Legal Services Board v Forster
[2011] VSC 456
•15 September 2011
| IN THE SUPREME COURT OF VICTORIA | Not Restricted | |
AT MELBOURNE
COMMON LAW DIVISION
S CI 2009 06947
IN THE MATTER of an application by the Legal Services Board for the appointment of a receiver for the law practice of David Forster, an Australian legal practitioner trading under the name Hollows Lawyers, pursuant to s 5.5.1 of the Legal Profession Act 2004
B E T W E E N
| LEGAL SERVICES BOARD (ABN 82 518 945 610) | Plaintiff |
| v | |
| DAVID FORSTER | Defendant |
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JUDGE: | EMERTON J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 7, 8 and 23 June 2011 |
DATE OF RULING: | 15 September 2011 |
CASE MAY BE CITED AS: | Legal Services Board v Forster |
MEDIA NEUTRAL CITATION: | [2011] VSC 456 |
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LEGAL PRACTITIONERS – Receiver appointed – Supervision by the Court of the fees, costs and expenses of the receivers – Application by the law practice to have fees, costs and expenses of the receiver reviewed – ss 5.5.1, 5.6.5 and 5.6.7, Legal Profession Act 2004 (Vic) – r 39.07, Supreme Court (General Civil Procedure) Rules 2005 – Section 132, Conveyancers Act 2006 (Vic).
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Dr K P Hanscombe SC with Mr S R Senathirajah | Corrs Chambers Westgarth |
| For the Defendant | Mr A W Sandbach with Mr J K Arthur | Pinto Law |
| For the Receivers | Mr P D Corbett | Hall & Wilcox |
HER HONOUR:
Introduction
On 12 April 2010, Noel Batrouney and Andrew Lyle, partners of the legal firm Hall & Wilcox, were appointed as receivers of the regulated property of the defendant’s law practice pursuant to s 5.5.1 of the Legal Profession Act 2004 (Vic) (the ‘Act’). Messrs Batrouney and Lyle have been the receivers of the regulated property of the law practice since that time, and they have been charged with winding up and terminating its affairs. In addition, they are asked to examine the Melbourne Voyager files held by the law practice and to ensure that all irregularities in relation to trust money, trust property or the affairs of the practice have been fully identified and rectified and, in particular, that all trust deficiencies have been properly restored.
By amended summons filed on 12 April 2011, Mr Forster sought a variety of orders relating to the conduct of the receivership and, in particular, the fees, costs and expenses of the receivers. Mr Forster sought, by a variety of means, to have the receivers’ fees, costs and expenses taxed in the Costs Court under Division 7 of Part 3.4 of the Act, which provides for the review of legal costs by the Costs Court.
During the course of the hearing of the applications in the summons, Mr Forster sought leave to further amend the summons to add paragraph 9A, by which he seeks a direction that the receivers submit accounts on a monthly basis and a full account of their work to date pursuant to r 39.07(2) of the Supreme Court (General Civil Procedure) Rules 2005 (the ‘Rules’).
On 23 June 2010, the Court made rulings in relation to the orders sought by Mr Forster in the summons other than the proposed paragraph 9A, along with paragraphs 10(a) and 10(b), in respect of which argument had not been completed. Mr Forster was given leave to amend the summons to add paragraph 9A and the summons was adjourned for the hearing of the application in paragraph 9A, along with the further hearing of the applications in paragraphs 10(a) and 10(b).
Receivers’ remuneration
The fees charged by the receivers and their reporting responsibilities to the Court are governed by the instrument by which the receivers were appointed by the Court. The receivers were appointed by orders made by the Court on 12 April 2010 (the ’12 April orders’). Orders 1, 2 and 3 appointed the receivers to the law practice and specified their functions and the term of their appointment. Orders were also made in respect of the receivers’ fees, costs and expenses and their reporting obligations as follows:
4. The Receiver to file with this Honourable Court and to provide to the Plaintiff and to the Defendant monthly reports in relation to the receivership of the Law Practice, or earlier as requested by the Plaintiff.
5. The Receiver report to the Court, the Plaintiff and the Defendant giving an estimate of the likely costs of the receivership within two weeks of this order.
…
8. The fees payable by way of remuneration to the Receiver shall be at the hourly rates set out in the affidavit of Noel Batrouney sworn on 12 April 2010.
9. Any fees, costs and expenses that may be incurred by the Receiver in relation to the receivership of the Law Practice are to be paid by and recoverable from the Law Practice.
10. To the extent that such fees, costs and expenses are not paid by the Law Practice, such fees, costs and expenses are payable from the Public Purpose Fund in accordance with s 5.6.7(4) of the Act.
Mr Batrouney’s affidavit sworn on 12 April 2010 sets out the rates at which he proposed to charge for his time and for the time of any of the other partners or employees of Hall & Wilcox who were required to assist in the conduct of the receivership. The affidavit sets out the hourly fees (excluding GST) for each of the receivers, other partners, senior associates, solicitors (three years plus), solicitors (first and second year), trainee lawyers, practice manager, and accounting and other administrative staff.
By reason of s 5.6.7(1) of the Act, which provides that an external intervener is entitled to be paid, in accordance with the instrument of appointment, fees by way of remuneration, the receivers have a statutory right to by paid fees at the hourly rate set out in the affidavit of Mr Batrouney.
Paragraph 9A
By paragraph 9A, Mr Forster seeks a direction that the receivers submit accounts to the Court and the defendant on a monthly basis, on the fourteenth day after the expiration of each month, commencing on 14 June 2011, as well as a full account of their work to date by 14 June 2011 pursuant to r 39.07(2).
Rule 39.07 relevantly provides as follows:
(1) Unless the Court otherwise orders, a receiver shall submit accounts in accordance with this Rule.
(2) A receiver shall submit accounts to such parties and at such intervals or on such dates as the Court may direct.
(3) Any party to whom a receiver is required to submit accounts may, on giving reasonable notice to the receiver, inspect, either personally or by an agent, the documents or things on which the accounts are based.
(4) Any party who objects to the accounts may serve notice in writing on the receiver specifying the items to which objection is taken and requiring the receiver within not less than 14 days to lodge the receiver’s accounts with the Court, and upon such service the party shall file a copy of the notice.
(5) The Court may examine the items to which objection is taken.
(6) The Court –
(a) shall by order declare what is the result of an examination under paragraph (5); and
(b) may make an order for the costs and expenses of any party or the receiver.
The application of r 39.07 must be considered in the light of any specific statutory provision that is made for the receiver of the regulated property of a law practice to submit accounts and for those accounts to be reviewed or assessed.
Section 5.6.7 of the Act provides for the remuneration of the receivers and for a review of their ‘fees, legal costs and expenses’ as follows:
(1) An external intervener is entitled to be paid, in accordance with the instrument of appointment –
(a) fees by way of remuneration; and
(b) the legal costs and the expenses incurred in relation to the external intervention.
(2) An account of the external intervener for fees, costs and expenses may, on the application of the Board, be reviewed or assessed.
(3) The fees, costs and expenses are payable by and recoverable from the law practice.
(4) Fees, costs and expenses not paid to the external intervener by the law practice are payable from the Public Purpose Fund and must be debited to the General Account.
(5) The Board may recover any unpaid fees, costs and expenses from the law practice.
(6) Fees, costs and expenses paid or recovered from the law practice after they have been paid from the Public Purpose Fund are to be paid into that Fund and must be credited to the General Account.
Mr Sandbach, for Mr Forster, submitted that O 39 applies to any receiver appointed by the Court, whether appointed under the Court’s inherent powers or pursuant to statute. He submitted that where there are real questions about the correctness of the remuneration charged by a receiver, the Court has power pursuant to r 39.07 to review the receiver’s accounts and there is no inconsistency between r 39.07 of the Rules and s 5.6.7 of the Act, as both facilitate the Court’s supervision of receivers appointed by it.
Hence, although paragraph 9A only refers to r 39.07(2) and the requirement to submit accounts to the Court, the submissions made on behalf of Mr Forster were that r 39.07 was generally applicable to the receivership of the law practice, giving Mr Forster, as a ‘party’ to the receivership proceeding, the right to serve a notice in writing on the receivers specifying items of the receivers’ fees, costs or expenses to which he objects, and enabling the Court to examine those items and to declare the result of that examination. In other words, the application of r 39.07 would give Mr Forster the right to request a form of review of the receivers’ fees, costs and expenses and to participate in such a review, which is what he has sought by one means or another through the various applications made in his summons.
Mr Corbett, for the receivers, submitted that the equitable jurisdiction of the Court in respect of the receivers was to be distinguished from the statutory power to appoint receivers conferred by Parts 5.5 and 5.6 of the Act. The Act contemplates that an application for the appointment of a receiver to a law practice will be made only by the Legal Services Board (‘the Board’) and it specifies what the powers and duties of the receiver are. These are matters that would otherwise be incorporated in an order of appointment made by the Court exercising its equitable jurisdiction. Mr Corbett submitted that the statutory regime in Parts 5.5 and 5.6 of the Act was a discrete regime which necessarily excluded the Court’s equitable jurisdiction to appoint receivers. If the legislature had intended the equitable regime to apply to receivers appointed under the Act, then it would have provided for this by reference to O 39 of the Rules and s 37 of the Supreme Court Act 1986 (Vic).
In support of this submission, Mr Corbett highlighted several significant differences between a receiver appointed pursuant to the Court’s inherent powers (which he referred to as a ‘Court appointed receiver’) and a receiver appointed under the Act:
(a) a Court appointed receiver can generally only look to the assets the subject of the receivership for remuneration;
(b) a Court appointed receiver has a lien over the assets in respect of which the receiver is appointed;
(c) any interference with the conduct of the receivership may be enforced by sanction for contempt of Court;
(d) the powers of a Court appointed receiver are dictated by the form of order appointing the same; and
(e) the appointment of the Court appointed receiver to assets does not prevent a secured chargee or other person so empowered from exercising a power of appointment over the same assets.
These characteristics of a Court appointed receiver are different from those of a receiver appointed under the Act, and the differences, so it was submitted, demonstrated that O 39 was not intended to apply to receiverships under the Act.
Both Mr Sandbach and Mr Corbett referred the Court to the judgment of Ormiston JA in Power v Hamond,[1] in which the Court of Appeal considered the position of receivers appointed under the Legal Practice Act 1996 (the ‘1996 Act’). As the opposing parties relied on different passages from the same paragraphs of his Honour’s judgment, it is convenient to set out the relevant paragraphs in full.[2] After observing that significant sums were held by receivers appointed under Part 9 of the 1996 Act and that it might be thought preferable that there be some obligation to account in a way that the parties could more easily examine, and having been told that the 2004 legislation (the Act) included some such application of the requirements in relation to trust monies, his Honour said:
[34] Nevertheless I should express my own disquiet that the system for appointing receivers by the Court has, at least in recent years, not resulted in the conventional control of receiverships, at least those brought into existence by court order and upon the application of ordinary equitable principles. It is neither sensible nor practical to hold that all the ordinary prudential arrangements relating to court-appointed receivers should necessarily have applied to those receivers appointed pursuant to Part 9 of the Act [the 1996 Act]. Those who appeared for the appellants, effectively as we would understand on behalf of the RPA and the Law Institute, were unable to say why the present bare form of order under s. 250 had come into existence. It certainly bears slight resemblance to conventional orders made in the case of partnerships, trusts and the like. One need refer only to standard works on equity and receivers and to the precedents of orders to be found therein, such as that known as a ”Pratchett v Drew order” and those appearing as orders 9 to 18 in Atkins Court Forms (2nd ed.) and in Seton’s Forms of Judgments and Orders (7th ed.). Whether or not it has been thought that the specific provisions relating to ”returns” by receivers in s. 275 of the Act, expressed in very simple terms, were sufficient, it was not thought appropriate to direct the bringing in of accounts on a periodical or other basis, nor to require security, as must be considered under Order 39 of the Supreme Court (General Civil Procedure) Rules 1996, then in operation.
[35] Even if s. 275 were treated as supplanting the provisions of Order 39.07, there would in the future be good reason to consider whether more specific requirements should be made for periodical ”reporting” by receivers appointed under Part 9 or its new equivalent. They are not conventional court receiverships, in that they do not arise out of any inter partes proceeding to which the ”beneficiaries” (here the clients of the practice) have been joined. There was, of course, no requirement that clients be parties in order that they might intervene and seek necessary directions (see especially s. 266 of the Act), nor was the Ombudsman precluded from so applying to the Court, but that is not sufficient. Whatever be the new requirements as to keeping trust accounts, judges appointing receivers under the relevant legislation in the future ought carefully to think about including mandatory orders relating to making, filing and publishing reports and the like which will enable those interested to ascertain the current and ultimate state of the receivership. Under the Act, as the Ombudsman suggests, there seems to be nobody with an interest in the outcome who was sufficiently informed so as to decide whether to take any necessary steps by way of seeking further directions or the like.[3]
[1][2006] VSCA 25.
[2]Other than the last sentence of paragraph 35, which is not presently relevant.
[3][2006] VSCA 25 [34]-[35] (footnotes omitted).
Mr Sandbach relied on these paragraphs to submit that the prudential supervision and prudential protections reflected or embodied in O 39 were matters which a Court charged with supervising a receivership under the Act ought to ensure were implemented or enlivened. According to Mr Sandbach, O 39 reflects long-established equitable practice in the Court of Chancery based on the need to ensure an appropriate level of scrutiny of the conduct of receivers, and the burden of Ormiston JA’s observations was that a Court exercising powers under the Act ought to impose a greater level of scrutiny on receivers.
It was, however, Mr Sandbach’s submission that there may be a question as to whether it is convenient to adopt the mechanisms which O 39 provides, or whether it is more appropriate to fashion some other mechanisms. Nonetheless, he submitted that even if it were not intended to use O 39, the Court’s attention should be drawn to it and the Court invited to order that it should not apply in this case because, according to Mr Sandbach, O 39 does apply to receiverships under the Act and contains provisions which enable the Court to follow in any given case what it considers to be an appropriate course. Where there are ‘real questions’ as to the correctness of the remuneration paid to receivers, Mr Sandbach submitted that the mechanism in O 39 should be applied so that the relevant questions could be ventilated. The Court could take the view that it was not necessary to require a full accounting, and that a more limited process of oversight should be applied. However, he submitted that the policy underlying O 39, and the statements of Ormiston JA in Power v Hamond, all led inexorably to the conclusion that the Court ought to establish an appropriate mechanism for supervising and controlling the receiver, including ascertaining whether or not his remuneration was in accordance with the rates which the Court itself had fixed, whether the bills reflected proper application of those rates, and so on.
In Mr Sandbach’s submission, therefore, O 39 could be applied in terms or the Court could fashion appropriate orders. In either event, the question of the receivers’ remuneration ought to go to an appropriate officer of the Court if ‘real questions’ were raised about the receivers’ accounts.
Mr Corbett, for the receivers, relied on those passages in which Ormiston JA observed that a receivership of a law practice under the 1996 Act was not a conventional Court receivership and that it was neither sensible nor practical to hold that all the ordinary prudential arrangements relating to Court appointed receivers should necessarily apply to receivers appointed under the 1996 Act. He submitted that the thrust of the observations in Power v Hamond was that O 39 did not apply to the receivers of law practices.
It seems clear that Justice Ormiston was concerned that under the 1996 Act, ‘bare’ orders were being made appointing receivers and the statute itself made little or no provision for reporting or accounting by receivers. His Honour’s disquiet appears to have arisen, at least in part, from the fact that the 1996 Act did not contain prescriptive reporting and accounting requirements for receivers. Hence, his Honour proposed that the Court make mandatory orders for the filing and publishing of reports in order to enable persons interested in the receivership to ascertain the state of the receivership. However, his Honour did not express a view as to whether O 39, or any part of it, applied to receiverships under the 1996 Act.
In my view, whether O 39 applies or could apply (in whole or in part) to receivers appointed under the Act, and what powers the Court has to give directions about the remuneration of receivers and their reporting or accounting obligations generally, must depend on a close reading of the Act. Ultimately, it is a question of what is permitted by the Act.
The Board’s submissions were directed to precisely this question. The Board submitted that the Act, and in particular s 5.6.7, lays down a code in respect of fees, costs and expenses of a receiver appointed pursuant to the Act. As a result, a legal practitioner has no right to make, and the Court no jurisdiction to consider, an application for review or assessment of a receiver’s fees or the costs or expenses of a receivership under O 39.
The Board submitted that s 5.6.7 of the Act must be construed so as to exclude the kind of review of receivers’ costs contemplated by clauses (4), (5) and (6) of r 39.07, particularly having regard to:
(a) the development and operation s 5.6.7(2) of the Act in the context of national uniform legislation known as the Legal Profession – Model Laws Project; and
(b) the removal of provisions governing conveyancing practices from the Act and their insertion into the Conveyancing Act 2006 (Vic).
In relation to the first point, the Board described the following legislative context:
(a) Section 5.6.7(2) of the Act reflects clause 5.6.8(2) of the National Legal Profession Model Regulations (the ‘Model Regulations’), which is a Core Uniform provision.[4] Clause 5.6.8(2) provides:
[4]Legal Profession – Model Laws Project; Model Bill (Model Provisions), 2nd edition, August 2006, pp 1 and 299.
An account of the external intervener for fees, costs and expenses may, on the application of the [appropriate authority], be taxed or assessed.
(b) Under the Legal Profession Practice Act 1958 (Vic) and the Legal Practice Act 1996 (Vic), there was no provision in Victoria for a legal practitioner to seek review by the Court of the expenses or remuneration of a receiver or external intervener appointed to the legal practitioner’s practice. Only the Board or the Law Institute of Victoria (as the case may have been), or the receiver, had a right to apply to the Court for a determination about the receivers’ remuneration.
(c) New South Wales, Queensland, the Australian Capital Territory and the Northern Territory have enacted legislation implementing the Model Regulations. In none of Queensland, the ACT or the Northern Territory did the predecessor statute regulating the conduct of lawyers contain a provision which entitled a legal practitioner to dispute the costs of a receiver appointed to his or her law practice. Thus, in Queensland, the ACT and the Northern Territory, and in Victoria, the position of the legal practitioner has not altered with the enactment of the Model Regulations.
(d) However, the legislative history of New South Wales is different. The Legal Profession Act 1987 (NSW) provided that the New South Wales Supreme Court could, on the application of the relevant solicitor, re-open any agreement made by the Law Society Council for the remuneration of the receiver and determine the amount to be paid. It could also relieve the relevant solicitor from payment of any amount in excess of that determined by the Court to be fairly payable and/or order the receiver to repay the excess.[5]
(e) Such provisions are absent from the current New South Wales legislation based on the Model Regulations, the Legal Profession Act 2004 (NSW). The relevant provisions are substantially the same as those in the Act.
[5]Similarly, s 65U(1) of the Legal Practitioners Act 1898 (NSW) empowered the New South Wales Supreme Court, where it was satisfied by evidence that the amounts charged for the expenses of the receivership were excessive, to take an account between the Law Society and the receiver and to relieve the solicitor from payment of any sum in excess of the sum adjusted by the Court to be fairly payable in respect of such expenses.
The Board submitted that it was therefore highly likely that an appellate court in New South Wales would hold that the New South Wales Parliament intended, by enacting s 652(2) of the Legal Profession Act 2004 (NSW), to remove any entitlement of a legal practitioner to dispute the costs of a receiver. The Board submitted that where both the New South Wales and Victorian provisions gave effect to the Core Uniform provision contained in clause 5.6.8(2) of the Model Regulations, s 5.6.7(2) of the Act should be construed as evincing the intention of the Victorian legislature that a legal practitioner not have a right to dispute the fees, costs or expenses of a receiver appointed pursuant to the Act. To hold otherwise would permit a Core Uniform provision of the Model Regulations to have a different meaning in New South Wales and in Victoria, which would involve a significant departure from the rationale underlying the Model Regulations. The Board submitted that the Court should not come to such a conclusion in the absence of a clear and unambiguous indication to that effect from the Victorian Parliament. [6]
[6]The High Court observed in Australian Securities Commission v Marlborough Gold Mines Ltd (1993) 177 CLR 485, 492 that uniform interpretation of uniform national legislation is an important policy consideration in the construction of statutes:
… uniformity of decision in the interpretation of uniform national legislation such as the Law is a sufficiently important consideration to require that an intermediate appellate court − and all the more so a single judge − should not depart from an interpretation placed on such legislation by another Australian intermediate appellate court unless convinced that that interpretation is plainly wrong.
In the second limb of its argument, the Board submitted that a relevant example of the Victorian Parliament evincing an intention that a person should have the right to dispute the costs of a receiver appointed to his or her practice was to be found in the Conveyancers Act 2006 (Vic).[7] Section 132(4) of the Conveyancers Act provides that the Court, on the application of the licensee in respect of whose property the receiver was appointed, may re-open any agreement between the Director[8] and a receiver for remuneration of the receiver and may determine the amount to be paid. Section 133 also provides that if, on the application of the relevant licensee, the Court is satisfied that the expenses of a receivership are excessive, the Court may order the taking of accounts between the Director and the receiver, and make any adjustments to the expenses that the Court considers to be appropriate.
[7]This Act was introduced after the passage and commencement of the Act for the purposes of protecting the interests of consumers of conveyancing services by regulating the carrying out of conveyancing work by persons other than Australian legal practitioners. It had the effect of repealing Part 7.1 of the Act, which had previously regulated conveyancers.
[8]The ‘Director’ is the Director of Consumer Affairs Victoria.
It was the Board’s submission that had the Victorian Parliament intended to confer similar rights on legal practitioners whose legal practices had been placed in receivership under the Act, it would have done so expressly as it did in the Conveyancers Act.
It is convenient to consider both of the Board’s arguments by first considering the scheme for the determination and review of receivers’ fees, costs and expenses in the Conveyancers Act. Division 3 of Part 6 of the Conveyancers Act provides for the appointment by the Court of a receiver of all or any of the property of a licensee under the Conveyancers Act. A receiver may deal with receivable property in any manner in which the relevant licensee could have dealt with it, but must, as soon as possible after receiving receivable property, vest the property in the person on whose behalf it was held by the relevant licensee.[9] Section 132 of the Conveyancers Act, which was set out only in part in the Board’s submissions, commences as follows:
(1) So much of the expenses of a receivership as have not otherwise been paid to the receiver are to be paid to the receiver by the Director from the Fund.
(2) An amount paid under this section may be recovered by the Director from the relevant licensee or a relevant associate as a debt.
(3) If the Director and a receiver fail to agree on the remuneration to be paid to the receiver, the Supreme Court may, on the application of the Director or the receiver, determine the amount to be paid.
[9]Section 124.
There then follow the provisions relied upon by the Board to show how the legislature would evince an intention that a legal practitioner (or, in the case of the Conveyancers Act, a licensee) have the right to apply to the Court to have the remuneration of the receiver reviewed.
It is the case that s 132(4) of the Conveyancers Act makes specific provision for the Court, on the application of the licensee, to determine the amount to be paid to the receiver by way of remuneration. Similarly, s 133 provides that on the application of the licensee, the Court may order a taking of accounts and make adjustments to the expenses of the receiver. There are no equivalent provisions in the Act for the Court, on the application of a legal practitioner, to determine the amount to be paid to a receiver by way of remuneration or to order a taking of accounts and make adjustments to the a receiver’s expenses.
However, the Conveyancers Act does not provide for the Court to set the remuneration of the receiver in the first place or to provide for the receiver’s costs and expenses. By contrast, s 5.5.1(6) of the Act requires the instrument of appointment of the receiver to:
(d) specify any fees payable by way of remuneration to the receiver specifically for carrying out his or her duties in relation to the external intervention; and
(e) provide for the legal costs and the expenses that may be incurred by the receiver in relation to the external intervention.
These are matters that are dealt with by way of Court order under the Act.
By contrast, under the Conveyancers Act, the receiver’s remuneration is as agreed between the Director and the receiver. The Court is called upon to determine the amount to be paid only where the Director and the receiver have failed to agree on the remuneration and on application by either the Director or the receiver. This is quite a different regime from the regime that applies to receivers appointed under the Act. The fees, costs and expenses of the receiver of a conveyancing practice are not the subject of an order of the Court from the inception of the receivership as they are under the Act.
The regime in the Legal Profession Act 1987 (NSW) appears to have been similar to the regime in the Conveyancers Act. Section 110 provided that so much of the expenses of receivership as had not otherwise been paid to the receiver would be paid to the receiver by the Law Society from the Fidelity Fund, and that if the Law Society Council and a receiver failed to agree upon remuneration to be paid to the receiver, the Supreme Court was required, on the application of the Law Society or the receiver, to determine the amount to be paid. Again, there was provision for the Court, on application by the relevant solicitor, to re-open any agreement by the Law Society Council for remuneration of the receiver and to determine the amount to be paid.
However, under s 630(6) of the Legal Profession Act 2004 (NSW), just as under s 5.5.1(6) of the Act, the instrument of appointment of a receiver must specify any fees payable by way of remuneration to the receiver specifically for carrying out his or her duties in relation to the external intervention, and provide for the legal costs and the expenses that may be incurred by the receiver in relation to the external intervention.
The current New South Wales regime, like the Victorian one, therefore provides for the remuneration, costs and expenses of a receiver to be determined by order of the Court. This was not the case previously in New South Wales, and that is the reason why provision was made for the Court to intervene if the Law Society Council and the receiver could not agree upon appropriate remuneration or if the agreement between them resulted in excessive payments to a receiver. The changes to the New South Wales legislation were not, in my view, directed to removing the right of a solicitor to challenge the costs or expenses paid to a receiver. Rather, they placed the Court at the centre of the process for determining the remuneration, costs and expenses of receivers. The courts in both New South Wales and Victoria are involved in this process from the outset, and the general power to supervise the receivership and to give directions in relation to any matter affecting the receivership must include the power to retain control over the remuneration, costs and expenses of receivers appointed by the Court.
As a result, I do not accept that submission that it is highly likely that an appellate court in New South Wales would hold that the New South Wales Parliament intended, by enacting s 652(2) of the Legal Profession Act 2004 (NSW), to remove any entitlement of a legal practitioner to dispute the costs of a receiver. The 2004 Act involved a wholesale change to the way in which receivers’ fees, costs and expenses were to be determined. In my view, the New South Wales legislative history is not an impediment to the Court entertaining an application by a legal practitioner in respect of the fees, costs and expenses of a receiver appointed to his or her legal practice. Likewise, the fact that the Conveyancers Act expressly provides for the Court to determine the amount to be paid to a receiver upon application by the licensee does not mean that the Court is precluded by the Act from entertaining an application by a legal practitioner in respect of the fees, costs and expenses of a receiver appointed to his or her legal practice.
Section 5.6.7(2) of the Act must also be considered. Section 5.6.7(2) confers on the Board a discretion to cause the fees, costs and expenses of a receiver to be reviewed or assessed. In my view, the existence of this provision evinces an intention that the primary responsibility for keeping a check on the fees, costs and expenses of an external intervener rest with the Board. However, that is not inconsistent with the Court’s exercise of its supervisory powers in respect of the arrangements that it has put in place for the receivership, including for the remuneration of the receiver. There would need to be a clear expression of intention by the legislature to exclude such a power.
The fees, costs and expenses of the receiver are matters with which the Court is concerned from the inception of the receivership. At the very least, the Court must have power to make orders in respect of the arrangements it has put in place for the conduct of the receivership. I see no reason why that could not occur on the application of the legal practitioner whose law practice has been placed in receivership. That person is either “a principal of the practice” or a person “affected by the external intervention” for the purposes of the Court’s directions power in s 5.6.5 of the Act.[10]
[10]Section s 5.6.5 enables the Court to give directions in relation to any matter affecting the intervention or the intervener’s powers, duties or functions under the Act on application by the external intervener or by a principal of the practice or by any person affected by the external intervention.
Note also that s 5.6.1 of the Act provides that an appointment of an external intervener is subject to any conditions imposed by the appropriate authority and any conditions imposed by or under the Regulations. The appropriate authority may impose conditions when the appointment is made or during the term of the appointment, and may revoke or vary the conditions imposed. The Supreme Court is, of course, the appropriate authority in the case of the receiver. This provision also gives the Court wide powers to impose conditions on the receivership, including during the term of the receivership.
However, I have difficulty seeing how O 39 could apply generally to the Court’s supervision of a receivership under the Act. As Ormiston JA pointed out in Power v Hamond, O 39 contains prudential arrangements that it would be neither sensible nor practical to apply to receivers appointed under the Act, such as the requirement for receivers to give security. In my view, O 39 does not apply to a receivership commenced under the Act, although as Mr Sandbach submitted, that would not prevent the Court from fashioning a similar regime in respect of the receiver’s remuneration, if it thought it appropriate to do so, using the powers conferred upon the Court by the Act.
In my view, therefore, it is open to Mr Forster to apply to the Court for orders directed to ensuring that the receivers’ fees, costs and expenses are charged in accordance with the instrument of appointment. It is implicit in the orders made by the Court constituting the instrument of appointment that the receivers’ fees, costs and expenses must be reasonable. Whether the Court will carry out a review in any given case will involve the exercise of discretion. The relevant discretionary factors are considered below.
Should the Court intervene on the application of Mr Forster?
The Board submitted that, even if O 39 applied to the receivership under the Act, Mr Forster had not demonstrated a need for the Court to make orders pursuant to O 39. The Board submitted that it was adequately scrutinising the receiver’s fees, costs and expenses in accordance with s 5.6.7(2) of the Act by having the receivers’ costs evaluated by a cost consultant and that no specific error in the cost consultant’s analysis had been identified by Mr Forster.
Although O 39 does not apply to a receivership under the Act, the Board’s submissions on the Court’s discretion are relevant to whether the Court should exercise its supervisory powers in relation to the receivers’ accounts.
The Board submitted that the Court should only intervene if the regime provided by the legislation for the review of the receivers’ fees, costs and expenses has become ‘unworkable’.[11] The regime referred to is the Board’s power to cause the receivers’ accounts to be reviewed or assessed under s 5.6.7(2) of the Act. The Board contends that the review or assessment process undertaken by it has not been shown to be unworkable: all that has been shown by Mr Forster is that substantial costs have been incurred by the receivers. The Board contends that those costs are largely a consequence of the manner in which Mr Forster has conducted himself, including the manner in which materials from the law practice were provided to the receivers. According to the Board, there is no warrant in the Act for a quantum of costs not shown to have been improperly incurred to be a basis for judicial intervention, nor any warrant for some form of ‘cost-benefit analysis’ to be undertaken, either in respect of assessing costs, or more broadly as to the conduct of the receivership.
[11]Re Walker as Liquidators of One.Tel Ltd (2005) 54 ACSR 11; [2005] NSWSC 557.
The Board has exercised its discretion under s 5.6.7(2) of the Act to have the receivers’ accounts assessed by a costs consultant. The Court was informed that all of the receivers’ accounts have been provided to Mr Ray de la Rue of RJD Legal Services for assessment. The affidavit of Matthew Graeme Muir sworn 29 September 2010 refers to an assessment of the receivers’ invoices rendered on 9 July 2010 and 30 July 2010 having been conducted by Mr de la Rue and exhibits a copy of Mr de la Rue’s letter dated 29 September 2010 to the Board spelling out an adjustment that he required to be made. The affidavit of Amalia Castos sworn on 17 November 2010 exhibits further correspondence between Mr de la Rue and the Board in relation to the receivers’ accounts of 19 July 2010 and 21 September 2010. In her affidavit sworn on 16 February 2011, Ms Castos deposes that further invoices (for periods up until 22 December 2010) have been sent to Mr de la Rue for assessment and she exhibits Mr de la Rue’s response in respect of invoices for the period up to 30 September 2010.
I have considered affidavits filed by and on behalf of Mr Forster during the course of the receivership, as well as his responses to the receivers’ reports. Mr Forster has raised issues about the cost of the receivership in his affidavits dated 29 April 2010, 17 November 2010, 18 November 2010, 17 February 2011, 15 February 2011, 19 April 2011, 21 April 2011, 3 May 2011 and 23 May 2011. He has also raised this issue in his responses to the receivers’ reports dated 23 June 2010, 6 September 2010, 8 October 2010 and 17 November 2010.
Mr Forster’s materials contain a number of very broad allegations in relation to the accounts submitted by the receivers and the cost of the receivership generally. Those allegations appear to be directed to bringing the receivership to an end (on the grounds of its allegedly disproportionate expense) rather than to obtaining adjustments to the receivers’ accounts. Nonetheless, having regard to Mr Forster’s affidavits and responses to receivers’ reports, the following more specific complaints about the receivers’ fees, costs and expenses are discernable:
Material filed by Mr Forster
Nature of complaint
Affidavit 29 April 2010
No reasonable price on travel costs.
Affidavit 21 May 2010
Two receivers travel to Frankston to sign an authority.
One of the receivers talking to former clients and taking calls when a junior solicitor would be more cost effective.
Cost of storage of chattels and delivery.
Response to receivers’ report
23 June 2010
Some parts of the receivers’ report are unnecessary and unhelpful. Some matters are already within the knowledge of the Court.
Not necessary for receiver to sort through boxes of files.
Not necessary to examine 3,800 bank statements.
Response to receivers’ report
6 September 2010
The costs of a mobile phone connection for Hollows is unnecessary.
Receivers are charging for opening mail.
Excessive charging for execution of a report and excessive costs for collecting mail from post office.
No time entries for solicitors for less than ten minutes.
Excessive charging for work in opening an account for depositing proceeds of sale.
Response to receivers’ report
8 October 2010
Substantial fees for internet connection.
Charge for opening mail. Generic and non-chargeable secretarial tasks should not be charged.
(Again, complaint is made about excessive charging for the execution of a report, collecting mail from post office and opening an account for depositing proceeds of sale.)
Response to receivers’ report
17 November 2010
Receivers’ report contains unnecessary material and work which increases fees.
Failure to deal expeditiously with an offer to settle.
Affidavit 17 November 2010
This affidavit makes a series of broad allegations, including in relation to clerical work being charged at a solicitor’s rate, unreasonable internet connection and bank fees, unnecessary attendances on accountants with more than one solicitor, incurring costs by being concerned with complaints (and generally incurring costs for work Mr Forster alleges is not properly part of the role of the receivers), charging for administrative work, charging for removal of property, charges for the second receiver’s work, costs for copying bank statements.
There is also complaint about fees for counsel and fees for Deloittes for the preparation of the forensic accounting report.
The affidavit exhibits letters to the receivers and to the Board in relation to the receivers’ costs.
Affidavit 15 February 2011
Essentially repeats the complaints in the affidavit of 17 November 2010.
Affidavit 17 February 2011
Second receiver has charged for work.
Fee to collect a cheque payable is excessive.
Time taken to review and consider offer in the matter of Quinn.
Charges for dealing with Catholic Church matters and in relation to work concerning complaints by Mr Mann.
Fees of counsel.
Charges for preparing accounts and calculating costs.
Incorrect charge for GST.
Charges for work already carried out by the Legal Services Board.
Affidavit 3 May 2011
Charges for “ethical matters” in relation to Mr Quinn.
Affidavit 23 May 2011
Costs of storage of chattels.
Costs for attendances on cost consultant for the purposes of assessment of accounts.
Solicitor has charged at the wrong hourly rate.
Receivers have incurred merchant banking fees of approximately $30.00 per month.
There is also complaint about the form of the receivers’ accounts. Mr Forster complains about the absence of a running total; in some of his later affidavits, he also complains about the reduced narrative in the accounts.
It is apparent from the Board’s materials that Mr de la Rue has required some adjustments to be made to the receivers’ accounts. These adjustments have included reducing the charge out rate for one of the solicitors assisting the receivers and that of another solicitor engaged to review documentation in the conveyancing area, along with reductions in charges for preparation of certain affidavits, and for the second receiver attending Court on at least one occasion. Some of these adjustments appear to correspond to the complaints made by Mr Forster. Generally, however, the receivers’ accounts appear to have been accepted as reasonable by Mr de la Rue.
Although I have concluded that the Court has the power to review the fees, costs and expenses of the receiver, I agree with the Board that the Court should not embark upon such an exercise unless it appears that the Board is failing to properly exercise its discretion to cause the receivers’ fees, costs and expenses to be reviewed or assessed, either by refusing or neglecting to do so in circumstances that require it to be done, or by having it done inadequately. The Board is required to be vigilant in relation to the fees, costs and expenses of the receivers: it has the same responsibility to exercise its power under s 5.6.7(2) to protect Mr Forster’s interests as it does to protect the Public Purpose Fund.
The Board has taken action under s 5.6.7(2) to ensure that the receivers’ fees, costs and expenses are charged in accordance with the instrument of appointment and that those charges are reasonable by engaging a cost consultant to review or assess the receivers’ accounts. In the absence of specific complaint as to how that review or assessment has been carried out, the Court would be reluctant to intervene to conduct its own review.
In any event, on the material currently before the Court, no review of the kind sought by Mr Forster could be conducted. Notwithstanding the complaints set out in the table above, Mr Forster has not identified with any particularity the way in which he says the receivers’ fees, costs and expenses do not comply with the instrument of appointment or are unreasonable. In order for the Court to intervene as Mr Forster asks it to, he would need to identify specific items in the receivers’ accounts as requiring review by the Court and give an explanation to why the Court’s intervention is required. In other words, any review of the receivers’ accounts undertaken by the Court would need to have a clear focus and a limited ambit. The receivers’ accounts could not be reviewed by the Court on the basis of non-specific allegations of the kind that have been made by Mr Forster.
Furthermore, the Court may be reluctant to exercise its discretion to review the receivers’ fees, costs and expenses if to do so would impede the work of the receivers and make the receivership even more costly. One of the principal purposes of the receivership is to facilitate the identification and recovery of monies that may have been taken from the law practice’s trust account unlawfully and to the detriment of the former clients of the law practice. However, much time and money has been expended on ‘skirmishes’ in the receivership. Mr Forster has set his face resolutely against the receivership, and has done little or nothing to assist its efficient progress and timely conclusion. He appears unable or unwilling to understand that the Court was and remains dissatisfied with the way in which the law practice purported to remedy the trust account deficiencies resulting from the double payment of disbursements. The fact that no mathematical error remained in the firm’s accounts following the adjustments carried out by Mr Forster and his staff does not mean that trust account requirements were complied with or that former clients of the firm received their due. Mr Forster seems to understand no other way than to be confrontational and obstructive. His attitude has, in my view, added significantly to the costs of the receivership.
The receivership has been expensive to date. This is of concern to the Court for a number of reasons, not the least of which is that the former clients of the firm will not be able to recover monies to which they may become entitled if the law practice’s resources have been consumed by the costs of the receivership.[12] After nearly 18 months of the receivership, it remains unclear whether any of the law practice’s former clients will become entitled to repayment of any of the amounts which they ‘double paid’ for disbursements. However, the receivers have informed the Court that they propose to seek to recover the $2.7 million that was paid twice to the law practice by the Voyager clients in order to return those funds to trust. Once this has occurred, consideration will be given to whether new invoices should be raised by the law practice in respect of amounts that were previously written off. Any payment to the law practice from its trust account in respect of fees written back ‘up’ could then take place in accordance with trust accounting requirements and with the authorisation of the relevant clients. This is the process that should and could have been undertaken by the law practice in the first place.
[12]In this context, the ‘cost-benefit’ analysis which the Board refers to in its submission would appear to have some utility.
No order in the form of paragraph 9A will be made.
Paragraphs 10(a) and 10(b)
By paragraphs 10(a) and 10(b) of the summons Mr Forster seeks directions that:
(a) further to paragraph 4 of the 12 April orders, the monthly report to be provided by the receivers give full and proper information in relation to the receivership and in particular specify the future projected costs of the receivership, and attach to its report a copy of their monthly accounts;
(b) the costs, fees and expenses of the receivers of, or in relation to, the receivership be reasonable, and be otherwise limited to necessary work, properly performed in connection with the receivership.
Mr Sandbach told the Court that these paragraphs fell away if the Court acceded to the application that there be a mechanism either under r 39.07 or otherwise for review of the receivers’ remuneration.
I have found that such a ‘mechanism’ exists as part of the Court’s general power to supervise the receivership. Nonetheless, that mechanism will be deployed sparingly having regard to the Board’s power under s 5.6.7(2) of the Act, and will not be deployed at all in the absence of a complaint made with sufficient particularity and upon proper materials.
It is trite that the costs, fees and expenses of the receivers of, or in relation to, the receivership must be reasonable and limited to work necessarily performed in connection with the receivership. However, this will not be limited to work concerning the Voyager files, as the receivers are charged with the winding up of the practice as a whole. I see no difficulty in the receivers charging, for example, for work related to finalising the litigation involving the Catholic Church.
As to the Court directing that the receivers’ reports give “full and proper information in relation to the receivership”, this again appears to ask the Court to do no more than state the obvious. Mr Forster does not say what is missing from the receivers’ reports, apart from future projected costs and monthly accounts.
As to the former, attempts have been made in the past to quantify future costs of the receivership with limited success. The receivership is now at a point where it is particularly difficult to predict future costs, as it is unclear what steps the receivers will be required to take to have monies restored to trust. What those steps are and the cost of taking them will depend very much on the attitude of Mr Forster himself.
As to the attachment of monthly accounts, the Court will require copies of accounts if and when there is an application for accounts to be reviewed.
Accordingly, directions in the form of paragraphs 10(a) or 10(b) of the summons will not be made.
However, given the hiatus in the reporting by the receivers caused by the Court’s direction to ‘down tools’ while the question of the validity of the firm’s costs agreements was determined, it is timely to make further directions as to monthly reporting. I will hear the parties on this question.