 14th November 2024.

In this critical test case, VCAT made a ruling on three separate, but similar proceedings on reasonable costs incurred and claimable by Owners Corporations (together, ‘the test case’).

The test case provided guidance on how the phrase ‘reasonable costs incurred’ should be interpreted under section 165(1)(ca) of the Owners Corporations Act 2006 (Vic) (OC Act). It also clarified that the Tribunal should assess whether fees charged to an Owners Corporation (OC) by an OC Manager for tasks such as issuing final fee notices, conducting title searches, and preparing and issuing letters of demand through solicitors and/or debt collection agencies, are recoverable under section 165(1)(ca).

The Tribunal also elaborated the contrast between the Tribunal’s powers under s 109 of the Victorian Civil and Administrative Tribunal Act 1998 (Vic) (VCAT Act) and s 165(1)(ca)[1] (i.e., costs in the proceeding and costs other than costs in the proceeding), respectively.

The Tribunal chose three proceedings to run in the test case as examples of the types of matters that may arise relating to costs incurred in recovering unpaid owners corporations levies from lot owners.

In the first case (Singh), the OC sought to recover a cost of $86.90 for issuing a final fee notice and $26.26 for conducting a title search.

In the second case (Jones), the OC sought to recover $16.50 for issuing a final fee notice, $62.50 for the OC Manager liaising with lawyers and $264.00 for pre-litigation legal fees.

The third case (JDR Property Developers), the OC sought to claim $1,900.00 for the issuing of 19 final fee notices.

Interpreting s 165(1)(ca) of the OC Act

The Tribunal dissected the criteria of s 165(1)(ca) and what must be established before an order pursuant to s 165(1)(ca) is made by the Tribunal. Those elements include:

1. Is there an ‘OC dispute’?
2. Are the costs ‘incurred’ by the OC?

• Are the costs incurred ‘in recovering an unpaid amount from the lot owner’?

1. Are the costs ‘other than costs in the proceeding’?
2. Are the costs incurred ‘reasonable’ and does the Tribunal, in exercising its discretionary power, consider it ‘fair’ to make an order for payment by the lot owner?

‘Reasonable’ and ‘fair’ – the crux of the Tribunal’s consideration.

In determining whether the exercise of a discretionary power in making an order the Tribunal considers to be fair, the Tribunal ‘should be guided by a more common sense and practical considerations of whether the costs incurred appear to be reasonable and bear a level of proportionality… in an analogous manner in which the amount of costs might be awarded under s 109 [of the OC Act].’[2] In establishing whether a cost incurred was reasonable, it is not simply about the price or cost to the OC, but whether it was ‘reasonable’ for a particular service for which the cost was incurred to have been performed or engaged.[3]

The Tribunal saw it pertinent to consider the evidence required in order to establish whether costs were ‘reasonable’ and referred to the comments of Finkelstein J of the Federal Court of Australia, ‘because [the Tribunal] … is not bound by evidence [it] can act on any material that is helpful in coming to a decision. … [E]vidence relied upon must be logically or rationally probative of the fact to be determined.’[4] The Tribunal will lend consideration to whether the cost was reasonably incurred by the OC, whether the amount is reasonable, and the proportionality of the cost incurred and the amounts owing.

In deciding the element of ‘fairness’, the Tribunal considered the factors in s 167(1).[5] Factors the Tribunal noted relevant were the conduct of the parties, an act or omission by a party and any other matter the Tribunal thinks relevant.[6]

Decision

Singh

The title search sought to be claimed under s 165(1)(ca) was deemed to have been costs in the proceeding which had already been determined and awarded by the Tribunal, thus not able to be claimed again under this section. It was clear from the OC’s solicitor invoices’ descriptions that it had included all title searches which were conducted and/or ordered. This does not mean that title searches conducted before litigation commenced can be claimed under s 165(1)(ca).[7] However, the Tribunal will exercise its discretion on the evidence adduced in each particular case before it.

The Tribunal, turning its mind to the additional evidence provided by Mr Gregor Evans, ordered $70.00 to be paid to the OC, being a reasonable and fair amount. The Tribunal noted that it requires an evidentiary account justifying why the cost incurred by the OC is said to be reasonable.

Jones

The OC was allowed the full costs claimed being $16.50 for issuing a final fee notice, $62.50 for the OC Manager instructing a lawyer and $264.00 pertaining to pre-litigation costs.

The Tribunal noted the extensive affidavit evidence on issues of costs claimed under s 165(1)(ca) will not necessarily be required in future cases but rather, a paragraph as to why steps taken were reasonable to engage and why the amount charged to the OC is reasonable, in the Summary of Proofs, would likely be sufficient.

The OC Manager charged $16.50 for the issue of a final fee notice. The contract of appointment did not refer to any charges for issuing final fee notices but allowed the OC Manager to charge an hourly rate of $150.00 for instructing solicitors and/or debt collection agencies, prepare documents and supervise generally or attend hearings. The Tribunal noted, in the absence of evidence to the contrary, on proper reading, it was the objective of the parties by the words used, the OC Manager had a legal entitlement to charge the OC for a final fee notice at the hourly rate, or part thereof even though the contract was not explicit.

The Tribunal turned its attention to a clause purporting to authorise the OC Manager to charge costs relating to fee recovery to the relevant lot owner. The Tribunal stated it is not lawfully possible for an OC to either levy or charge costs relating to fee recovery to lot owners and also noted it is impossible for the OC Manager to charge said costs pursuant to a contract between it and the OC, to a person who is not privy to the contract.

JDR Property Developers

The costs claimed by the OCs in this case raised questions about the reasonableness and fairness of the costs incurred and claimed, especially due to the lot owner being charged twice for the same single notice for different OCs on the same plan of subdivision. The OCs claimed the costs were justified based on the contract of appointment and the resolutions passed at an AGM.

There were, however, discrepancies the Tribunal pointed out between the contract and the resolutions. The Tribunal found nothing in the contract authorising the OC Manager to charge additional fees for issuing a final fee notice, whereas the resolution relates to a charge of $100.00 for each matter that reach stage 3, being a legal notice which may be issued 3-4 weeks after a final fee notice is issued, per the debt collection process detailed in the AGM Minutes. Even if the resolutions authorised the OC Manager to charge an amount for issuing final fee notices, such resolution has no lawful effect and there is no statutory basis to charge the amount to the lot owner or to claim it as a ‘debt’.

Ultimately, the Tribunal considered it fair to award 80% of the amount of $55.00 for five final fee notices issued for OC3 and $20.00 for the four final fee notices in respect of OC1. The Tribunal ultimately dismissed the claims for the remaining notices highlighting the unlawfulness of certain practices relating to fee recovery processes and warns against such practices in future cases, indicating potential consequences for non-compliance with legal obligations, including the Tribunal exercising its discretion in making an adverse costs order or, refusing to award costs under s 109 it might otherwise have awarded.[8]

Conclusion

Regardless of what is considered ‘standard practice’ for OC Managers and Owners Corporations, VCAT’s position on the recovery of costs, whether related to the proceeding or not, is clear.

Resolving out of contractual obligations has no lawful effect and such resolution is invalid. Further, resolutions which purport to allow the OC Manager to on-charge any and all debt recovery fees to a delinquent lot owner, who is not privy to a contract of appointment, may not be viewed upon favourably by the Tribunal and may result in an adverse costs order or no costs order at all as above.[9]

[1] See ibid.

[2] VCAT Act.

[3] Singh  [152]-[154].

[4] Kavanagh v Chief Constable of Devon and Cornwall [1974] 1 QB 624; R v Deputy Industrial Injuries Commissioner; Ex parte Moore [1965] 1 QB 465.

[5] OC Act.

[6] Ibid ss 167(1)(a), (b) and (c).

[7] Ibid s 165(1)(ca).

[8] VCAT Act.

[9] Ibid s 109.

© Bugden Allen Group Legal Pty Ltd. All information contained in this article is of a general nature only and you should obtain specific legal advice in relation to any property-related affairs on any of the topics mentioned.