Club Kerkira: A High Court Appeal Case Study on CSOS Process and a Sectional Title Developer Liability for Contributions
By Prof. Graham Paddock
The recent High Court case of Club Kerkira (Pty) Limited v Trustees of Club Kerkira Body Corporate and Others (Case No: D11451/2021) provides a valuable insight into the legal process of appealing a Community Schemes Ombud Service (CSOS) adjudicator’s decision and highlights a significant issue concerning the recovery of contributions from developers by a body corporate on an accrual basis.
Background of the Case
The case involved the development of a sectional title scheme known as “Club Kerkira,” initiated by the appellant, Club Kerkira (Pty) Limited. The scheme was designed to accommodate 101 units, though only 17 had been built and sold, leaving the appellant holding the real rights of extension, effectively the right—but not the obligation—to build and sell the majority of the planned buildings in the estate. The Trustees of the Club Kerkira Body Corporate sought to recover contributions from the appellant on a monthly basis for the maintenance and management of the future development areas, as the development had been designed for a much larger number of sectional title units.
The body corporate argued that the developer, as the holder of rights of extension, was liable for contributions under section 3(1)(d) of the Sectional Titles Schemes Management Act 8 of 2011 (STSMA). The developer, however, disputed this liability, leading to an application for adjudication by the CSOS, where the body corporate sought to enforce claims of approximately R2 Million for developer levies overdue from 2010 onwards and secure ongoing contributions.
The Adjudication and Appeal
The CSOS adjudicator, Thandeka Qwabe, ruled in favour of the body corporate, ordering the developer to pay the claimed contributions. However, the adjudicator erred by delegating the quantification of the amounts owed to an auditor, a task beyond the scope of her legal authority. The developer appealed the overall decision to the High Court under section 57 of the Community Schemes Ombud Service Act, 9 of 2011 (CSOS Act).
High Court Judgment
Judge Olsen of the KwaZulu-Natal Local Division upheld the appeal, setting aside the adjudication order and remitting the matter back to the CSOS for further consideration. The judgment was significant for several reasons, including:
- Process of Appeal: The appeal was lodged beyond the 30-day statutory period, but the High Court condoned the late filing, recognising the necessity of ensuring that decisions affecting community schemes are consistent with the law. The court’s power to condone late appeals, as established in Baxter v Oceanview Body Corporate, was affirmed.
- Accrual Basis for Contributions: The High Court upheld the principle that a body corporate can require a developer to contribute to the costs of future development areas on an accrual basis, in this case monthly, for anticipated expenses. The court rejected the appellant’s argument that contributions could only be claimed after expenses had been incurred on the basis that this would require the sectional owners to budget for and meet any necessary expenses before having a quantified claim to bring against the developer. The judgment clarified that section 3(1)(d) of the STSMA allows a body corporate to secure additional contributions from developers in advance, ensuring the scheme’s financial stability and confirmed that it is “inconsistent with the scheme of s 3 of the Management Act, and especially ss 3(1)(a) to (c), that a scheme should run on credit.”
- Adjudicator’s Error: The court found that the adjudicator had made a legal error by delegating her decision-making authority to an auditor. The CSOS Act gives adjudicators very wide powers of investigation—which appear to be very seldom used—but does not permit this type of functional delegation. The judge ruled that: “In making this order the third respondent purported to delegate her authority as an adjudicator to a third party who was not a duly appointed adjudicator”. In other words, the adjudicator’s role under the CSOS Act is to make final determinations, not to delegate these responsibilities.
Implications for Sectional Title Schemes
This case underscores the importance of proper procedure in the CSOS adjudication process and highlights the rights and obligations of developers in relation to body corporate contributions. The ability of a body corporate to claim contributions on an accrual basis is vital for maintaining the financial health of sectional title schemes, particularly in cases where the scheme is not fully developed.
For practitioners and trustees, the judgment serves as a reminder to ensure that claims for contributions are properly quantified and that adjudicators’ decisions are legally sound and within their statutory powers. Furthermore, developers should be aware of their ongoing financial obligations to the scheme for costs relating to future development areas when the development is incomplete.
This judgment also illustrates the courts’ willingness to intervene when necessary to ensure that the principles of the CSOS Act are upheld, thereby promoting fairness and legal consistency in community scheme management.
Article reference: Paddocks Press: Volume 19, Issue 8.
This article is published under the Creative Commons Attribution license.
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