Strata levy recovery: the requirement for expenses to be reasonable, but not proportionate
The NSW Supreme Court has reminded us of the requirement for section 80 levy recovery expenses to be ‘reasonably incurred’ and ‘reasonable in amount’. If there is any doubt, costs will be referred for assessment.
IIB Australia Pty Ltd v Owners Strata Plan 76024 (No 2)  NSWSC 929 (16 July 2015) was an appeal from a decision of the Local Court. In the Local Court proceedings, the Owners Corporation claimed against a lot owner:-
a) levies of $9,188.69.
b) interest of $457.09.
c) recovery costs $12,989.29.
In its defence, the lot owner disputed the reasonableness of the recovery costs component.
By the first day of the final hearing, the lot owner had paid the outstanding levies. All that remained in issue was the claim for recovery costs. The small amount of interest was not actively disputed.
As the proceedings continued towards judgment, costs increased and the claim escalated correspondingly.
At the hearing, the Owners Corporation relied upon the evidence of a costs assessor, Mr Campbell. In Mr Campbell’s opinion the Corporation’s reasonable recovery expenses, inclusive of fees charged by the strata management company and the assessor’s own fees, were $70,509.78 (including interest of $28,000).
The Magistrate identified that the question he had to decide was whether the costs claimed were reasonable, including whether the work done was reasonably required.
From the outset the Magistrate expressed misgivings as to whether he was “equipped” to make a determination of the reasonableness of the costs of recovery. He accepted the evidence of Mr Campbell, as “reliable evidence as far as it goes”. However his Honour expressed a reservation about deciding the reasonableness of quantum on the basis of Mr Campbell’s evidence because Mr Campbell was the Owners Corporation’s witness, not an impartial assessor taking into account any input from the lot owner.
The Magistrate noted that the total amount claimed for costs was high for a simple claim in debt of a small sum – albeit that he found the manner in which the lot owner (who was unrepresented) had defended the proceedings had “driven up costs”
The Magistrate followed the course approved by the majority in the Dimitriou case and referred the expenses for assessment.
An assessor appointed by the Supreme Court ultimately assessed the “fair and reasonable amount of costs” to be $65,633.51.
The lot owner appealed on a number of grounds, the only one worth mentioning is the lot owner’s assertion that the Magistrate should not have allowed recovery expenses to the extent that they are not ‘proportionate’ to the unpaid levies being recovered.
In dismissing the appeal, the Supreme Court found there is no such legal principle: a defaulting lot owner may be held liable for expenses that are reasonably incurred and reasonable in amount. A test of proportionality does not have to be applied.
The Supreme Court observed that the Magistrate’s referral of the costs to assessment was “an aspect of his scrupulous fairness” to the lot owner throughout. The Magistrate was concerned about the substantial amount of costs attested by the Owners Corporation’s expert witness. He recognised that costs had been driven up by the lot owner’s unreasonable conduct, nevertheless he did not wish to see the lot owner held liable to pay any more than was reasonable.
The Magistrate properly took a course which would subject the Owners Corporation’s claim to skilled scrutiny.