Troublemakers Beware (QLD)

Lot owners held personally liable for judgement debt of their Body Corporate

In June of 2016, for the first time ever a District Court Judge made orders against five Lot owners that they pay to their Body Corporate all of the money that the Body Corporate had been ordered to pay to a sixth Lot owner. The decision is an important one for both Bodies Corporate and anyone involved in litigation with a Body Corporate. This first use of the power to make some Lot owners responsible for Body Corporate judgement debts, and not others, is something that all Bodies Corporate involved in litigation should be aware of.

Lot owners held personally liable for judgement debt of their Body Corporate. On 3 June 2016 his Honour Judge Robertson DCJ made the first ever order under section 314 of the Body Corporate and Community Management Act 1997. Five of the six Lot owners in the Donnelly House CTS 37465 were ordered to pay $130,000 to their Body Corporate, who owed that amount to the sixth Lot owner. Stratum Legal represented the successful sixth Lot owner, Mrs S.

Donnelly House CTS 37465 has had a troubled history. Most of that trouble has arisen out of a leaking roof and other defective works that occurred when the building was originally constructed.

The owner of the top floor Lot in the six Lot commercial complex Mr & Mrs S, succeeded in obtaining adjudicators orders in late 2012 that the Body Corporate undertake stated rectification works “as soon as reasonably practicable”.

Two years later the works were still not done. With Stratum Legal’s help Mrs S successfully applied to the Magistrates Court for (the first ever) orders under section 287 of the Act. On 27 March 2015 Magistrate Madsen made orders to appoint an Administrator to the Body Corporate for the purposes of causing the Body Corporate to comply with the Adjudicator’s orders of 2012.

The Body Corporate appealed. On 3 June 2016 Mrs S won the appeal. Magistrate Madsen’s orders were upheld with minor additions, costs were ordered against the Body Corporate (for both the Magistrate and District Court proceedings) and liberty to apply on 3 days’ notice was granted.

For most of the dispute between Mr & Mrs S and the Body Corporate, five of the six Lots in the scheme were owned by members of the Donnelly family; father Raymond, mother Jennifer (a practicing solicitor) and daughter Sarah. In April of 2014 one of the Lots was transferred to a Mr & Mrs Smith, as trustee. Twelve days after Mrs S won the appeal, Jennifer Donnelly transferred her joint interest in three of the Lots in the scheme to her husband Raymond. Jennifer and Raymond later gave evidence that this transfer was part of a property settlement between them.

On 15 February 2016 Mrs S’s court ordered costs were assessed at a little over $130,000.

In his 5 June 2015 reasons for decision his Honour Judge Robertson DCJ had said, in respect of his order that the Body Corporate pay Mrs S’s costs, that “it goes without saying that (Mrs S) should not have to contribute to any levy struck in order to satisfy the costs order.”

In March of 2016 the Body Corporate proposed a motion to raise the necessary special contribution (levy) to pay the costs order, but proposed no steps to exempt Mrs S. In response Mrs S invited the Body Corporate to continue to raise the levy but to forgive her portion (to forgive the debt).

The Body Corporate refused.

Mrs S applied to the District Court for an order under section 314 to give effect to the judge’s decision given nine months before. That is, Mrs S sought orders that the $130,000 in costs be paid, to the Body Corporate, by each of the other Lot owners in the same proportion as their contribution schedule Lot entitlements (which were all equal). Further, Mrs S sought an order that Raymond and Jennifer Donnelly be both jointly and severally liable for the portion payable in respect of the three Lots currently owned by Raymond Donnelly, but which had at the time of the judgement given on 5 June 2015, been owned by Raymond and Jennifer jointly.

At the hearing of Mrs S’ application each of the Body Corporate, Mrs S and the other Lot owners (as a bloc) were separately represented. The Body Corporate and the other Lot owners resisted the orders sought by Mrs S including on the basis that they would suffer prejudice if the orders were made. Jennifer Donnelly argued that she had changed her position since the 5 June 2015 orders (and was therefore also no longer “an owner” for the purposes of s314).

The Body Corporate and other Lot owners argued that on a proper construction of section 314 Mrs S’ application was out of time. Particularly, the Body Corporate and other Lot owners argued that when read properly an order under section 314 can only have been made while ‘proceedings’ were on foot; i.e. before the Body Corporate’s appeal was decided on 5 June 2015.

In reply Mrs S pointed to the ‘liberty to apply’ order and that, in accordance with well-established legal principles, the grant of liberty to apply allowed a court to “work through” its earlier (5 June 2015) orders. Accordingly, there were still ‘proceedings’ on foot.

While that argument was rejected, Mrs S succeeded in her argument that orders under section 314 could still be made even if the original proceeding (the appeal) had been decided (by the orders of 5 June 2015). Robertson DCJ found that section 314 was almost tailor made for the present case, and that whilst there had been some delay between judgement being given and the section 314 application being made, it was appropriate to exercise his discretion to grant the relief sought.

On the issue of potential prejudice His Honour noted that the other Lot owners were on notice that Mrs S was seeking costs against the Donnelly’s directly because she had made, and served, submissions on point in the Magistrates Court proceedings.

As to Jennifer Donnelly no longer being a Lot owner and therefore beyond the reach of section 314, Robertson DCJ interpreted section 314 as allowing an order to be made as against present and past owners of Lots within the scheme.

His Honour was critical of Jennifer Donnelly and particularly that despite her own evidence that she was no longer involved in the dispute, she had been the controlling mind of the Body Corporate at relevant times and that even after the transfer of her interest in the three Lots to her husband Raymond, she had continued to play an active role in the dispute.

The decision is significant. If one or more owners cause or exacerbate litigation that their Body Corporate is involved in, and they control or influence the Body Corporate in that litigation to the detriment of another party, then an order against those owners may be available under section 314.

In most cases it is envisaged that a form of order similar to that which Mrs S obtained will be sought; in essence an order that the successful owner litigant not contribute towards paying, as contributions (levies), the costs that their Body Corporate was ordered to pay to them.

If you would like advice about orders under section 314 whether you are an owner or a member of a committee, Stratum Legal is able to assist.

This article was contributed by Michael Kleinschmidt from Stratum Legal.