Recovering untaxed legal costs in the collection process

SS Glen High v Kruger NO (2023/055133) [2024] ZAGPJHC 1059

Introduction

The recent ruling by the Johannesburg High Court in SS Glen High Body Corporate v M. Kruger marks a significant development in the governance of sectional title schemes, particularly concerning the enforcement of levy payments and the recovery of legal costs incurred during the collection process. Community schemes have long struggled with the challenge of recouping legal fees accrued during the collection process, which many courts have traditionally required to be excluded from members’ levy statements. This judgment clarifies the obligations of members under the Sectional Titles Schemes Management Act 8 of 2011 (STSMA) and grants bodies corporate the authority to recover these legal fees, contingent upon specific conditions being met.

Legal framework

The STSMA serves as the foundational legislation for sectional title schemes in South Africa, outlining the rights and responsibilities of both members and bodies corporate. Central to the Act is the requirement for members to pay levies determined by the body corporate, essential for the maintenance and management of the scheme. The court reaffirmed that these obligations are enforceable under the STSMA, emphasising that enforcing these provisions may lead to legal costs. This reinforces the authority of bodies corporate to take legal action against non-compliant members, thereby safeguarding the financial integrity of the scheme.

Case summary

The above case concerning a body corporate that sought to recover outstanding levies from the estate of a deceased member. The Respondent, acting “ex officio” as the appointed executor on behalf of the deceased estate, disputed the inclusion of untaxed legal fees on the members levy statement, arguing that they were unliquidated and should therefore not be subject to summary judgment. The Respondent raised three defences to oppose the granting of summary judgment, but for the purposes of this article, we will focus on the aforementioned ground of opposition

The court, citing The Body Corporate Marsh Rose v Steinmuller and Others, determined that legal costs incurred by a body corporate are recoverable without the necessity for taxation, provided that these costs have already been incurred and are specifically provided for in the conduct rules.

In this matter the conduct rules of the body Corporate determine: “If the body Corporate or the Trustees instruct a firm of Attorneys in connection with or arising out of any infringement by an occupant of any provision of these rules, such occupant shall be liable to reimburse the body Corporate on demand for all its legal costs incurred in respect thereof on an Attorney Client basis.” [own emphasis]. The emphasis placed on reimbursement of costs incurred on an attorney client scale.

The court examined the wording of Prescribed Management Rule 25(4) of the Regulations to the STSMA that stipulate that: “A member is liable for and must pay the body corporate all reasonable legal costs and disbursements, as taxed or agreed by a member, incurred by the body corporate in the collection of arrear contributions or any other arrear amounts due and owing by such member to the body corporate, or in enforcing compliance with these rules, the conduct rules of the Act.” [own emphasis] The subrules 25(4) and 25(5) refer to either consent to or agreed by a member. The question that begs answering is what ‘consent’ or ‘agreed to’ entails?

The court emphasised that the conduct rules are rules that the owner’s consent to upon becoming a member of the body corporate, and as such there is an underlying agreement to be bound by it. In this case, the Respondent upon becoming a member of the body corporate ‘consented’ and/or ‘agreed’ to reimburse the body corporate on demand, for all its ‘legal costs incurred’. Accordingly, the court held that the legal costs incurred by the body corporate need not be taxed to be included in the claim. Subrules 25(4) and 25(5) were satisfied in that the Respondent consented and/or agreed that such legal costs so incurred be reimbursed which constitutes a liquidated amount for the purposes of summary judgment.

Analysis

A crucial aspect of the ruling pertains to the recovery of legal costs incurred during the enforcement of financial claims against defaulting members. The court examined whether these costs could be classified as liquidated amounts, allowing for their recovery without taxation. As indicated above, the court specified that for legal costs to be recoverable as liquidated, the conduct rules must clearly state members' liability for such costs. The ruling referenced several important precedents, demonstrating that clear contractual terms concerning liability for costs can qualify these costs as liquidated. This classification is significant, as it facilitates the recovery process for bodies corporate, allowing them to claim legal fees as part of outstanding levies without the burden of a lengthy taxation process.

The ruling underscores the critical role of clear conduct rules in the governance of sectional title schemes. These rules serve as binding agreements that outline the financial responsibilities of members and the consequences of non-compliance. The court emphasised that these rules are not just procedural but represent substantive legal principles essential for the community’s financial stability. Members are legally obligated to adhere to these established regulations, fostering harmony and ensuring fair contributions to communal expenses.

The court's findings highlight the importance of compliance with financial obligations within sectional title schemes and empower bodies corporate to enforce these obligations effectively. This decision is a significant advancement in the governance of sectional title schemes, promoting a culture of compliance and cooperation among members.

For assistance with any community scheme-related matters—ranging from collections to governance and drafting rules—our office is dedicated to providing comprehensive support to ensure the effective management of your community scheme.

To view the judgment, please click the link below link:

SS Glen High v Kruger NO (2023/055133) [2024] ZAGPJHC 1059 (10 September 2024)

To read Schüler Heerschop Pienaar’s (now Heerschop Pienaar) analysis of the above judgement, click here.

Meet the Author

Rizaar Smidt is a Community Scheme Consultant at TVDM Consultants, to read more about Rizaar, click here.

Disclaimer: This article is the personal opinion/view of the author(s) and is not necessarily that of TVDM Consultants. The content herein is for information purpose only, and should not be seen as an exact or complete exposition of the law. Accordingly, no reliance should be placed on the content for any reason whatsoever, and no action should be taken on the basis thereof unless the application and accuracy has been confirmed by a legal advisor. TVDM Consultants and the author(s) cannot be held liable for any prejudice or damage resulting from action taken on the basis of this content.