Can legal fees be recouped when chasing outstanding strata levies?

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 per cent of the actual costs incurred.

On February 25, 2009, the Court of Appeal decision in Owners of Strata Plan 36131 v Dimitriou [2009] NSW CA27 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 follows:

(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 (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:

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

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 costs when pursuing outstanding strata levies.

Written by Mark Streeter

The Director of Streeterlaw, Mark has been practicing Law since 1994. He has attained his Masters of Law in 1999 and in 2006 was awarded his Specialist Accreditation in Commercial Litigation. Mark is a member of ARITA, a graduate of the AICD and a member of AICM. A member of STEP, Mark enjoys working in the area of Wills and Estates. In 2020 Mark is the Chair of STEP NSW.

Call us on 02 8197 0105 to book an appointment with Mark Streeter!