Can a Strata Body Corporate recover all of the legal costs it incurs when chasing outstanding Strata Levies?

It is quite common for civil legal action to leave successful Plaintiffs out-of-pocket in respect to their legal expenses, even if they obtain an order for the defendant to pay their legal costs.  An order for costs does not ordinarily cover the full cost of providing the legal service to the Plaintiff in the Proceedings.  The usual costs order is on a “party/party” basis which translates into approximately 60-70% of the actual costs incurred.

The Court of Appeal decision in Owners of Strata Plan 36131 v Dimitriou [2009] NSW CA27 (25 Feb 2009) considered an appeal from a decision of an Associate Justice of the Supreme Court (in his review of a Magistrate in the Local Court) and considered the scope of Section 80 of the Strata Scheme Management Act 1996 (the ‘Act’), the terms of which apply as following:

(1) An owner’s corporation may recover as a debt a contribution not paid at the end of one month after it becomes due and payable, together with any interest payable and the expenses of the owner’s corporation incurred in recovering those amounts.

For any legal recovery action in the Small Claims Division of the Local Court, the “actual costs” will grossly exceed the amount awarded in any costs order. The Small Claims Division of the Local Court has a “scale” fee which caps the maximum legal cost recoverable which is much less than the 60-70% referred to above.   

The Court of Appeal holds that the “difference” between the Costs Order and the actual costs incurred (subject to some limitations) can be added as an additional head of damage in any legal action.

Accordingly proceedings brought under this Act for contributions should claim the following:

1) The contribution (i.e. strata levy)
2) Interest under the Act
3) Legal costs incurred in seeking to recover the Contribution (Strata Levy).

The Court however, did not write a ‘blank cheque’ for Plaintiff’s solicitors to accrue legal costs.  The recoverability of expenses (including legal costs) under this section are subject to the following conditions:

1) The costs must be incurred in recovery of the contribution levy (not some other litigation).
2) The costs had to be reasonably incurred.

Comment from Mark Streeter Sydney Debt Recovery Lawyer

The Court did not make a “finding” as to whether or not the legal costs would be recoverable on a “party/party” basis or ‘indemnity basis’ and accordingly the guidance to Local Court Assessors and Magistrates hearing applications under this Act is limited to the above tests.

In conclusion – the short answer is NO – Strata Body Corporates are generally not able to recover all of their legal coasts when pursuing outstanding Strata Levies.

Will you be able to recover debts? It depends on the contract - whether written or verbal

In a recent decision by Justice Barrett on 31 August 2010 in the Supreme Court of New South Wales, the Court gave a helpful re-statement of the law relating to the “normal conditions” pertaining to the implication of terms.  (NASH v STEWART [2010] NSWSC 947). Justice Barrett quoted with authority, the case of BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266 as setting out the test where a contract in writing is apparently complete.

For a term to be implied, the following conditions must be satisfied:

1)      It must be reasonable and equitable.
2)      It must be necessary to give business efficacy to the contract so that no term will be implied if the contract is effective without it.
3)      It must be so obvious that it “goes without saying”
4)      It must be capable of clear expression.
5)      It must not contradict any express term of the contract

The Court also noted that the test is somewhat different where the contract is not written and the contract is informal. The Court then referred to the decision of Hawkins v Clayton [1988] HCA 15 as setting out the test as follows:

“If, but only, it can be seen that the implication of a particular term is necessary for the reasonable or effective operation of a contract of that nature in the circumstances of the case.”

The Court also noted that this was subject to the implication by mercantile usage such as the usual custom in a particular industry, professional practice, or past course of dealings between the parties.

Comment from Mark Streeter Sydney Debt Recovery Lawyer

Ascertaining the precise terms, and extent of those terms, is fundamental in the appraisal stage of ascertaining whether or not you have enforceable rights or remedy for recovery of a debt against another party. The law of contract requires that there be a term of the contract, which when breached, causes damages, as necessary prerequisite for a successful recovery action. 

The starting point is then to articulate what the terms of a contract are so that you can adduce the appropriate evidence to demonstrate that the terms have not been complied with.
 

It pays to act on overdue accounts

Every business needs to manage their cashflow. Overdue accounts can make this hard. This case study demonstrates how bringing in Streeterlaw Sydney Lawyers speeded up the process dramatically.

The Pain

• Aged debt in excess of 18 months owed to a corporation.
• Debt amount $10,000

The Debt Recovery Solution

Step 1

Rather than simply writing a letter to the last known address the Streeterlaw legal team went to work. A series of telephone calls and searches enabled the legal team to identify the correct contact telephone number for the director of the debtor company.

Step 2

A debt recovery letter of demand was dispatched informing them of the consequences of their failure to pay the debt within the prescribed time frame.

Step 3

An SMS was dispatched to the director's mobile phone number notifying him of the imminent arrival of the debt recovery letter and inviting him to contact our Sydney office to arrange payment.

Debt Recovery Result:

Full payment by cheque of the $10,000 debt was made within two days of dispatch of demand letter.

Debt Recovery Cost:

Debt recovery costs to the client were less than 1.2% of the value of the debt.

Client testimony:

“We don't know why we waited so long to get you involved - thanks for all your assistance and advice. We so rarely have any debtors that the commencement of legal action was outside of our comfort zone.

I have no hesitation in recommending Streeterlaw for the recovery of commercial debts - it certainly worked for us.”

What's your experience with Debt Recovery? Is it improving?

As a Sydney lawyer dealing with debt recovery and debt collection it was interesting to read the Sydney Morning Herald article business pay up more quickly. This article commented on the statistics from Dun & Bradstreet’s trade payments analysis which showed a fall in the payment terms for Australian businesses in the third quarter or 2009. This means companies are paying their bills sooner than they were previously.

Surely businesses have learned lessons from the global financial crisis and taken a more serious look at their engagements with their customers. Even if they were not directly touched by the financial meltdown, businesses had good cause to look at their debtors and assess their risk and exposure in the event their customers failed to pay what was owed.

As a lawyer helping Australian businesses in the ‘sharp end’ of credit control we have observed some changes. There is an increased focus on checking existing or potential customer’s credit worthiness. It appears to us that businesses are also spending extra attention on:
* ensuring that there is clear documentation that evidences payment terms
* tighter internal protocols that require orders be completed in writing by an authorized officer of the customer

A clear and common understanding of the terms of trade facilitates a more prosperous relationship for both customer and suppliers.  Uncertainty or misunderstanding can lead to dissatisfaction, objections and queries of accounts and consequential delays in payment.

Comment from Mark Streeter Sydney Lawyer

If you have clients not paying your invoices on time you should consider legal action. Often just bringing a legal firm into the situation can speed up the payment process.