Game-changing decision for body corporate debt recovery

October 5, 2017

A recent decision of the District Court in Townsville has seriously changed the legal landscape for bodies corporate who seek to recover levies from lot owners.

In BC for Mount Saint John Industrial Park CTS v Superior Stairs & Joinery Pty Ltd [2017] QDC 245, the body corporate commenced two separate proceedings, which were subsequently consolidated. Proceeding #1, which commenced 8 May 2013, related to debts owed by the lot owner for special levies charged by the body corporate from March 2010 to February 2014. Commencing on 6 October 2015, Proceeding #2 dealt with the recovery of ordinary levies for the period of January 2014 to July 2015. Each proceeding also sought penalty interest and recovery costs incurred.

The defendant filed an application seeking orders striking out the plaintiff’s claim and amended statement of claim in Proceeding #1. This was done on the basis that the claim disclosed no cause of action, or was an abuse of process because it had been brought outside the limitation period and was statute barred.

Section 145 of the Body Corporate and Community Management (Standard Module) Regulation 2008 (Standard Module), which has corresponding provisions in each of the modules under the Body Corporate and Community Management Act, provides:

145 Payment and recovery of body corporate debts

     (1)  If a contribution or contribution instalment is not paid by the date for payment, the body corporate may recover each of the following amounts as a debt—

      (a)  The amount of the contribution or instalment;

      (b)  Any penalty for not paying the contribution or instalment;

     (c)  Any costs (recovery costs) reasonably incurred by the body corporate in recovering the amount.

(2) If the amount of a contribution or contribution instalment has been outstanding for 2 years, the body corporate must, within 2 months from the end of the 2-year period, start proceedings to recover the amount.

The defendant successfully argued that s 145(2) of the Standard Module had the effect of excluding the application of s 10 of the Limitation of Actions Act 1974 (LAA), which provided a limitation period of six years for an action to recover a sum of money, because the specific time limit provided in the Standard Module “should override (have precedence over) the general limitation period referred to in the LAA”.

Judge Durward SC found that “the reference to the word must in the Standard Module is mandatory – the power is to be exercised. The discretion does not apply to the two-year period, but rather applies more generally to the particular circumstances of a lot owner and requires, as I have said, a specific resolution”.

The upshot

If this decision is not successfully appealed, it will represent a significant shift in the “common knowledge” about recovery of unpaid levies.

While the two-year time frame was always acknowledged, it was generally looked upon as being directed towards ensuring that committee members complied with their obligations to the body corporate and sought the prompt recovery of levies.

Bodies corporate and their managers must be vigilant in ensuring that unpaid levies are monitored and brought to the attention of their legal advisors with enough time to draft and file proceedings before their rights expire.

The consequences of body corporate managers failing to alert bodies corporate about the need to commence proceedings may not only see the body corporate foregoing its right to seek to recover from a lot owner, but may see the body corporate manager liable for the debt.

Your situation

If you need advice in relation to unpaid levies or wish to commence proceedings against delinquent lot owners, contact the Mahoneys litigation team.

Management Rights is a unique area of law in which Mahoneys has specialist skills. Our professional staff have practised extensively in that field for many years.