Body Corporate for Kuranda Resort Accommodation v Cairns Tropical Resort Pty Ltd [2024] QSC 121

SUPREME COURT OF QUEENSLAND CITATION: Body Corporate for Kuranda Resort Accommodation CTS 30745 v Cairns Tropical Resort Pty Ltd ACN 668 622 713 [2024] QSC 121 PARTIES: BODY CORPORATE FOR KURANDA RESORT ACCOMMODATION CTS 30745 (Plaintiff) v CAIRNS TROPICAL RESORT PTY LTD ACN 668 622 713 TRUSTEE UNDER INSTRUMENT 7222835961 (Defendant) FILE NO/S: BS 14725/23 DIVISION: Trial Division PROCEEDING: Claim ORIGINATING COURT: Supreme Court at Brisbane DELIVERED ON: 7 June 2024 DELIVERED AT: Brisbane HEARING DATES: 27 and 29 May 2024 JUDGE: Freeburn J ORDERS: 1. The defendant’s application to amend is dismissed. 2. I will hear the parties on further directions for the trial and on costs. CATCHWORDS: PROCEDURE – CIVIL PROCEEDINGS IN STATE AND TERRITORY COURTS – COURT SUPERVISION – AMENDMENT – ORIGINATING PROCESS, PLEADINGS ETC – where the plaintiff, a body corporate, commenced proceedings for unpaid levy contributions and other claims – where the defendant was delayed in filing its defence, leading the plaintiff making two attempts at default judgment – where the parties agreed on a trial date – where the defendant had various changes in representation, including being self- represented – where the defendant did not file and serve material in non-compliance of court orders – where the defendant brought an application to amend its defence to add two substantive matters, approximately two weeks before the trial date – where the defendant offers to pay the plaintiff’s costs – whether the defendant can amend its defence pursuant to the discretion of the court under rule 375 of the Uniform Civil Procedure Rules 1999 (Qld) -- 1 of 10 -- 2 Uniform Civil Procedure Rules 1999 (Qld) r 5, r 375 Aon Risk Services Australia Ltd v Australian National University (2009) 239 CLR 175; [2009] HCA 27, applied COUNSEL: R Varshney for the plaintiff S Moody for the defendant SOLICITORS: Herd Law for the plaintiff MBA Lawyers for the defendant REASONS [1] The defendant, Cairns Tropical Resort Pty Ltd, seeks the court’s leave to amend its defence so as to add two new substantive defences. The application was made just over two weeks before the one-day trial which is fixed for 13 June 2024. Cairns Tropical Resort offers to pay the plaintiff, Body Corporate for Kuranda Resort Accommodation CTS 30745, its costs of the application and the costs thrown away by the amendment and any adjournment of the trial. [2] The Body Corporate resists the application to amend. Amongst other reasons for its resistance, the Body Corporate argues that allowing the amendment to the defence will imperil the trial date. The Discretion to Amend [3] Rule 375 of the Uniform Civil Procedure Rules 1999 gives the court a discretion to permit an amendment to a pleading. The content of rule 375 is substantially the same as rule 502 of the Court Procedures Rules 2006 (ACT) considered by the High Court in Aon Risk Services Australia Limited v Australian National University.1 The relevant considerations derived from that case may be summarised in this way: (a) An order that the amending party pay the costs occasioned by the amendment is not necessarily “a panacea that heals all”;2 (b) The strain that the litigation imposes on litigants, including corporate litigants, is a relevant consideration;3 (c) The objectives of rule 5,4 that is, the just and expeditious resolution of the real issues at a minimum of expense, does not require that the court refuse applications to amend; (d) the waste of some costs and some degree of delay are inevitable consequences of amendment; that waste and delay, and the extent of it, are relevant considerations;5 1 (2009) 239 CLR 175. Note that the in the course of argument Counsel referred to some passages of the High Court’s judgment which considered rule 501 of the Court Procedures Rules 2006 (ACT). That rule is different. For present purposes, it is necessary to consider those parts of the judgment referred to the broader discretion under Rule 502. 2 (2009) 239 CLR 175 at [99]; Cropper v Smith (1884) 26 Ch D 700 at 711. 3 (2009) 239 CLR 175 at [100], [101]. 4 In Aon Risk, the equivalent ACT rule was Court Procedures Rules 2006 (ACT) rule 21. 5 (2009) 239 CLR 175 at [102]. -- 2 of 10 -- 3 (e) The nature and importance of the amendment to the party applying to amend cannot be overlooked;6 (f) Factors weighing against allowing an amendment may be: (i) the extent of the delay; (ii) the costs associated with the delay; (iii) the prejudice which might reasonably be assumed to follow; (iv) any prejudice that is shown.7 (g) Much will depend on the point the litigation has reached relative to a trial when the application to amend is made;8 (h) A factor to consider is whether the party seeking to amend has had a sufficient opportunity to plead their case and whether it is too late to amend having regard to the other party and other litigants awaiting trial dates;9 (i) The exercise of the discretion will invariably require an explanation to be given where there is delay in applying for amendment;10 (j) An applicant will need to show that the application is brought in good faith as well as the circumstances giving rise to the amendment so that they may be weighed against the effects of any delay and the requirements of rule 5.11 Delay/Stage of Proceedings [4] It is convenient to, first, consider the extent of the delay and the stage of the litigation at which the amendment was sought. [5] On 20 November 2023 the Body Corporate commenced these proceedings claiming $1,638,457 for “unpaid levy contributions up to and including 30 September 2022”. The claim also sought $156,780 for “recovery costs owing up to and including 15 November 2023, calculated on an indemnity basis”. In the alternative to that second claim, the Body Corporate sought “an amount calculated on the standard basis for costs reasonably incurred by the Plaintiff in recovering the Debt”.12 The claims also sought “penalty interest” and further recovery costs. [6] When no defence was filed within time the Body Corporate’s solicitors made two attempts to obtain default judgment. The first failed because of a technical problem with the material. The second failed because, on the same day as default judgment was sought, 22 January 2024, a notice of defence was filed. [7] That defence was filed by Cairns Tropical Resort itself although the email address given is that of Mr Douglas McCoy who is the father of Ms Emma McCoy, the sole director of Cairns Tropical Resort. An affidavit filed by Cairns Tropical Resort’s 6 (2009) 239 CLR 175 at [102]. 7 Ibid. 8 Ibid. 9 Ibid. 10 Ibid. The adequacy of the explanation is also a relevant factor. 11 (2009) 239 CLR 175 at [103]. 12 Presumably the expression “the Debt” refers to the first claim for approximately $1.6m. -- 3 of 10 -- 4 solicitor advises that “Emma from time to time asks each of Doug and Andrew [her brother] to assist her on behalf of the Company, and where they do so, they do so with her authorisation”. [8] The defence is a rather spare document. Other than non-admissions and denials, the defences were that: (a) Cairns Tropical Resort had been informed by the Body Corporate that the alleged amount claimed has not been incurred,13 and that the alleged amount was “made up” by the Body Corporate;14 (b) the alleged amount is exorbitant; (c) the Body Corporate represented to Cairns Tropical Resort that the alleged amount was to be rescinded after the settlement of the sale to Cairns Tropical Resort. [9] As Cairns Tropical Resort was self-represented the proceeding was allocated to be supervised on the Self-Represented Litigants List (SRL List). At the first review on 29 February 2024 directions were made for the trial to be set down for one day on a day to be fixed. [10] On 1 March 2024 my associate offered various trial dates to the parties. The parties chose 13 June 2024. The only query raised was that Mr Douglas McCoy said that more than one day may be needed to hear all of the witnesses. [11] On 15 March 2024 PPCS Lawyers were appointed to act on behalf of Cairns Tropical Resort. [12] When the proceeding was further reviewed on 28 March 2024 various directions were made, including extending the time for filing and service of the Body Corporate’s affidavits by way of evidence-in-chief. The proceeding was removed from the SRL List – because by that time both parties were represented by lawyers. [13] On 19 April 2024 the Body Corporate filed and served its affidavit evidence-in-chief. [14] On 29 April 2024 Cairns Tropical Resort’s present solicitors, MBA Lawyers, filed a notice of change of solicitors. [15] Cairns Tropical Resort were due to file and serve their affidavits by way of evidence- in-chief by 14 May 2024 – some four weeks or so after the Body Corporate’s material was filed and served. [16] Cairns Tropical Resort did not file and serve its material. It has still not done so. Instead, it proposes to amend and to seek disclosure. 13 Presumably this means not incurred by the body corporate and were therefore not claimable from the lot holders. 14 It is difficult to know what is meant by the expression “made up” in this context. A body corporate will often seek levies from the lot holders to fund anticipated future expenses. And so in some senses most levies will be ‘made up’ in the sense that they are to fund estimated future expenses rather than actual expenses already incurred. Possibly, though, the expression here is designed to suggest something more sinister. -- 4 of 10 -- 5 [17] On any view, the application to amend is made at a late stage. The proceeding has been on foot for seven months. The defence has been filed for more than four months. The trial date has been set for three months. [18] The lateness of the proposed amendment means that if the amendment is allowed the trial dates will be put in jeopardy.15 Cairns Tropical Resort proposes a fast track timetable but there are significant risks that progress will be delayed by disclosure. Opportunity to Amend [19] There were significant opportunities to amend before now. Certainly, Cairns Tropical Resort did not engage lawyers until mid-March. But, even if that is the starting point, little was done. [20] Mr Williams, a principal of the firm MBA Lawyers, deposes to various steps such as: (a) the taking of instructions between 27 March and 15 April 2024; (b) the requesting the file from the previous solicitors on 10 April 2024; (c) obtaining the court documents including the principal affidavit relied on by the Body Corporate on 15 and 17 April 2024; (d) considering the material and taking instructions between 17 April and 16 May 2024; (e) and the exchange of letters under rule 444 and 445 of the Uniform Civil Procedure Rules 1999 with the Body Corporate’s solicitors between 15 and 20 May 2024. [21] Mr Williams explains that the former solicitors’ file has still not been obtained, but there is no explanation as to why. [22] In the correspondence the solicitors for Cairns Tropical Resort took the approach of addressing each substantive allegation in the statement of claim and querying whether each allegation was correct. As Mr Williams explains in his letter: 13. My letter of 16 May 2024, identified the following matters: (a) whether as pleaded in paragraph 4 of the Statement of Claim, the Former Owners (as that term is defined in the Statement of Claim) of the lots (as said to be particularised in the Annexure A of the Statement of Claim), were validly served copies of Minutes of the General Meetings; (b) whether as pleaded in paragraph 5 of the Statement of Claim, notices were validly issued pursuant to section 153 of the Body Corporate and Community Management (Accommodation Module) Regulation 2020 to each of the Former Owners (as that term is defined in the Statement of Claim) of the lots (as said to be particularised in Annexure A of the Statement of Claim), in respect of each of the Meetings and each of the Resolutions; 15 Cairns Tropical Resort in fact sought orders that the trial date be vacated. -- 5 of 10 -- 6 (c) whether as pleaded in paragraph 7 of the Statement of Claim, the Plaintiff issued information certificates in an approved form to the Mareeba Shire Council; (d) whether as pleaded in paragraph 8 of the Statement of Claim, the Plaintiff issued information certificates in an approved form to the Mareeba Shire Council; (e) whether as pleaded in paragraph 12 of the Statement of Claim and by virtue of the paragraph 3 and 4 of the Defence; (i) the Defendant became jointly and severally liable for the alleged debt; (ii) the alleged debt has been incurred by the Plaintiff; (iii) the alleged debt was made up by the Plaintiff; (iv) there is any amount payable by the Defendant; (v) the alleged debt is exorbitant; and (vi) the Plaintiff represented to the Defendant that the alleged amount was to be rescinded after the relevant lots were sold to the Defendant; (f) whether as pleaded in paragraph 13 of the Statement of Claim: (i) the Plaintiff is entitled to charge Penalty Interest; (ii) an Annual General Meeting was validly held on 31 December 2020; (iii) a resolution was validly passed on 31 December 2020; (g) whether as pleaded in paragraph 15 and 16 of the Statement of Claim, recovery costs have been validly incurred in the amount pleaded; (h) whether as pleaded in paragraph 17 and 18 of the Statement of Claim: (i) the debt as alleged is owing by the Defendant to the Plaintiff; and (ii) recovery costs have been validly incurred in the amount pleaded.” [23] Cairns Tropical Resort also sought disclosure of some ten categories of documents. [24] The impression gained from the letter from the solicitors for Cairns Tropical Resort was that it was designed to trawl through the Body Corporate’s case in search of a defence, rather than designed to pursue one or more specific defences. For example, an issue raised was whether Cairns Tropical Resort “became joint and severally liable for the alleged debt” (see paragraph (e) above). It is surprising that this is raised as a genuine issue given that the effect of s 156(3) of the Body Corporate and Community -- 6 of 10 -- 7 Management (Accreditation Module) Regulation was to make new owners jointly and severally liable for the prior owners’ debts to the Body Corporate.16 [25] Cairns Tropical Resort did not resile from the very broadly stated defences that had been raised in the defence filed in January. The same language was used. For example, the solicitors maintained that there were issues as to whether the alleged debt was “made up” by the Body Corporate, or was “exorbitant”, and whether the Body Corporate had represented that the alleged amounts were to be rescinded. [26] Those defences are serious allegations but remained broadly stated. Those defences appear to be no further progressed in May then they were in January. And those defences were joined by, in effect, scrutiny of each of the Body Corporate’s allegations, including whether notices were validly issued to former owners and whether copies of minutes of general meetings were validly served. [27] By the time Cairns Tropical Resort raised these issues with the Body Corporate’s solicitors, Cairns Tropical Resort was in breach of the court order made on 28 March 2024. That order required Cairns Tropical Resort’s evidence-in-chief by 14 May 2024. No extension was sought from the court. And, the hearing date of 13 June 2024 was fast approaching. [28] It was the Body Corporate and not Cairns Tropical Resort that took the next substantive step. On 22 May 2024 the Body Corporate filed and served an application for judgment based on Cairns Tropical Resort’s failure to comply with the order of 28 March 2024. Cairns Tropical Resort cross-applied for leave to amend but did so without a proposed amended defence. The proposed defence was then provided prior to the adjourned hearing on 29 March 2024. [29] That chronology demonstrates that Cairns Tropical Resort have proceeded at a rather pedestrian pace despite the need for urgency – a need for urgency created by their own failure to progress the proceeding. [30] From a wider case management perspective permitting Cairns Tropical Resort to amend at this late stage is likely to mean that the trial date will need to be vacated.17 That vacancy might well have been available to other litigants. Explanation [31] As can be seen, the solicitors for Cairns Tropical Resort have explained the steps they have taken. But their clients have not explained why it took so long to defend, or why it took so long to retain lawyers. There is no adequate explanation as to why, in the face of court orders requiring its evidence, it took until 29 May 2024 for Cairns Tropical Resort to propose its amended defence. 16 This is the basic premise behind Cairns Tropical Resort contention that the Body Corporate represented that the levies would be rescinded or that, if certain debts were paid, the Body Corporate would not sue (see later discussion of the representations). 17 Cairns Tropical Resort in fact sought to vacate the trial date at the same time as it applied to amend. -- 7 of 10 -- 8 Nature of Amendment [32] The proposed amended defence18 makes very significant changes to the defence. In broad terms the proposed amended defence raises these defences: (a) Ms Kolenc, the Body Corporate’s administrator issued notices of contribution on 8 February 2020 but those levy notices were not valid or lawful levy notices because: (i) the meeting at which they were passed was not a general meeting – because of defective notices; (ii) resolutions to fix levy notices could only be passed by lot owners – and not the Body Corporate’s administrator; (iii) the administrator was not entitled to vote; (iv) an ordinary resolution of the lot holders of the Body Corporate was required. (b) Ms Kolenc’s holding of the annual general meeting on 19 June 2020 was invalid because only lot owners could hold and vote at such a meeting. That meant that the administrative fund and sinking fund levies approved at that meeting were invalid. (c) Ms Kolenc’s holding of an annual general meeting on 31 December 2020 was similarly invalid, as were the administrative fund and sinking fund levies approved at that meeting. (d) Cairns Tropical Resort does not admit that the Body Corporate has incurred “recovery costs” of $156,780 as those costs are not particularised. (e) On or about 25 September 2023 the Body Corporate, by its manager, represented that if Cairns Tropical Resort completed its purchase of the lots, the Body Corporate would not sue to recover any levies or recovery costs alleged to be outstanding at that date. Cairns Tropical Resort says that it proceeded with the purchase on that basis. [33] The parties have not fully argued the merits, or any lack of merit, of the defences. However, it is worth offering these observations. First, arguments (a), (b) and (c) appear to depend on a proper interpretation of the order appointing Ms Kolenc as administrator. That order specified that she would have all the powers and responsibilities of the Body Corporate, the committee and the executive members of the committee. It is unlikely that those powers did not extend to striking levies, although I express no concluded views. It is also unlikely that any defect in the notices or meetings had the result that any levies were void.19 18 There were in fact two versions of the amended defence. For present purposes I will consider only the latest – exhibited to Mr Williams’ affidavit of 29 May 2024. 19 No specific provisions of the Act appear to be relied on as making levies approved by defective meetings a nullity. That means that the defence may rest on establishing that there can be discerned a legislative purpose to invalidate any act that fails to comply with the requirements of the legislation: see Project Blue Sky Inc v Australian Broadcasting Authority (1998) 194 CLR 355 at [91]. -- 8 of 10 -- 9 [34] Second, the problems with the “recovery costs” claim are obvious. Those problems are clear from the existing statement of claim and defence. The Body Corporate will be required to prove that claim at trial. [35] Third, the prospects of the representation case look rather bleak. Paragraph 20 of Mr Williams’ affidavit of 24 May 2024 says that he is informed by his clients that Ms Kolenc said to them on 8 July 2023 that: (a) the balance of the levies was $1.772 million; (b) if, after acquiring the lots, the lot owners called a meeting they could pass resolutions rescinding those resolutions which struck the levies; (c) there were debts of the Body Corporate that needed to be paid; (d) the Body Corporate would not pursue the levies if there were funds left over from the sale to pay the debts, or if that surplus was not sufficient to pay the debts but Cairns Tropical Resort actually paid the debts; (e) a budget would be adopted at a general meeting so that all lot owners can commence reinstating common property to a reasonable standard within an agreed timeframe. [36] That is some distance from an unconditional representation that the Body Corporate would not sue to recover levies. The conditions (a surplus to pay the debts or payment of the debts by Cairns Tropical Resort) are not shown to have been fulfilled. [37] Of course, the representations are likely to be contested, leading to a contested factual issue. Curiously, the representation now alleged in the new defence differs materially from the representation in the January defence. The January defence was to the effect that the Body Corporate represented that “the alleged amount was to be rescinded after the settlement of the sale”. The new defence is an allegation that the Body Corporate promised that it would not sue for the arrears of levies. No explanation is offered as to why the representation case in January differs from the representation case now proposed. Costs, Interest and Strain of Litigation [38] It is relevant that Cairns Tropical Resort offers to pay the costs of the application and the costs thrown away by the amendment. If the Body Corporate is successful an award of interest, of course, will compensate the Body Corporate for being kept out of its money for the additional time that may flow from the amendment and possible adjournment. [39] But there are special problems where a body corporate is unable to recover levies from lot holders. Usually, a body corporate’s only means to pay its bills, including bills for utilities, is via levies on lot owners. Here there is at least some evidence of the Body Corporate being under some financial pressure and a deteriorating asset. Indeed, those lot holders who have paid their levies may well have something to say if recalcitrant lot holders put in jeopardy the Body Corporate’s capacity to pay its bills. The other lot holders are not represented in this proceeding. -- 9 of 10 -- 10 [40] That is, at least in part the rationale for the legislation providing for an expedited procedure to adjudication for dispute resolution and to QCAT for debts.20 In that context it is unattractive for Cairns Tropical Resort to, belatedly, raise disputes about the striking of levies four years ago. Levies being struck down at least has a potential risk of prejudice for the Body Corporate. Prejudice and Other Discretionary Matters [41] It is relevant to note that Cairns Tropical Resort is pursuing its own “self-help” remedies. On 22 May 2024, Cairns Tropical Resort proposed a resolution to the Body Corporate to have levies rescinded by resolution of the lot holders. The Body Corporate is now required to defend its position on a number of fronts. [42] Another factor to be considered is that it seems plain that those behind Cairns Tropical Resort knew that there were levies owed by the previous owners when they purchased their 35 lots. This is not a case where the purchasers say they acquired the lots without any knowledge of the debts attaching to the lots or indeed their potential liability for those debts. Summary [43] Thus, Cairns Tropical Resort seeks to amend in a substantial way, and in a way that will require a consideration of the validity of levies struck by a Body Corporate four years ago. Whilst it is prepared to pay the wasted costs, no proper explanation is offered for the delay in seeking to amend at this late stage, and the amendment is likely to derail the trial. [44] For the reasons discussed above the application to amend is refused. 20 See ss 227 to 229A of the Body Corporate and Community Management Act 1997. -- 10 of 10 --