Failing to be clear is fatal in litigation
In APX Projects Pty Limited v The Owners Strata Plan No. 64025, a lot owner attempted to:-
- argue that a large payment made to settle debt recovery proceedings should have been allocated to sinking fund levies rather than outstanding legal fees; and
- bring an action against the treasurer, on behalf of the owners corporation.
The owner failed on both counts.
In relation to the unpaid levies, the lot owner settled an earlier claim by the owners corporation in the sum of $101,653.31. It was agreed that, of this amount, $41,017.37 was properly credited towards outstanding administrative fund levies. The lot owner argued that the remaining $60,635.94 should have been credited towards outstanding sinking fund levies and that instead it was improperly paid to the owners corporation’s lawyers for outstanding legal fees.
The Supreme Court found that, in the absence of a specific direction by the lot owner as to how it wanted the payment to be allocated, the owners corporation was entitled to pay its legal fees from the settlement amount rather than credit the sum to outstanding sinking fund levies.
The Court found that the amount claimed by the owners corporation in the debt recovery proceedings had been “a mixture unascertained of administrative, sinking and special levies” and that the lot owner “made no attempt to secure an express agreement as to the application of” the settlement sum. In the circumstances, the Court found that the owners corporation was free to appropriate the settlement monies to the payment of administrative fund expenses, which included legal fees.
The lot owner also attempted to argue that the owners corporation’s treasurer was negligent in paying legal fees from what was properly sinking fund monies. In making that argument, the lot owner tried to stand in the shoes of the owners corporation – effectively trying to bring the case on behalf of the owners corporation, who would not otherwise bring it. This is known at law as a ‘derivative action’.
The Court found that the lot owner had no standing to bring that action, because it could not satisfy the court that it was “in the interests of justice”. In particular, the court found that before approaching the Supreme Court, the lot owner should have first made an application to the NSW Civil and Administrative Tribunal (NCAT), which has the jurisdiction to make orders which can take effect as if they were a resolution of the owners corporation, including an order that money must be recouped to the sinking fund.
For me, the key “take aways” from this case are:-
- When lot owners settle any debt with the owners corporation, they should clearly (and in writing) state how they wish their payment to be allocated.
- Lot owners seeking to bring novel actions such as derivative actions on behalf of their owners corporation, should first ensure they have exhausted all other avenues to address their complaint, including placing motions on the agenda of a general meeting and approaching the NCAT for appropriate orders.