Maxwell-Smith v Donnelly

Case [2010] FCA 474

FEDERAL COURT OF AUSTRALIA

Maxwell-Smith v Donnelly [2010] FCA 474

Citation: Maxwell-Smith v Donnelly [2010] FCA 474
Parties: EUGENE MAXWELL-SMITH and INGE MAXWELL-SMITH v MAX CHRISTOPHER DONNELLY and S & E HALL PTY LTD
File number: NSD 198 of 2004
Judge: NICHOLAS J
Date of judgment: 14 May 2010
Catchwords: BANKRUPTCY – After sequestration orders were annulled, a consent was order made that the costs, charges and expenses of the administration of the former bankrupts’ estates, including the trustee’s remuneration and expenses, be taxed by a Registrar – Registrar conducted taxation and issued Certificates of Taxation – application by former bankrupts to set aside the Registrar’s decision – application by former trustee for orders giving effect to the Registrar’s decision – jurisdiction of the Court to review Registrar’s decision – effect of order by Full Court in previous proceeding between former bankrupts and former trustee that there be “no order as to costs” – whether costs agreements between former trustee and solicitors entitled solicitors to charge a 25% premium or uplift fee – whether trustee entitled to remuneration and expenses in relation to proposed public examinations of former bankrupts after lodgement of statement of affairs and filing of annulment application – whether relevant work unnecessary
Held: Review limited to whether the Registrar’s decision was affected by error of principle – in the circumstances, Full Court order that there be “no order as to costs” prevented the former trustee from recovering costs from the former bankrupts’ estates – solicitors not entitled to charge a premium or uplift fee under the first and third costs agreements as these did not by their terms confer any right to do so – remuneration, costs and expenses of trustee relating to public examinations incurred after 1 March 2004 should be disallowed – proceeding remitted to Registrar to prepare report on what further amounts should be disallowed in accordance with these reasons
Legislation: Bankruptcy Act 1966 (Cth) ss 30, 162, 164, 167, 178, 179
Bankruptcy Regulations 1996 (Cth) regs 1.03, 8.08, 8.09, 8.10, 8.11, 8.11A
Insolvency Act 1897 (Vic) s 27
Legal Profession Act1987 (NSW) ss 184, 186, 187
Legal Profession Act2004 (NSW) ss 319, 322, 323, 324, 327
Cases cited: Maxwell-Smith v S & E Hall, in the matter of Maxwell-Smith [2004] FCA 840 cited
Maxwell-Smith v Donnelly [2005] FCA 332 cited
Maxwell-Smith v Donnelly [2006] FCAFC 150 cited
Maxwell-Smith v Donnelly (in the matter of Inge and Eugene Maxwell-Smith) [2007] FCA 894 cited
Maxwell-Smith v Donnelly (in the matter of Inge and Eugene Maxwell-Smith) [2007] FCA 1005 cited
Maxwell-Smith v Donnelly (in the matter of Inge and Eugene Maxwell-Smith) [2007] FCA 1097 cited
Maxwell-Smith v Donnelly [2007] FCAFC 180 cited
In Re Cameron (1899) 25 VLR 59 cited
Pattison v Bellin (2000) 103 FCR 590 cited
Wenkart v Panzter (2005) 223 ALR 384 followed
Pantzer v Wenkart (2006) 153 FCR 466 followed
Adsett v Berlouis (1992) 37 FCR 201 cited
Re Hodgkinson [1895] 2 Ch 190 applied
Date of hearing: 19 and…

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Maxwell-Smith v Donnelly [2010] FCA 474
Case
[2010] FCA 474
Decision Date

CaseChat Overview and Summary

The case of Maxwell-Smith v Donnelly involved the former bankrupts, Mr. and Mrs. Maxwell-Smith, seeking to set aside the decision of a Registrar who had taxed the costs, charges, and expenses of the administration of their estates, including the trustee's remuneration and expenses. The former trustee, Mr. Donnelly, applied for orders giving effect to the Registrar’s decision. The primary legal issues revolved around the jurisdiction of the Court to review the Registrar's decision, the effect of a previous order by the Full Court that there be "no order as to costs," the validity of costs agreements between the former trustee and solicitors that entitled the solicitors to charge a 25% premium or uplift fee, and whether the trustee was entitled to remuneration and expenses in relation to proposed public examinations of the former bankrupts after the lodgement of the statement of affairs and the filing of the annulment application. Additionally, the court had to determine whether the relevant work was unnecessary.

The court reviewed the Registrar's decision to ensure it was not affected by any error of principle. The Registrar had conducted a thorough item-by-item review of the bills submitted for taxation, disallowing or adjusting items affected by double-counting, errors in addition, and other issues. The court found no evidence of bias or unfairness in the Registrar's process and accepted that the Registrar was under a duty to progress the taxation efficiently. The objections raised by Mrs. Maxwell-Smith were largely rejected as they had been previously considered and dismissed by other courts. The court held that the substantial proportion of the costs and expenses allowed related to proceedings initiated by the Maxwell-Smiths against Mr. Donnelly, which he had to defend.

The court ordered that the applicants' amended notice of motion be struck out in part, and the proceeding be remitted to the Registrar for a review of the bills of costs. The Registrar was required to prepare a short report indicating what further amounts should be disallowed. The applicants' amended notice of motion was otherwise dismissed, and the former trustee's notice of motion was stood over. The applicants were ordered to pay the former trustee's costs of the notice of motion, to be fixed, and the former trustee was to file any affidavits in support of an application to determine the amount of costs payable. The court reserved all other questions of costs and granted liberty to apply on seven days' notice.

Orders

Orders of the court

1. Paragraphs 1 and 2 of the applicants’ amended notice of motion be struck out.

2. The proceeding be remitted to the Registrar to allow her to review the bills of costs the subject of the taxation and prepare a short report which indicates what further amounts should be disallowed in accordance with the reasons for judgment delivered today.

3. The applicants’ amended notice of motion be otherwise dismissed.

4. The first respondent’s notice of motion be stood over to a date to be fixed for the making of further orders.

5. The applicants pay the second respondent’s costs of the notice of motion in an amount to be fixed.

6. The second respondent file and serve any affidavit it wishes to rely upon in support of any application to fix the amount of costs payable pursuant to order 5 within 7 days.

7. Any party who wishes to make further submissions to the Registrar in relation to any matter arising out of order 2 should give written notice to my Associate (copied to the other parties) of his or her desire to do so within 7 days.

8. All other questions of costs be reserved.

9. Each party have liberty to apply on 7 days notice.

Note:

Background

Background to the litigation

Full text does not contain this section.

Evidence

Evidence Before The Court

In addition to considering matters raised by Mrs Maxwell-Smith, the Registrar appears to have investigated the reasonableness of particular items even if not the subject of specific objection. I think this was appropriate. The power to disallow an item under reg. 8.11(3) is not confined to items to which an objection has been taken. The Registrar identified double-counting, errors in addition and other problems in the bills submitted for taxation. In accordance with the approach taken by her, items affected by these errors were disallowed or adjusted appropriately.EVIDENCE The parties accepted that I was entitled to have regard to material that was before the Registrar for the purpose of reviewing her decision. Before me Mr and Mrs Maxwell-Smith also relied upon the following:·Affidavits made by Mrs Maxwell-Smith on 4 May 2009, 21 July 2009, 16 October 2009, 12 November 2009 and 16 November 2009;·A document entitled “Appeal on Taxation and decision by Registrar Hedge” filed 28 April 2009; and·A document entitled “Submissions by the Applicants in Support of the Notice of Motion Amended” filed 17 November 2009.The document dated 28 April 2009 was in the nature of a signed statement by Mrs Maxwell-Smith. I allowed her to tender this document and it was received into evidence. Neither it nor any of the affidavits made by Mrs Maxwell-Smith was objected to by the trustee. Nor was there any cross-examination of Mrs Maxwell-Smith. The trustee relied upon an affidavit of his solicitor, Mr David Crompton, sworn 19 August 2009 which, among other things, responded to various allegations made against him in Mrs Maxwell-Smith’s affidavit of 4 May 2009. There was no cross examination of Mr Crompton. The trustee also tendered a portion of a statement of affairs prepared by Mr and Mrs Maxwell-Smith which, it was submitted by his counsel, showed that they had assigned a value of $2.00 to their property at Tura Beach. There was no other evidence called by the trustee.MRS MAXWELL-SMITH’S SUBMISSIONS Mrs Maxwell-Smith submitted that the “trustee’s right to remuneration is restricted to work reasonably and bona fide undertaken for the purpose of administrating the estate or performing a statutory public duty with reasonable care and skill and in an efficient and economical way”: see Adsett v Berlouis (1992) 37 FCR 201 at 212, Pantzer v Wenkart (2006) 153 FCR 466 at para [43]. She submitted that nearly all of the work undertaken by the trustee and his manager in the course of the administration of Mr and Mrs Maxwell-Smiths’ estates was unreasonable and unnecessary and that most of the legal actions which occurred could have been avoided. She also submitted that the trustee acted recklessly and irresponsibly in that he knew that her and her husband’s estates were solvent from the time the sequestration orders were made. She submitted that the trustee needlessly took steps to arrange for their public examination, to transfer title to their properties into the trustee’s name and to insure those properties under policies issued in his name. All of this work, Mrs Maxwell-Smith submitted, was unnecessary.

Decision

Reasons for decision

I adopt the same approach as Branson J. I have reviewed the Registrar’s reasons for the purpose of determining whether her decision was affected by any error of principle. I have not undertaken a line by line review of the bills of costs which were taxed by the Registrar but I have reviewed them to the extent I considered necessary for the purpose of better understanding her overall approach. THE REGISTRAR’S DECISION The taxation hearing occurred over 3 days. The trustee was represented before the Registrar throughout the hearing. Mrs Maxwell-Smith attended the first day of the hearing only. But it is clear that she was given the opportunity to raise objections and to make submissions which she did both orally and in writing. The Registrar outlines in her reasons for decision the procedure followed at the hearing of the taxation. The Registrar worked through each of the bills item by item. The approach taken by her was to allow items if she was “… satisfied that the items claimed were able to be supported by the material in the file, as well as being work that was appropriately undertaken by the trustee and his solicitor both during and after the annulment of the bankruptcy.” The Registrar’s reasons set out a number of general objections taken by Mrs Maxwell-Smith to the taxation of the bills. While there were 7 bills submitted for taxation, the Registrar decided to issue separate certificates of taxation for the bankruptcy period (Certificate No 1; Bill 1), the post bankruptcy period (Certificate No 2; Bills 2-6) and the High Court special leave application which had been excluded from Certificate No 2 (Certificate No 3; Bill 7). A general objection raised by Mrs Maxwell-Smith before the Registrar was that “the Trustee and his staff acted in bad faith, irresponsibly, and not in the interests of creditors and the bankrupts.” Other general objections recorded by the Registrar in her reasons are:(a)“the fact that the Trustee undertook the administration of the bankrupt estate at all and the view that he should have done nothing and immediately accepted that the sequestration order should not have been made;”(b)“that the Trustee did not exercise commercial judgement and applied his position as a Trustee for his own financial gain;”(c)“that money was wasted on public examinations as, for example, a statement of affairs was prepared as soon as possible;”(d)“a delay in the hearing of the annulment application;”(e)“that the Trustee has no entitlement to remuneration and indemnity for costs and expenses after the annulment (para 50, submissions 8 May 2008);”(f)“that house insurance was organised and paid on the properties of the bankrupts (apparently duplicating the bankrupts’ insurance on these properties);”(g)“that the Trustee should not have held a creditors’ meeting after the annulment order was made;”(h)“that there were changes made by the Trustee’s solicitor from his original bill of costs, and consequently, the reliability of the whole bill of costs and rates charged are in question;”(i)“that the Trustee refused to allow Mrs Maxwell-Smith use of her passport to undertake a cruise with her grandchildren.”

Ratio Decidendi

Legal Principle Established

As to the question of the hourly rates of the trustee’s solicitors, and the premium or uplift fee applied to them, counsel for the trustee relied upon the reasons for decision of the Registrar. In written submissions which he was invited to file following the hearing of the notices of motion the trustee submitted that there was no basis for the Court to overturn the findings and exercise of discretion of the Registrar concerning the hourly rates charged by the trustee’s solicitors.CONSIDERATIONThe general objections to the Registrar’s decision There is no evidence at all from which I could infer that the Registrar was biased or that she acted unfairly toward Mr and Mrs Maxwell-Smith. I am not satisfied that the Registrar’s decision was affected by procedural unfairness of any kind. I am prepared to accept that the Registrar may have “cut off” Mrs Maxwell-Smith from time to time. But I do not think that is enough to establish procedural unfairness. The Registrar was under a duty to progress the taxation in an efficient and orderly way. I can understand why it may have been necessary for the Registrar to intervene from time to time so as to keep the taxation on track. Nor am I satisfied that the Registrar ignored important evidence. I do not think the Registrar was required to refer in her reasons for decision to every fact or circumstance relied upon by Mrs Maxwell-Smith. Nor does it follow that any particular matter which was not referred to by the Registrar in her reasons for decision was ignored or overlooked by her. So far as the allegations made against the trustee and his manager are concerned, I have no doubt that Mrs Maxwell-Smith is convinced that the trustee has acted recklessly and irresponsibly and that he has performed work that was unnecessary for him to perform. But the Registrar was not persuaded that the trustee had acted recklessly or irresponsibly or that most of the work he performed was unnecessary. I am not satisfied, as a general proposition, that the Registrar’s decision was wrong. Many of the complaints made by Mrs Maxwell-Smith before the Registrar and again before me were rejected by Wilcox J when the same matters were raised before his Honour. They were also rejected by the Full Court. The Full Court disagreed with his Honour’s conclusion in relation to the overseas cruise. However, the complaints made by Mrs Maxwell-Smith in relation to that matter were then rejected by Allsop J and Mrs Maxwell-Smith’s attempts to set aside his Honour’s orders were wholly unsuccessful. Mr and Mrs Maxwell-Smith were entitled to challenge Mr Donnelly’s conduct before Wilcox J and Allsop J. They were also entitled to challenge their Honour’s orders in the Full Court and the High Court. But it is hardly a surprise that a substantial proportion of the costs and expenses which were allowed by the Registrar related to those proceedings. They were all proceedings which Mr and Mrs Maxwell-Smith took against Mr Donnelly and which he had no choice but to defend.