Published tribunal order
Tenancy Tribunal case 9047084 — Tenancy dispute in Point Chevalier, Auckland
Decided 10 May 2024 · Published 10 May 2024 · Application 9047084
Landlord favoured
- Unit Titles
Order
Kia Jew Kang and Wetex Kang must pay Body Corporate No. 137295 $28,297.27 immediately, calculated as follows: DescriptionsApplicantRespondent Levies Body Corporate charges On charges $6,367.50 $975.50 $143.75
Legal costs in relation to unpaid levies above Legal costs in relation to enforcement action of prior order of the Tribunal Legal costs on appearances on 7 May 2024 and 20 February 2024. $6894.24 $12,000.00 $460.00
Interest as at 7 May 2024.$956.28 Filing fee$500.00
Total payable by Respondent to Applicant $28,297.27
Reasons
- There were two hearings in this matter. Both parties attended the first hearing, where the claims and the respondent’s submissions were heard. That hearing was adjourned, however, to allow the Body Corporate time to submit further documents. The second hearing was on 7 May 2024. An application to adjourn by the respondents was declined prior to the hearing. The respondents did not appear at the second hearing.
- The Body Corporate applies for recovery of unpaid levies, on-charges, interest, costs and the filing fee from the unit owner. The Body Corporate has also applied for recovery of costs in relation to enforcement of a prior Tribunal order (dated 10 February 2022) against the respondents (the prior order) by way of a writ of sale procedure undertaken in the High Court.
- I deal first with the claims for levies, on-charges and interest and then with the claims for costs.
Does the Unit Owner owe the levies and on-charges claimed?
- A unit owner must pay all body corporate levies and outgoings payable for the unit. See sections 80(1)(f) and 121(1) Unit Titles Act 2010.
- The Body Corporate has determined the levies payable and unit owner's share has been calculated according to their utility interest.
- The Body Corporate has fixed the due date for the levies to be paid, and the unit owner has not paid the levies by that date. See section 124(1) Unit Titles Act 2010. The Body Corporate has provided records to prove the amount claimed and ordered above.
- The unit owners do not challenge the obligation to pay the levies of $6,367.50. I am satisfied that this sum, ordered above, is owing by the respondents.
- Various on-charges are also sought, in the total sum of $316.25. This sum comprises $143.75 for a fire watch charge and two payment plan invoices totalling $172.50.
- The respondents do not challenge the on-charges relating to the fire watch, being $143.75. I find that the respondents must pay this sum.
- The levy repayment plan charges relate to a repayment plan agreed between the parties, in relation to which two invoices were rendered. The invoices are for $86.25 each, and they include a portion of the levy amount already invoiced, but also an admin fee of $28.75. I disallow the levy portion of these two invoices, because I am not satisfied that they are not part of the amounts included in the $6367.50, already invoiced.
- As for the $28.75 (x 2), I deal with these below under costs.
Is the unit owner liable for interest?
- If a unit owner fails to pay levies by the due date, interest accrues on the unpaid balance. A body corporate may charge interest up to 10% per annum. See section 128 Unit Titles Act 2010.
- The Body Corporate has resolved to charge interest at 10% per annum on unpaid levies. The Body Corporate has proved the amount of interest owing from the due date to the hearing date, as ordered above.
Is the unit owner liable for costs?
- There are two amounts sought for legal costs. The first relates to legal costs and attendances in relation to collection of the levies and charges referred to above. The amount claimed is $6,884.24. The second claim for costs relates to enforcement of the prior order. The costs amount sought is $15,325.55.
- I deal with each costs application separately. Cost relating to the above levies and charges
- The Body Corporate claims $6,884.24 by way of legal costs and $920 for Body Corporate administration charges incurred in collection with the sums ordered above. In addition, it claims the two administration charges referred to above of $28.75 each, relating to the repayment agreement ($57.50 in total). It also claims $200 per hour plus GST for the legal costs of appearing at the two hearings.
- Pursuant to section 124 UTA, and as resolved at meetings of the Body Corporate, the Body Corporate is entitled to recover any “reasonable costs” incurred by it in collecting unpaid levies as a debt due by the owner to the Body Corporate. In accordance with judgments (of the District Court and Court of Appeal respectively) in Body Corporate 162791 v Cheah 1 and Body Corporate 162791 v Gilbert, 2 the Tribunal must order that the reasonable costs incurred by the Body Corporate in recovering the levies, objectively assessed, be paid by a defaulting unit owner.
- The assessment of reasonableness of costs in connection with a contractual indemnity for reasonable solicitor and client costs was discussed extensively in Exuberant Ltd v Quinovic Management Limited 3 and, in the context, of s 124 of the 1 DC Auckland, CIV2014-004-0120, 24 June 2014. 2 [2015] NZCA 185. 3 [2021] NZ HC 3533. UTA, in Body Corporate 45131 v 88 CHI Ltd, where the approach taken in Exuberant was adopted and applied. 4
- The District Court in Body Corporate 45131 v 88 CHI Ltd summarised the basics of the relevant legal framework as: 5 a) the relevant test is as set out in section 124(2) of the Unit Titles Act – the Body Corporate is entitled to recover “any reasonable costs incurred in collecting the levy”; and b) solicitor and client costs are a category of costs that can be recovered under this provision; and c) the task is to assess the reasonableness of the solicitor and client costs that are claimed.
- Having set out that framework, the Court reviewed the relevant method to be applied in assessing the reasonableness of the solicitor and client costs, concluding: 6 ... the essential method is as follows: a) first, ask whether the work that was done was reasonably necessary; b) second, ask whether the amount charged for the reasonably necessary work was reasonable; c) in both instances the NZLS Rules and Rule 9 in particular are prime reference points when assessing reasonableness; d) third, test the analysis against other available reference points.
- At para [8], the District Court observed: 7 I make the following observations from the discussions on the cases and having regard to the way in which the methodology has been applied in the cases: (a) the exercise the adjudicator or the judge is engaged in is an objective one. The adjudicator or the judge must make a principled assessment of reasonableness against stated criteria; (b) the adjudicator or the judge must do the work required by the methodology, and in particular grapple with the available information on the specific tasks that were undertaken by the lawyers, and the amounts that were charged for them; (c) when doing that, the adjudicator or the judge must test the work and the invoicing against the realities of the legal market that we have, not an idealised or hypothetical standard; (d) the Rule 9 considerations are helpful in providing some structure to this assessment. Time expended is one of these factors but it is not the only factor; 4 CIV 2022 – 096 – 000494 [2023] NZDC 9036, at paragraph [5]. 5 Body Corporate 45131 v 88 CHI Ltd CIV 2022 – 096 – 000494 [2023] NZDC 9036, at paragraph [5]. 6 At [6], citing Exuberant Ltd v Quinovic Property Management Limited [2021] NZHC 3533 and other authorities. 7 Footnotes from the quote omitted. (e) if an adjustment to actual solicitor client costs is made, this should be explained with some specificity by identifying tasks that were seen to be unnecessary, or the necessary steps that were seen to have been overcharged in some way.
- The question of costs more recently arose in Body Corporate v Guierard. 8 In that case, the appellant argued that the Tribunal had, in purportedly relying on Exuberant, wrongly focused on the reduction of the solicitor client costs which were claimed. It argued that the Tribunal failed to undertake the basic exercise of assessing the reasonableness of the costs on an objective basis. Instead, it argued that the analysis had focused on the subjective views of the adjudicator as to whether the cost claimed were unreasonable.
- The District Court agreed with the applicant. His Honour Judge Clark found that the starting point is a statutory acceptance in section 124 of the UTA that solicitor client costs can be granted “as of right”. His Honour emphasised that the purpose of scale costs – typically low - is designed to give parties reasonable certainty of what costs can be awarded to a successful party in litigation. Those regimes are quite distinct from a parties’ ability to separately recover solicitor client costs, either by way of statute or under a contractual indemnity.
- The Court found that the Tribunal had misdirected itself, in failing to undertake any significant analysis of the actual costs claimed against the tasks and criteria set out in the authorities. The court was also critical of the adjudicator’s comparison to the court scale costs without any justification and found that that was one factor which should be applied, but only once all other factors were considered. Further, the Court found the adjudicator’s reference to what he believed to be “equitable” was a consideration that had no application in any objective assessment of solicitor client costs, especially where Parliament had imposed the right to seek indemnity costs.
- Finally, the Court recorded that the Applicant accepted that the approach in Exuberant will apply only where a Body Corporate is seeking to recover what are clearly exorbitant costs. Analysis
- I turn now to my analysis, dealing first with the costs claimed of $6,367.50 arising out of the non-payment of the general levies and charges referred to above.
- It is relevant to my assessment to start with the Rule 9 considerations, 9 as these lie at the heart of any costs assessment.
- Rule 9.1 provides that the factors to be taken into account in determining the reasonableness of a fee in respect of any service provided by a lawyer to a client include the following: (a) the time and labour expended: 8 [2023] NZDC 19645 9 of the Lawyers and Conveyancers Act (Lawyers: Conduct and Client Care) Rules 2008 (b) the skill, specialised knowledge, and responsibility required to perform the services properly: (c) the importance of the matter to the client and the results achieved: (d) the urgency and circumstances in which the matter is undertaken and any time limitations imposed, including those imposed by the client: (e) the degree of risk assumed by the lawyer in undertaking the services, including the amount or value of any property involved: (f) the complexity of the matter and the difficulty or novelty of the questions involved: (g) the experience, reputation, and ability of the lawyer: (h) the possibility that the acceptance of the particular retainer will preclude engagement of the lawyer by other clients: (i) whether the fee is fixed or conditional (whether in litigation or otherwise): (j) any quote or estimate of fees given by the lawyer: (k) any fee agreement (including a conditional fee agreement) entered into between the lawyer and client: (l) the reasonable costs of running a practice: (m) the fee customarily charged in the market and locality for similar legal services.
- I was not of course given access to the files held by the lawyers acting for the Body Corporate, as a costs assessor of the New Zealand Law Society might be, but I have viewed the time ledger associated with these costs, which represents a full record of all time recorded on the matter. I have also viewed a letter of engagement, which supplied hourly rates that would be charged by the authors working on the file. No quote or estimate for the work was provided. That is perhaps unusual, given that the lawyers involved must have a good understanding of the normal legal attendances for such work.
- The time recording software used by the lawyers is LawOffice 2014. It captures information such as the time recorded by the author and the nature of the attendance. A small snip is reproduced here: 15/09/202228DRAFTING0:18250.0075.0075.000.00
- 00 ltr and bill of costs $850.00 15/09/202228Email to0:12250.0050.00125.000.00
- 00 15/09/202228 BC Secretary and task
REVIEW
0:12250.00 SO.DO
- 000.00175.00 ledger 16/09/202228Email from0:06250.0025.00200.000.00200.00
- The narrations are brief but at a level I would expect with the nature of the work. Much of it is drafting and correspondence, as I would expect.
- I consider that the work entailed in preparing this application is commercial property work that is moderately specialist. Not a lot of lawyers do it.
- Most of the work done on the file was undertaken by legal staff with very low hourly rates, when considering the hourly rate for general commercial litigation work. For instance, Mr McFayden, who has done most of the work, is charged out at $200 per hour, plus GST. This is a low rate.
- I am satisfied that the material filed shows that: a) the work undertaken was likely similar to other applications of this nature, but still need to be checked and completed carefully. I consider that undertaking this sort of work is more than simply a box ticking exercise. b) to save cost, various aspects of the work were undertaken and charged out by staff at lower charge out rates, c) there appeared to be no double up between staff, and d) there were no unnecessary attendances.
- Even although the work might be regarded as somewhat formulaic, consistent with similar applications of this nature made before the Tribunal, I am satisfied that all of these steps that were undertaken are required to ensure the information is correct and the relevant material completed correctly with respect to this particular case. Just because the application might be regarded as generic or similar to many other applications does not mean a rigorous approach should not be taken to ensuring that the documentation is completed correctly.
- I find that the billing records disclose no inefficiencies or any inappropriate recording of time.
- Whether or not there is a conditional fee agreement in place is a rule 9.1 consideration I am required to take into account. I consider that this entails assessing whether or not the Body Corporate will be required to pay the full amount of the invoice claimed, in the event the applicant is unsuccessful in claiming those costs.
- During the first hearing of this matter on 20 February 2024, the Body Corporate solicitor advised that he was not sure whether there was such an agreement in place. He was requested to provide relevant information relating to whether or not there was such an agreement ahead of the hearing on 7 May 2024..
- An affidavit was provided by Clinton Baker, partner at the Law Firm who undertook the work, deposing that the invoice rendered to the Body Corporate was incurred by the Body Corporate and payable irrespective of the outcome of the hearing. He explained that his law firm, at its discretion, will hold off requiring the Body Corporate to pay the invoice until the outcome of the hearing is known but the Body Corporate still remains liable for those fees, regardless.
- I am therefore satisfied that there was no conditional fee agreement in place and that the costs have or will be paid by the Body Corporate.
- The amount claimed for costs in relation to collection of the levies is higher than the levy amount. This would normally give any adjudicator reason for pause. That said, by no means could the costs be considered exorbitant or out of kilter with market rates for the same sort of work.
- Overall, and standing back, I find the costs to be reasonable, taking into account the factors referred to above. The respondents are ordered to pay the sum of $6,884.24 to the applicant.
- The respondents are also ordered to pay the additional costs of two hours work for appearances at the two hearings at the hourly rate of $200 plus GST per hour, a total cost of $400.00 plus GST, or $460. The Body Corporate Administration charges
- I am also satisfied the Body Corporate administration charges of $920 are reasonable, as ordered above.
- The Body Corporate charges a set fee for every stage of the debt collection process, from monitoring compliance through to sending out reminders. These fees are all resolved in AGM minutes. Unit owners would be aware that costs are likely to follow in the event of default. If the Body Corporate is able to deal with the matter without having to refer the matter to a lawyer for collection then this is a reasonable step.
- I am satisfied, based on the submissions made, that these costs are reasonable and appropriate in the circumstances. Had payment been made following these reminders then it would have avoided the need to instruct solicitors.
- I also, for that reason, include in these costs to the two administration charges on the repayment plan ($57.50). I am not allowing that part of those invoices that relates to the levy because that has already been ordered to be paid. Costs in connection with the prior order
- On 10 February 2022, the Tribunal issued an order that the respondents pay $1850 in relation to costs for recovery of earlier levies and including the filing fee. That sum was not immediately paid by the respondents and the Body Corporate had to take a number of debt recovery steps in order to extract payment. Over time, the amount claimed ballooned, as will be explained below.
- The Body Corporate now seeks all costs relating to enforcement of that order from 4 November 2021 10 onwards.
- Mr McFadyen submitted that the enforcement action included a number of steps involving obtaining a charging order and certificate of judgement from the District Court and then a final order in the High Court followed by an application for a writ of sale. After that, the Body Corporate worked with the High Court Bailiff and Sherriff to enforce the order.
- The High Court order for sale, issued on 15 November 2023, included additional costs and disbursements and recorded that it included $795 for scale costs on a 1a basis. The total amount had by then had grown to $5,104.67 including all disbursements for the foregoing attendances. 10 the date of the hearing relating to the order of 10 February 2022
- Once the sale order was obtained from the High Court, in conjunction with the assistance of the Bailiff and the Sheriff, the amount ordered was eventually paid off over time by the respondents. The final payment was only made this year.
- The applicants have had significant attendances in undertaking the foregoing steps. Mr McFadyen, who did most of the work, assured me that there was no double up or excessive time recorded on the matter and that he has undertaken a number of similar enforcement actions before so there was no time wasted in upskilling.
- I would describe the work itself as of moderate complexity. Any lawyer starting from scratch to try and figure out how to do the foregoing work would certainly spend a bit of time working out what process to use and coming up to speed with what was required.
- Mr McFadyen submits that the work also involved much correspondence and attendances with both the Body Corporate and the respondents.
- A question arose as to whether the claim for costs could be considered res judicata or already decided, given the High Court had ordered costs of $795 be paid on a scale basis. It was for that reason that I requested further information about the High Court proceedings at the first hearing.
- Mr McFadyen submitted that the matter has not been decided; that there was no application submitted for payment of section 124 of the UTA costs to the High Court, only a simple request for scale costs. The questions of costs was not considered at all other than the automatic awarding of scale costs by the Registrar.
- I accept that the matter of section 124 costs has not been decided. I agree that I am not prevented by the fact of the sale order costs from hearing and determining the issue of section 124 costs up to the date of the High Court order, but I consider that the amount of costs ordered in the High Court for that same work ($795 worth) should be deducted from any costs I consider reasonable. The time ledger that was provided records that there were attendances recorded (and now claimed) leading up to the order for sale. It follows that the applicant should not be entitled to double dip or obtain an award from the Tribunal for essentially the same work.
- Once again, full time ledger records were provided to the Tribunal relating to all attendances. These show many attendances in the nature of drafting and correspondence, as I would have expected in a case of this sort.
- I am satisfied that the material filed shows that: a) the work undertaken was likely similar to other applications of this nature, but still need to be checked and completed carefully. I consider that undertaking this sort of work is more than simply a box ticking exercise. b) to save cost, various aspects of the work were undertaken and charged out by staff at lower charge out rates, c) there appeared to be no double up between staff, and d) there were no unnecessary attendances.
- I am satisfied that all of these steps that were undertaken are required to ensure the information is correct and the relevant material completed correctly with respect to this particular case. Just because the application might be regarded as generic or similar to many other applications does not mean a rigorous approach should not be taken to ensuring that the documentation is completed correctly.
- I find that the billing records disclose no inefficiencies or any inappropriate recording of time.
- In relation to the question of whether there is a conditional fee agreement in place, I note my observations above and find there to be no conditional fee agreement in place. According to Mr Baker, the costs set out in the invoice must be paid by the Body Corporate regardless of whatever order I make.
- Taking a “standing back assessment”, what troubles me with these costs is the fact that the total amount claimed is significantly out of proportion to the original amount in default and even the amount ordered by the High Court of $5,104.67. The amount claimed is now three times that sum.
- I consider that any assessment of reasonable costs would, on the facts of this case, take into account the value of the original unpaid amount, compared with the cost of recovery. Any reasonable commercial entity would always consider the merits of taking recovery steps when comparing the unpaid amount with the legal costs of recovery. There is no evidence of any quote or estimate being provided, so perhaps the Body Corporate was unaware of what the final costs would be. That is all the more reason why there might perhaps be some discount off time recorded in fixing the amount payable under the final invoice.
- I accept that this matter would have been of importance to the Body Corporate. But I consider that in the market for legal services, a reasonable assessment of costs would customarily involve a discount of time where there is a very low debt to be recovered.
- I therefore find the costs not to be reasonable because I consider: a) there should have been some discount off the time recorded to reflect the low value dollar amount of the debt, and b) there should be a deduction for the sale costs already ordered (and now paid).
- The discount should only be small, in the facts of this case. I find that reasonable costs for all of the debt recovery work referred to above arising out of the prior order, less the deduction for the scale costs already paid, to be $12,000. I base this figure that on what I consider reasonable costs would be, given the nature and importance of the work, the time recorded, and the other relevant rule 9.1 factors I have referred to above.
- Because the Body Corporate has succeeded with the claim I have reimbursed the filing fee. Section 176(1) Unit Titles Act 2010 and section 102(4) Residential Tenancies Act 1986.