Body Corporate Strata Plan No 2 No. 442086V v Coles Myer Properties Holdings Ltd
[2004] VSC 200
•7 June 2004
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
CORPORATIONS LIST
No. 6816 of 2003
| BODY CORPORATE STRATA PLAN NO. 2 NO. 442086V | First Plaintiff |
| JULIAN FOGARTY | Second Plaintiff |
| V | |
| COLES MYER PROPERTIES HOLDINGS LTD | First Defendant |
| MELBOURNE COACH TERMINAL PTY LTD (IN LIQUIDATION) | Second Defendant |
| PAUL ANTHONY PATTISON (as Receiver and Manager of Melbourne Coach Terminal Pty Ltd (in liquidation) (Receiver and Manager appointed)) | Third Defendant |
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JUDGE: | Mandie J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 3 June 2004 | |
DATE OF JUDGMENT: | 7 June 2004 | |
CASE MAY BE CITED AS: | Body Corporate Strata Plan No. 2 No. 442086V & anor v Coles Myer Properties Holdings Ltd & ors | |
MEDIUM NEUTRAL CITATION: | [2004] VSC 200 | |
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CORPORATIONS – remuneration, charges and legal costs of liquidator
COSTS – legal costs of liquidator – basis of assessment – recoverability of “uplift” fee
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APPEARANCES: | Counsel | Solicitors |
| For the Second Defendant | Mr D J Williams | Cornwall Stodart |
| For the Third Defendant | Mr T McLean and Ms C Dealehr | GWP Aarons & Co |
HIS HONOUR:
The questions before the Court concern the costs and expenses of the liquidator of the second defendant, Melbourne Coach Terminal Pty Ltd (in liquidation) (“MCT”).
The proceeding itself was commenced by originating motion dated 22 July 2003 in which the first plaintiff, a body corporate, sought directions as to how it was to distribute moneys held by it, and further sought a number of orders in relation to the payment of moneys either held in the trust account of Minter Ellison or otherwise payable in respect of a licence agreement between the first defendant and MCT. Orders were sought, inter alia, that MCT pay car park fees which it had received to certain members of the body corporate. The issues put before the Court arose from problems concerning the receipt of car park fees at a multistorey car park building situated at 58-64 Franklin Street Melbourne, where 466 strata titled car parking spaces had been created, all of which were at one time owned by MCT. It is unnecessary to set out the facts which gave rise to these problems save to mention that a substantial number of the car spaces remained in the ownership of MCT (after it had sold a number of car spaces to others).
On 17 July 2003, Paul Anthony Pattison was appointed receiver and manager of MCT by a secured creditor with a Debenture Charge, Banksia Mortgages Ltd (“Banksia”). There is also another secured creditor with prior rights by virtue of a first mortgage over a number of the car spaces, namely Over 50’s Mutual Friendly Society Limited (“Over 50’s”). On 1 August 2003, MCT was placed in liquidation by order of this Court and Mr J Loebenstein was appointed liquidator. Mr Loebenstein is a registered liquidator and an official Court liquidator with 18 years of professional experience in insolvency work.
On or about 11 September 2003, Cornwall Stodart, on behalf of Mr Loebenstein, wrote to Over 50’s and to Mr Pattison on behalf of Banksia in relation to this proceeding, pointing out that Over 50’s and Banksia had security which might entitle them to some or all of the funds in contention in this proceeding. The secured creditors were further informed that the liquidator had insufficient funds to take more than a relatively passive part in the proceeding, and that if he took no part or a limited part in the proceeding, funds otherwise available in the liquidation would be lost to creditors, including secured creditors. The letter went on to say that if the liquidator was to take an active part in the proceeding, he needed funding support from the secured creditors, as they appeared likely to be the only creditors to benefit. The letter added that any proceeds would be applied first to cover the liquidator’s fees and expenses, including legal expenses. The letter concluded by seeking an early response as to whether the liquidator’s legal costs would be funded. Over 50’s refused to fund the liquidator’s legal costs, and no response was received from Mr Pattison or Banksia.
As a result the liquidator retained Cornwall Stodart upon the terms set out in a letter dated 24 September 2003 from Cornwall Stodart to him which read, in part, as follows:
“Thank you for instructing us to act for you in connection with the above matter.
This letter and the enclosed Terms of Engagement set out the conditions of our engagement and include estimates of fees and expenses...
We understand the work to be performed is as follows:
Body Corporate Proceeding
Our task to date has been to deal with the application for leave to proceed against MCT and negotiate for directions in the substantive proceeding. In addition, we are negotiating to put you in joint control of some of the carparking fees paid or payable to MCT by Coles Myer… .
We will attempt to resolve the body corporate proceeding in a manner satisfactory to you at the earlier possible stage.
…
Legal fees
Our fees are based on a range of hourly rates. Rates for team members are:
John Hutchings (Partner) - $475.00 per hour;
Peter MacNish (Senior Associate) - $350.00 per hour;
Sam Monkivitch (Lawyer) - $225.00 per hour.
As discussed with you, we will not charge legal fees unless and until you receive funds to pay them (whether from company assets or some other source). At the time our fees are paid, however, we propose to charge a 20 percent uplift on our fees – the Legal Practice Act allows an uplift of 25 percent.
…
Estimate of legal fees
At this stage it is difficult for us to predict the amount of work which will be involved in dealing with the body corporate proceeding. As we understand it, it is unlikely that you will vigorously defend the proceed absent support from [the secured creditors]. We have negotiated an interim outcome which means that the Coles Myer money will shortly be in your joint control. The challenge is now to resolve the rest of the body corporate issues without generating substantial legal costs. Ultimately, if we are not able to negotiate a satisfactory outcome, we assume that you will not take an active part in the proceeding. At this stage, we estimate that our fees in relation to the body corporate proceeding will fall in the range of $15,000 to $20,000. If you decide to take an active part in the proceeding, the fees are likely to substantially exceed that amount.
We will notify you, as soon as practicable, if we become aware of any significant increase in our estimate.
…
Payment
As mentioned above, the arrangements with you regarding payment of our fees and expenses are that we will not call for payment of our fees unless or until you have received funds in the liquidation sufficient to pay part or all of our fees. …”
On 16 September 2003, Master Evans granted the plaintiffs leave to proceed against MCT. On 17 September 2003, the Court ordered in effect that the moneys in the trust account of Minter Ellison ($288,478.60) be transferred into the trust account of Cornwall Stodart, who are the solicitors for the liquidator of MCT, to be held there pending further order or agreement between the plaintiffs and the liquidator. Other accumulated car parking fees and/or rentals were also paid into Cornwall Stodart’s trust account.
Mr Loebenstein deposed, and I accept, that in September 2003, he had little or no idea of what money, if any, was properly payable to MCT (or Over 50’s or Banksia), and there was considerable doubt and uncertainty as to the extent of MCT’s (or Over 50’s or Banksia’s) entitlements as against the entitlements of the plaintiffs.
On 10 February 2004, Mr Pattison, in his capacity as receiver and manager of MCT, was added as the third defendant. In a supporting affidavit, Mr Pattison deposed to his belief that a proportion of the car park rent held in trust by Cornwall Stodart was the property of MCT and that he was entitled to have it paid to him on behalf of the secured creditor.
In an affidavit sworn 8 April 2004, Mr Loebenstein deposed that a negotiated settlement had been reached with the plaintiffs whereby, as a result of his efforts, MCT would receive sufficient funds to cover his fees and expenses directly related to the proceeding and to produce a significant surplus for the benefit of the secured creditors. He claimed a lien for his fees and expenses accordingly. Exhibited to the affidavit, inter alia, was a bill for the remuneration of the liquidator and his staff in the sum of $43,114 and a detailed bill of costs from Cornwall Stodart in the sum (at that stage) of $67,343.52 (which included a 20% “uplift”). That affidavit was filed in support of a summons dated 15 April 2004 seeking a declaration that before any fruits of the proceeding were paid to the third defendant, the second defendant was entitled to exercise his equitable lien or charge over those fruits to the extent of costs and expenses he had already incurred and which he might incur arising from and incidental to the proceeding. An answering affidavit sworn by Mr Pattison on 16 April 2004 was filed, the gist of which was to suggest that the final size of the settlement negotiated was due rather more to the efforts of Mr Pattison than Mr Loebenstein. The affidavit further disputed the “uplift” component of 20% and contended that the liquidator’s reasonable legal fees should be calculated on a party-party rather than a solicitor-client basis. Mr Pattison expressed the view that the liquidator’s fees and expenses were unreasonable, and should be taxed and/or assessed.
The matter came before the Court on 16 April 2004, when a settlement was all but finalised, and again on 14 May 2004, by which time a settlement had been concluded. The Court approved the compromise so reached in order that it should be binding on all members of the body corporate. The terms of settlement provided (after dealing with the distribution of other sums totalling about $1M), so far as presently material, that (and the Court further ordered that):
“The sum of $274,672 be paid to the Second and Thirdnamed Defendants and be distributed between the Second and Thirdnamed Defendants in such proportions as be agreed between them and failing agreement such sum be retained in the trust account of Cornwall Stodart for the Second and Thirdnamed Defendants to abide by any order of the Court as to its distribution between the Second and Thirdnamed Defendants or until further agreement between them. “
On 14 May 2004, the Court further ordered that the second defendant’s summons filed 15 April 2004 be dismissed with no order as to costs. It was concededly unnecessary to determine the lien issue raised by that summons, because the sum held for distribution between the second and third defendants under the terms of settlement and consequent Court order was sufficient to cover the fees and costs of the second defendant in any event. The dispute between the second and third defendants concerning the second defendant liquidator’s fees and expenses was listed for hearing on 3 June 2004.
After 14 May 2004, further affidavits were filed raising a number of disputes which are now unnecessary to mention. However, in an affidavit of the liquidator sworn 13 May 2004 (but filed on 21 May 2004), I have noted Mr Loebenstein’s further elucidation of the part which he played in the conduct of this proceeding on behalf of MCT.
At the hearing of the matter on 3 June 2004, it became apparent, after some further discussion between the parties while the matter was stood down, that the differences between them were somewhat limited but nevertheless of considerable importance to the parties.
It was agreed that the second defendant liquidator was entitled to be paid his remuneration, costs, charges and expenses of and incident to this proceeding out of the funds held by Cornwall Stodart (ie, out of the sum of $274,672). [1]
[1]See In re Universal Distributing Company Limited (in liq) (1932) 48 CLR 171.
It was further agreed that the quantum of the legal costs of the liquidator of and incidental to this proceeding should be referred to the Taxing Master for determination. However, there was a dispute as to the precise terms upon which the order should require the Master to make that determination. On the one hand, it was submitted on behalf of the liquidator that he should have his legal costs determined (in effect, taxed) on an “indemnity” or on a “trustee” basis, alternatively on a “solicitor and own client” basis. On the other hand, it was submitted on behalf of the receiver that the liquidator’s legal costs should be determined or assessed on a “solicitor and own client” basis but with a qualifying expression, namely, “so far as reasonably incurred and of a reasonable amount”. I am not persuaded that the liquidator of this insolvent company should be entitled in the circumstances to have his legal costs recouped on an “indemnity” or on a “trustee” [2] basis. Both parties referred to the decision of JD Phillips J (as he then was) in Re National Safety Council of Australia, Victorian Division (in liquidation)(No. 2) [1992] 1 VR 485.[3] The position of the legal costs of a liquidator is referred to in particular commencing at page 519 of that decision (line 22) and concluding on page 520 (line 24). Reference is also made therein to O. 63.61 of the Supreme Court Rules, which provides that, on a taxation of the costs payable to a solicitor by his client, all costs reasonably incurred and of reasonable amount shall be allowed. This rule now applies to solicitor and own client taxations as National Safety Council makes clear and, in my opinion, the rule provides the relevant and appropriate criterion for the determination and assessment of the legal costs of the liquidator in this case. Accordingly, I will order that the quantum of the legal costs of the liquidator of and incident to this proceeding be referred to the Taxing Master (in his capacity as a Master of the Court) for determination, on the basis that the liquidator is entitled to all costs reasonably incurred and of reasonable amount, excluding the costs of and incidental to the summons filed 15 April 2004.[4]
[2]But in any event, see O. 63.33 of the Supreme Court Rules.
[3]See especially at pages 497, 503, 513-516 and 519-520.
[4]It was ordered on that summons that there should be no order as to costs.
It was further agreed that the remuneration, charges and expenses payable to the liquidator should be determined and fixed by the Taxing Master (in his capacity as a Master of the Court).[5]
[5]See s.473(3)(b) (ii) of the Corporations Act 2001 (Cth).
The principal dispute between the parties related to whether the liquidator should be entitled to recover as part of his legal costs the “uplift” element of 20% charged by Cornwall Stodart. Initially, there was a debate between the parties as to whether the “uplift” provision amounted to a “conditional costs agreement” within the meaning of ss.97 and 98 of the Legal Practice Act 1996 (Vic) and, if so, whether the agreement complied with those provisions. The receiver contended that the “uplift” was part of a conditional costs agreement which did not comply with the Legal Practice Act, and therefore could not be recovered (or that it was inequitable for it to be recoverable). The liquidator contended that the solicitors may have intended the “uplift” provision to come under the Act, but that they were mistaken, and that the agreement, properly construed, was simply an agreement not to charge any fees at all unless moneys were available in the liquidation to pay them but, if moneys were available, then such costs would be charged at the normal rates specified in their letter plus 20%. On this analysis, the question was whether the rates charged (including the 20% increase) were reasonable and Counsel for the liquidator invited me to determine the question of reasonableness. Having heard the liquidator’s position put, Counsel for the receiver announced that he would accept the analysis of Counsel for the liquidator, thereby rendering any argument about the provisions of the Legal Practice Act irrelevant. Counsel for the receiver then submitted that the question of reasonableness of the rates, so increased, should be referred to the Taxing Master. However, in case the Court was of a different view, Counsel for the receiver advanced arguments supporting his submission that the “uplift” of 20% was unreasonable.
There followed a debate between Counsel as to whether it was reasonable of the liquidator to agree to an “uplift” of 20% in all the circumstances and whether the “uplift” was reasonable. On behalf of the liquidator, it was said that, as he could get no funding support from the secured creditors, he was entitled to accept the terms proffered by Cornwall Stodart. They were reasonable terms from Cornwall Stodart’s point of view having regard to the risk that they would not be paid – It was therefore a premium for the risk which the liquidator might reasonably have agreed to pay. In answer, it was contended on behalf of the receiver that there was no evidence to show that Cornwall Stodart would not have agreed to act without the “uplift” element, nor any evidence to show that the liquidator had sought alternative “quotes” from other solicitors, nor was it shown in any event that there was a real likelihood that Cornwall Stodart would not have been paid. A number of other arguments along these lines were put, and the matter was argued extensively. I have taken into account all of the matters raised.
In the end, I am not satisfied that the “uplift” was reasonable or that it was reasonable of the liquidator to agree to it. Nor am I satisfied, in so far as relevant, that there was any real risk that Cornwall Stodart would not be paid. Even if there was such a risk, there is no evidence that the liquidator would have been unable to obtain satisfactory alternative legal representation at the same rates as quoted by Cornwall Stodart but without the “uplift” provision. In those circumstances, the “uplift” element of the legal costs are not shown to be reasonably incurred or of reasonable amount and the orders to be made will exclude recovery by the liquidator of the 20% “uplift”.
It was conceded that the liquidator should have his costs of this application and it will be ordered accordingly. Further, I am not prepared to penalise the liquidator in relation to any costs associated with argument about an equitable lien.
Orders will be made as follows:
1.The second defendant liquidator be paid his remuneration, costs, charges and expenses of and incident to this proceeding out of the funds held by Cornwall Stodart referred to in paragraph 2(b) of the Order of Justice Mandie made 14 May 2004.
2.The quantum of the legal costs of the liquidator of and incident to this proceeding (including any reserved costs) be referred to the Taxing Master (in his capacity as a Master of the Court) for determination on the basis that the liquidator is entitled to all costs reasonably incurred and of reasonable amount, excluding the costs of and incidental to the summons filed 15 April 2004 and excluding the 20% “uplift” element, but including the costs of the application before the Court on 3 June 2004.
3.The said remuneration, charges and expenses payable to the liquidator be determined and fixed by the Taxing Master (in his capacity as a Master of the Court).
4.For the avoidance of doubt, the third defendant shall be entitled to be heard on the matters referred to the Taxing Master by paragraphs 2 and 3 hereof.
5.After payment to the liquidator of the amounts ascertained as aforesaid, and, subject to any order of the Taxing Master as to the costs of the hearing before him, the balance of the said funds be paid to the third defendant.
6.Liberty to apply.
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