There are a number of misconceptions about the VCAT fee recovery process for Owners Corporations.
Owners Corporations that are not properly advised often assume that all items put on a Final Fee Notice are recoverable. Unfortunately, that is not the case. Administrative charges such as late payment fees are not recoverable. These charges sometimes total hundreds of dollars, which may be a significant percentage of the entire debt claimed.
A further misconception that exists is that once an Order has been obtained in VCAT the matter is at an end and the Owners Corporation will receive payment of the ordered amount immediately. Unfortunately, obtaining the Order is often just the beginning and it is often necessary to take enforcement steps through the Magistrates’ Court or through bankruptcy proceedings, which can mean it is only months later that the debt is finally satisfied.
For inexperienced lawyers, the most common misconception is that the standard of proof required in VCAT is less than that required in other jurisdictions. Even where the Respondent does not appear, the VCAT Member will require the Applicant to prove its case sufficiently and will scrutinise the evidence to ensure that the Orders being made are correct and appropriate.
Without doubt, the most overlooked steps occur before legal proceedings are commenced.
It is not uncommon to discover upon receiving instructions that the Owners Corporation Manager has been sending the Fee Notices to the wrong address and that the debtor has simply never received them and is unaware of the debt. It is imperative that as lawyers, we check the evidence carefully to ensure that no mistakes have been made by the client and that there is a proper basis for the claim.
Key issues to check for are:
An Owners Corporation must comprehensively set out each fee, charge or other sum claimed for on the Fee Notice and Final Fee Notice. Notes that simply refers to a ‘balance brought forward’ or ‘arrears from previous manager’ without previous Fee Notices that show the description and origin of that item, are not sufficient and that amount claimed may not be accepted.
Another step that is sometimes overlooked is making an effort to resolve the dispute prior to commencing proceedings. Often a letter of demand or a phone call is sufficient to prompt a debtor to pay the debt in full. This enables an Owners Corporation to save the costs of litigation and obtain payment of the debt faster. For this reason, we always recommend contacting the debtor to request payment prior to commencing legal proceedings.
VCAT has recently overhauled the fee recovery process to make it more efficient and less onerous on Applicants. The main change is that a pro-forma Statutory Declaration known as a Summary of Proofs has replaced the need for an Affidavit to be prepared and filed. Further, only the Fee Notice and Final Fee Notice are required to be filed, whereas in the past it was necessary to produce the Plan of Subdivision, minutes of meetings at which resolutions were passed to set the budget and other relevant documents. We stress that this new process largely applies to undefended proceedings. If a proceeding is defended the Applicant will still bear the burden of proving its claim and may well need to produce additional evidence to rebut any allegations made by Respondent.
Further, to adapt to the Covid-19 restrictions and the backlog of cases, VCAT is now determining most fee recovery matters ‘on the papers’. This means that if either party does not object, the VCAT member will review the material provided to it and make a determination and orders on the papers, without the appearance of the Owners Corporation or Lot owner. This has made the fee recovery process much more efficient, but it is unclear if this will continue once Covid-19 restrictions are lifted.
The issue of costs orders is certainly contentious within the Owners Corporation industry.
Many Owners Corporation expect that they should not be out of pocket for having to chase unpaid fees through VCAT and that upon succeeding in their proceeding a costs order should be made on an indemnity basis to enable it to recover all the legal costs incurred.
On the other hand, many people view VCAT as being a no-costs jurisdiction.
Section 109 of the Victorian Civil and Administrative Tribunal Act 1998 makes clear that the award of costs is at the discretion of the VCAT Member and sets out the criteria for the Member to consider in deciding whether to make a costs order.
However, in practice, costs are almost always ordered in fee recovery proceedings. VCAT has a practice of awarding costs of a fixed amount, with the amount of costs ordered depending on the quantum of damages ordered to be paid.
The end result is that Owners Corporations are often left disappointed to not recover the full amount of legal costs incurred and the Respondent is left disappointed because they did not believe a costs order was a likely outcome.
Mark Lipshutz has practiced as a lawyer since 2009 and has gained experience in a top tier law firm and boutique law firms. In addition to completing a Bachelor of Laws, Mark has also completed a Bachelor of Commerce (Accounting) at Monash University.
Mark is passionate about providing a personalised service to clients that is designed around the premise that each client has different drivers and commercial objectives. Mark works with his clients to identify and focus on the primary objective and then develops and implements the appropriate strategy to achieve that objective. Connect with Mark via email or LinkedIn