Judge McGill famously said “contributions and levies are the lifeblood of bodies corporate in much the same way as taxes are the lifeblood of the state“.[1] What His Honour sought to emphasize is how important contributions and levies are to the successful maintenance and administration of a Body Corporate

But what happens if lot owners don’t pay their levies? Worse still, what happens if a Body Corporate is forced to commence Court proceedings to recover unpaid levies?

This article includes some important tips and advice when it comes to dealing with levy recovery proceedings.

Usual steps in levy recovery proceedings

1. To initiate levy recovery proceedings the Body Corporate first:
   • files and serve on the Lot Owner (Owner) the Claim and Statement of Claim (Claim); and
   • pays the relevant filing fee to the Court (usually around $250.00).
2. The Owner, if they elect to defend the Claim must file and serve a Notice of Intention to Defend and Defence 28 days of being served with the Claim (Defence).
3. The Body Corporate must file and serve its Reply within a further 14 days of being served with the Defence (Reply).
4. The parties must complete disclosure within 28 days of the Reply (Disclosure).
5. The parties must participate in a compulsory settlement conference, usually within 60 days of completing Disclosure (Mediation) – subject to any other steps.
6. If the dispute is not resolved at Mediation, a final hearing which will be allocated by the Court. The date for this is dependent on the Court’s availability (Final Hearing).
7. Typically, the Final Hearing will occur within 3 to 6 months of the Mediation.

How long will the proceedings take?

Proceedings typically take between 6 and 12 months from making the Claim to the Final Hearing. This is subject to a number of variables.

Risks for Body Corporate

The main risk is that the Body Corporate has failed to comply with its statutory requirements for levy recovery proceedings (Statutory Requirements). If a Body Corporate fails to comply with any of the Statutory Requirements, it may lose some or all of its claim at Final Hearing if the Claim is defended.

The most critical Statutory Requirements are:

• Resolutions – the Body Corporate must ensure that the following resolutions have been properly approved at a General Meeting, by Ordinary Resolution: –
  • contributions sought from the Owner – for each year; and
  • any resolution approving penalty interest.
• Address for Service – the Body Corporate must ensure that it has the correct address for service being the same address notified to it by the Owner and relevant levy notices were sent to the correct address for service of the Owner;
• Payments – the Body Corporate must ensure that all payments from the Owner have been applied in the correct order of preference; and
• Proceedings – if a contribution has been outstanding for 2 years, the Body Corporate must commence proceedings

At the Final Hearing, the Body Corporate will be required to give evidence under that all of the Statutory Requirements have been complied with, if they are disputed.

Total cost of the Proceedings

It is not uncommon for a Body Corporate to incur costs of $20,000.00 – $40,000.00 plus GST and disbursements or more in levy recovery proceedings that go to Final Hearing. A Body Corporate will easily incur costs of $10,000.00 – $15,000.00 plus GST for the Final Hearing alone (Trial Costs). The Trial Costs may be more or less depending on:

• the issues in dispute;
• how long the final hearing takes; and
• whether the Body Corporate engage a barrister to represent it.

The amount of unpaid levies being claimed does not substantially affect Trial Costs. In other words, whether a Body Corporate is looking to recover $1,000.00, $10,000.00 or $50,000.00, the Trial Costs do not alter greatly.

Recovery of costs

A Body Corporate will almost never recover 100% of its costs, even if it wins. Body Corporates usually recover between 50% and 80% of its costs. So, if the Body Corporate incurs costs of $20,000.00 and wins, it will most likely still be out of pocket, possibly up to $10,000.00.

In the Body Corporate for Sunseeker Apartments v Jasen [2009] QDC 162, Newton DCJ held that it was reasonable for the Body Corporate to incur recovery costs of $41,445.91 in respect of unpaid contributions of $34,295.85 because:

• the Defendant caused unnecessary delays in the litigation; and
• the Defendant, through her failure to pay levies, forced the Body Corporate to issue

As such, it is not uncommon for Bodies Corporate to incur recovery costs that are equal to or greater than the unpaid levies. Ultimately, this is determined on a case by case basis.

Settlement and Special Reasons

The vast majority of levy recovery cases are settled without the need for a Final Hearing, meaning the Trial Costs are never incurred. It is important right from the outset that the Body Corporate turns its mind to settlement options, the most common of which is a repayment arrangement.

The Body Corporate also has fairly wide discretionary powers to retrospectively permit a discount or waive any penalty interest if the Body Corporate is satisfied there are “special reasons” for this (Special Reasons). This gives the Body Corporate greater flexibility when negotiating a settlement.

The Body Corporate should also be prepared to incur non-recoverable internal “costs”: These would include, for example, the time incurred and emotion spent by members of the Committee who have carriage of the matter on behalf of the Body Corporate. Typically, a member of the Committee will need to attend any Final Hearing. The matter often becomes protracted. We, as the lawyers for the lawyers for the Body Corporate often do not have any control as to what the Owner will do or throw up in Defence. This is often irrelevant content which nevertheless needs to be dealt with and may become time consuming and, frankly, tedious for the Committee.

This article was contributed by Mario Esera, Partner – HWL Ebsworth Lawyers

 

[1] See Body Corporate for Sunseeker Apartments CTS 618 v Jasen [2012] QDC 51 at [26]

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