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Levy Arrears Recovery Time Limit Overturned

On 17 October 2017, we reported on a District Court of Queensland’s decision that barred a body corporate from recovering outstanding contributions where those contributions had been outstanding for more than two years and two months (view that article here).

This caused significant confusion and disrupted longstanding practices in the strata industry, as nearly every stakeholder had se up their systems on the basis that a body corporate was required to begin a recovery action within that 2 year 2 month period, but not precluded from doing so outside of that period.

The good news for bodies corporate across Queensland is that the decision has now been overturned by the Queensland Court of Appeal (view that decision here).

This case is a good example of how uncertain and fluid litigation can be, but that the legal system ultimately has led to a sensible outcome being reached.

The appeal
On 31 July 2018 the Court of Appeal delivered its unanimous decision that allowed the appeal from the District Court and set aside the decision to strike out that part of the body corporate’s claim that included levy contributions that had been outstanding for around 3 and a half years.
The Courts were considering section 145(2) of the Body Corporate and Community Management (Standard Module) Regulation 2008 (Qld) (the Regulation), which states:

“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 District Court Judge originally held that this imposed a 2 year 2 month period in which the recovery action must be brought, otherwise the body corporate would lose its right to bring any recovery action for the outstanding levies.

The Court of Appeal (comprised of three Judges) unanimously disagreed and held that section 145(2) of the Regulation does not lend itself to the position that recovery proceedings will be barred when they have not been commenced within 2 years and 2 months for these reasons:

1. Section 145(2) does not expressly state if a body corporate fails to commence proceedings within the time period that it will lose its right to make a claim for outstanding levy contributions in the future.

2. There is nothing unique about a claim for outstanding levy contributions that would support a limitation period of 2 years and 2 months applying instead of the usual 6 year limitation period afforded to debt disputes pursuant to the Limitations of Actions Act 1974 (Qld).

3. The government reasons for introducing section 145(2) into the legislation focus solely on compelling a body corporate to commence a proceeding and do not consider the interests of a defaulting lot owner, which one would expect to see in that reasons if a limitation period was being imposed.

So what does all that mean?
The Court of Appeal has confirmed that section 145(2) creates a duty for a body corporate to commence proceedings to recover the contributions within the 2 year and 2 month time period. Whilst failure to bring a proceeding within that time period may expose a body corporate to criticism by lot owners and lead to the filing of dispute resolution applications for breach of a statutory duty, it won’t render an outstanding levy unrecoverable unless 6 years has passed before a claim is made.

In our view, the Court of Appeal has made a sensible decision and one that is consistent with longstanding industry practices. Queensland’s strata industry can breathe a sigh of relief.
The only lesson to be learnt from this saga is that the law is fluid and full of surprises, but the system can ultimately lead to sensible and consistent decisions because of appeals.

This article was contributed by Jason Carlson of Grace Lawyers.

1/ Identical provisions are seen in section 143(2) of the Body Corporate and Community Management (Accommodation Module) Regulation 2008 (Qld), section 104(2) of the Body Corporate and Community Management (Commercial Module) Regulation 2008 (Qld), 79(2) of the Body Corporate and Community Management (Small Schemes Module) Regulation 2008 (Qld).

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