[P] Pty Ltd and Landis
[2010] FMCAfam 1303
•25 November 2010
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| [P] PTY LTD & LANDIS | [2010] FMCAfam 1303 |
| FAMILY LAW – Remuneration of court expert’s fees – failure to prove reasonableness of court expert’s fees. |
| Federal Magistrates Court Rules 2001, r.15.11 |
| Conlan as liquidator of Rowena Nominees Pty Ltd (rec and mngr appt) (in liq) v Adams (2008) 65 ACSR 521 (WASCA) Cook’s Constructions Pty Ltd v Stork Food Systems Aust Pty Ltd [2008] QSC 179 Cook’s Constructions Pty Ltd (ACN 004 782 558) v SFS 007 298 633 Pty Ltd (formerly t/as Stork Food Systems Australasia Pty Ltd) ACN 007 298 633 (2009) 254 ALR 661) Old v Hodgkinson; Old v McInnes [2009] NSWSC 1130 Re Morris Fletcher Cross’ bill of costs [1997] QdR 228 Re: One.Tel Ltd (In Liq) (2005) 5 ACSR 558 Re. Solfire Pty Ltd (in liq) (No.2) [1998] 2 Qd R 92 (per Shepherdson J) Re Stockford Ltd; Korda [2004] 140 FCR 424 |
| Applicant: | [P] PTY LTD |
| Respondent: | MR LANDIS |
| File Number: | BRC 1480 of 2008 |
| Judgment of: | Cassidy FM |
| Hearing date: | 15 September 2010 |
| Date of Last Submission: | 4 November 2010 |
| Delivered at: | Brisbane |
| Delivered on: | 25 November 2010 |
REPRESENTATION
| Counsel for the Applicant: | Mr Schulte |
| Solicitors for the Applicant: | Herbert Greer |
| Counsel for the Respondent: | Mr Johnstone |
| Solicitors for the Respondent: | Bennett & Philp Solicitors |
ORDERS
That all outstanding applications be dismissed.
That in the event that either party seeks to file a costs application in this matter:
(a)That any such application for costs be filed and served by no later than 4.00pm on 2 December 2010;
(b)That the response to the costs application be filed and served by no later than 4.00pm on 9 December 2010; and
(c)
That any reply be filed and served by no later than 4.00pm on
15 December 2010.
That judgment in relation to the costs application be delivered at 2.15pm on 17 December 2010 in the Federal Magistrates Court of Australia at Brisbane.
NOTATION
(A)It is noted that the court, in the absence of evidence of what is a reasonable fee, adopts the open offer made by Mr Landis at the commencement of the trial in the sum of $22,000.00 as the reasonable fee in this matter.
IT IS NOTED that publication of this judgment under the pseudonym [P] Pty Ltd & Landis is approved pursuant to s.121(9)(g) of the Family Law Act 1975 (Cth).
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT BRISBANE |
BRC 1480 of 2008
| [P] PTY LTD |
Applicant
And
| MR LANDIS |
Respondent
REASONS FOR JUDGMENT
Introduction
In this matter the applicant seeks, in his amended application in a case filed 7 September 2010, that:
“[2] The husband
and the wifecause to be paid to [P] Pty Ltd trading as [P] in relation to an outstanding account dated 17 December 2008 in the sum of $37.541.39 within 7 days of the making of this Order.”The applicant is also seeking pursuant to that application, interest in relation to the outstanding account and costs on an indemnity basis.
The respondent opposes the application and seeks that it be dismissed, or alternatively, that the remuneration for the court appointed expert be fixed at a lesser amount.
I note that the respondent does not dispute the claim for disbursements in the invoice.
In this matter I initially dealt with a dispute between Mr and Ms Landis in relation to the property of their relationship. In dealing with that dispute, on 12 May 2008, I appointed Mr M as a single expert.
This was an order that was made by consent between the husband and the wife.
That order also consented to the husband initially paying the joint expert’s fee.
Mr M, on letterhead from [P] (a business run by [P] Pty Ltd) sent a letter of engagement to the solicitors for the husband and the wife, and there was a retainer attached to that letter of engagement. On 3 June 2008 the wife signed that, and on 11 July 2008 the husband signed the letter of engagement. The letter of engagement accepted responsibility for the payment of the fees of [P].
On 3 December 2008 Mr M issued his report and on 17 December 2008 an account was issued by the applicant.
On 17 January 2009 a payment request from [P] Pty Ltd was forwarded to Hopgood Ganim, the husband’s then solicitors. On 17 February 2009 a further payment request from the expert was forwarded to Hopgood Ganim.
On 2 March 2009 a report was produced by Mr C on instructions from Mr Landis, and forwarded to Hopgood Ganim. This report challenged aspects of the [P] Pty Ltd report. On 4 March 2009 the husband and the wife engaged in a mediation and terms of settlement resolved all issues as between them. A consent order provided for the husband to have sole responsibility for the payment of the single expert’s fees.
On 10 March 2009 Hopgood Ganim, the then solicitors for the husband raised an objection to the amount of the account provided by [P]. On 20 March 2009 the single expert again sought payment of outstanding fees from the husband and the wife.
On 15 June 2009 Mr M filed an application in a case seeking summary judgment for the payment of his fees in the sum of $37,541.30 within seven days of the making of the order. He also sought interest and costs on an indemnity basis.
On 8 September 2009 orders were made directing the applicant to file and serve written submission, and the summary judgment was adjourned to 25 September 2009.
The application for summary judgment was dismissed.
On 25 September 2009 an order was made for formal disclosure with the applicant to provide the respondent with copies of all accounts and other records, including all time reporting records for the applicant and any partners and staff engaged in the preparation of the report.
A second order was made on that day that the applicant provide, to the respondent within twenty-one days, an itemised account in relation to the fee of $37, 541.39.
The matter was then adjourned to 10 November 2009 for directions.
A consent order was made on 10 November 2009 in relation to general discovery and setting the matter down for trial.
There was a further application for summary judgment by the respondent and on 10 February 2010, the matter was set down for an interim hearing of that issue. On 18 February 2010 the matter was adjourned for an interim judgment at 2.15pm on 16 March 2010. The first respondent, Mr Landis, was unsuccessful in his application for summary judgment however orders were made changing the name of the applicant from Mr M to the company [P] Pty Ltd.
On 25 March 2010, further orders were made for disclosure and a conference of experts. An order was made on 9 September 2010 changing the name of the applicant from Mr M to [P] Pty Ltd in keeping with the reasons for judgment provided previously in this matter in the respondent’s application for summary judgment.
The matter proceeded on 9 and 10 September 2010 and was adjourned part-heard to recommence at 10.00am on 15 September 2010, when the matter concluded.
The issue for determination
This dispute has arisen as a consequence of the performance by the applicant, through its director Mr M, of its obligations as a court appointed expert.
The Federal Magistrates Court Rules 2001 provide at r.15.11:
“Remuneration and expenses of court expert
Unless the Court otherwise directs, the parties are jointly liable to pay the reasonable remuneration and expenses of the court expert for preparing a report.”
The issue that I need to determine is the reasonableness of the remuneration that [P] Pty Ltd claims for the report that it prepared in relation to the matrimonial property dispute between Mr and Ms Landis.
My capacity to consider the reasonableness of the remuneration was something discussed in earlier mentions during these proceedings and both parties conceded that I had that jurisdiction with respect to the matter. As I understood the matter, Mr Landis was prepared, ready, willing and able at all times to pay a sum that was declared to be reasonable by the court. Alternatively, if he considered the sum to be reasonable, he was prepared to pay the fee as well. Mr Landis’ case is he was not prepared to pay the sum sought by [P] Pty Ltd as he was not able to satisfy himself upon the material that he had been provided, that the sum was a reasonable sum for the work that was completed.
The proceedings
I made a ruling that the applicant bears the onus of proofing the reasonableness of the remuneration. That ruling was made on the first day of the hearing, being 9 September 2010.
It would not come as a surprise to anyone that this ruling was made, because it is the applicant who has the custody of the documents that would enable it to come up to proof on the reasonableness of the remuneration. The exercise, of necessity, would involve going through the documents that evidence the work that was done and demonstrating that, through the paper trail, an appropriate amount of time was spent on various aspects of the valuation. This should show also that the various aspects of the valuation were performed by people who were appropriately qualified to do that work, and that the work was not carried out by over qualified people.
The material
This trial proceeded on the basis of affidavit evidence. The material that I considered in the final hearing was as follows.
The applicant
The applicant filed a chronology and list of documents on 9 September 2010 that they sought to rely upon and that list of documents was what I read in the applicant’s case. I also relied upon the outline of submissions filed on behalf of the applicant on 28 October 2010. The applicant was cross examined and his expert witness, Mr B, was also cross examined.
The respondent
The applicant also raised a number of objections to the evidence of the respondent and they were dealt with at the final hearing. The respondent’s evidence that I considered in this matter was:
a)The affidavit of the respondent filed 17 August 2009;
b)The submissions efiled on behalf of the respondent on 7 October 2010; and
c)The submissions in reply filed 4 November 2010.
I also considered the affidavits of the respondent’s expert Mr C filed:
a)15 December 2009; and
b)29 June 2010.
Exhibits
There were a number of documents that were tendered into evidence as exhibits. In particular:
a)Exhibit 1 – the joint letter of instruction from [P] to Landis, tendered by the applicant;
b)Exhibit 2 – two engagement letters from [P] to Landis, one being signed by the wife and the second being signed by the husband, both tendered by the applicant;
c)Exhibit 3 – the report prepared by Mr M dated 3 December 2008, tendered by the applicant;
d)Exhibit 4 – the invoice from [P] to Mr and Ms Landis, tendered by the applicant;
e)Exhibit 5 – the recast paragraphs 24 and 32 of the affidavit of Mr Landis filed 17 August 2009, tendered by the respondent; and
f)Exhibit 6 – Sections 240, 290.210 and 290.212 and the definitions section at page 90 of “Compiled APES 110 Code of Ethics for Professional Accountants (February 2008)”, tendered by the applicant.
The law to apply in determining this matter
I was not provided with any cases on what reasonable remuneration means in the context of Rule 15.11 of the Federal Magistrates Court Rules 2001. However I was provided with a number of authorities by the counsel for the respondent. These cases provide examples of assessment of reasonable remuneration in other circumstances. These authorities assisted me in coming to the decision that I have reached in this matter:
a)Conlan as liquidator of Rowena Nominees Pty Ltd (rec and mngr appt) (in liq) v Adams (2008) 65 ACSR 521 (WASCA);
b)Cook’s Constructions Pty Ltd v Stork Food Systems Aust Pty Ltd [2008] QSC 179 (upheld on appeal: Cook’s Constructions Pty Ltd (ACN 004 782 558) v SFS 007 298 633 Pty Ltd (formerly t/as Stork Food Systems Australasia Pty Ltd) ACN 007 298 633 (2009) 254 ALR 661);
c)Re Morris Fletcher Cross’ bill of costs [1997] QdR 228;
d)Re: One.Tel Ltd (In Liq) (2005) 5 ACSR 558;
e)Re. Solfire Pty Ltd (in liq) (no 2) [1998] 2 Qd R 92 (per Shepherdson J); and
f)Re Stockford Ltd; Korda [2004] 140 FCR 424.
I am assisted by the extract provided in the submissions for the respondent from Old v Hodgkinson; Old v McInnes [2009] NSWSC 1130, and I have reproduced those paragraphs here:
[151] The reference was made in December 2004. Unfortunately, for reasons which are not necessary to go into at this stage, the report was not delivered until 19 March 2007. Also unfortunately, there was no order made as to the basis of the referee’s fees. The fees must, accordingly, be approached on a quantum meruit basis.
[152] Mr Wily, the referee, is a senior partner of a firm of chartered accountants whose practice includes a considerable amount of insolvency work. His published charge out rates are a partner at $479 an hour, manager $327 an hour, senior clerk $182 an hour, secretary word-processing operator $128 an hour, typist $85 an hour and junior $64 an hour.
[153] As I understand the argument, no challenge was made to those charge out rates.
[154] The challenges that were made were in seven categories (later in this judgment referred to as “the seven complaints”) which can be summarised as:
(1) The referee had not given sufficient details to justify his charges;
(2) The referee wrongly used the unit charging method to cost his time;
(3) The referee had charged for internal conferences between various members of his staff;
(4) The referee had charged the parties for what were really his own expenses;
(5) Work was allegedly done by more highly qualified officers than necessary;
(6) The referee was too slow at performing various mundane tasks; and
(7) It was improper to charge for secretarial/postal matters.
[155] Mr Wily gave evidence that the method of charging in his firm was that there was an electronic recording system and that staff entered during the same day or shortly thereafter, how they spent their time and briefly what they had spent their time doing. The charges were split into units of six minutes, ie 10 per hour. The print-out shows that there is relatively little detail. For instance, on 11 December 2006 Mr Wily charged 8 units ($383.20) marked “letters and discuss with Neil”, Neil being his partner Neil Newbould.
[156] It is very difficult for a judge to decide on the quantum of the Receiver’s fees. The costs assessors’ system for solicitors’ fees ensures that a person who is very experienced in the industry rates that are charged by responsible practitioners in the field and the amount of time it would take a practitioner of good standing to do the task, enables the costs assessor to moderate a solicitor’s bill relatively quickly. Judges do not have that expertise.
[157] There have been a few decisions of superior courts in the last few decades where attention has been directed to the relevant considerations when a court is performing this sort of exercise. I will endeavour to distil some of the principles.
[158] (i) The standard method of proceeding in taking of accounts is that the accounting party must file accounts and then there can be surcharges and falsifications. A surcharge occurs where a party seeks to charge the accounting party with an amount beyond that in respect of which the accounting party admits a receipt. A falsification is where a party alleges an item in the account is erroneous in amount or otherwise. With a surcharge, the onus is on the surcharging party; with falsifications the onus is on the accounting party: Pit v Cholmondeley [1754] EngR 174; (1754) 2 Ves Sen 565; 28 ER 360. In the instant case all the objections come within the category of falsification; see eg Burns Philp Investments Pty Ltd v Dickens (No 2) (1993) 31 NSWLR 280 at 288.
[159] (ii) However, the present type of exercise does not require the Court to deal with the matter in quite the same detailed way as in an action for account: Symphony Group plc v Hodgson [1994] QB 179 at 193; Venetian Nominees Pty Ltd v Conlan (1998) 16 ACLC 1653 at 1657 (per Kennedy and Ipp JJ in the Western Australian Full Supreme Court).
[160] (iii) The Court does not necessarily strictly observe all the rules of evidence on its inquiries into costs: Venetian Nominees at 1657 following Computer Machinery Co Ltd v Drescher [1983] 1 WLR 1379 at 1385.
[161] (iv) The referee bears the onus of establishing that his remuneration is fair and reasonable: Venetian Nominees at 1658.
[162] (v) The mere listing of persons who performed the work, the hours worked by each and the amounts claimed may not be sufficient to establish the referee’s claim: Re Reiter Brothers Exploratory Drilling Pty Ltd [1994] TASSC 42; (1994) 12 ACLC 430; Venetian Nominees at 1658 and Moray v Lane.
[163] In Moray’s case, Allen J viewed with disdain an itemised bill which merely allocated units of time for work without giving details of the time spent. His Honour compared this with a traditional bill of costs. He said at 3:
“The proper times have to be shown. It may well be that the defendants will have difficulties in that respect because of their self serving system of unit charges. So be it. They have brought that upon themselves. Time charging is a common place method of charging in matters these days and if they adopt a system which does not permit them to say how much time was in fact spent, on their own heads are the consequences.”
[164] (vi) If the hourly rate is not agreed, then the rate of remuneration commonly accepted in the industry should be applied, but in so doing, the Court must have regard for the standing of the person performing the services, the difficulty of the task and the degree of imagination and creativity involved; see Brenner v First Artists’ Management Pty Ltd [1993] 2 VR 221 at 263.
[165] (vii) A referee is appointed by the Court on the basis that he or she expects to be paid a reasonable remuneration and the Court has an obligation to see that that occurs.
[166] Mr Hale for the referee says there is an eighth rule, and that derives from the decision of the Court of Appeal in Najjar v Haines (1991) 25 NSWLR 224. That was a case where a party to a reference sought, in his appeal from a judge’s decision adopting the referee’s report, to join the referee as a party to seek costs against him. The Court of Appeal held that a referee had immunity from suit. Mr Hale says the case is authority for the proposition that it is not to be allowed that a party to a reference is able to later challenge the referee and cross-examine him. I do not consider the case goes that far. I allowed cross-examination of the referee in the instant case. The rule is that the referee must justify his fees and there is no way in which the Court can adjudicate on that matter unless the referee gives evidence and his evidence is tested.
[167] Under the fourth of the rules set out above, the referee has to establish his claim. However, this does not mean that the referee needs to show that his exact claim is made out in every respect. To take an example in the instant case, there is an instance where the referee has charged two units, ie $95, for reading a letter. This indicates that he spent somewhere between 6 and 12 minutes in doing so. When he read the letter out loud in Court it took 20 seconds. The Court obviously has to find that his claim for $95 is not made out, but some allowance needs to be made for reading the letter.
[168] It is rather difficult to know exactly how to approach this sort of problem. However, it seems to me that it is more likely to be productive to deal with it by: (A) first, dealing with matters of principle under the headings of seven complaints; (B) then dealing with the amounts; (C) then dealing with the question of apportionment.
SECTION A
[169] (1) and (2) of the above list of complaints can be dealt with together, that is, are the referee’s accounts in sufficient detail and is the unit charging method the appropriate way of billing?
[170] The classic statements on the adequacy of accounts by professional people derives from the traditional solicitors’ bill of costs. This requires sufficient detail to be put into the bill so as to enable the taxing officer to be able to judge whether or not the charge is justified.
[171] Many modern bills of professional people do not meet this criteria. A basal question for the Court is whether it should say that the old method was just too time-consuming and has been abandoned by professional people generally, or whether to say that it is still absolutely necessary that if a person is going to justify their costs, they must be able to have sufficient material to do so.
[172] Some of the entries are obviously in insufficient detail to be able to work out what was happening. For instance, on 5 September 2006, Mr Newbould charged $479, namely one hour against which is put “prepare for directions hearing; read court rules; agenda etc.” Mr Wily on 6 September charged $574.80 for “dealing with court judgment issues”. Neither notation is sufficient to know what really happened, what work was done by the accountant concerned.
[173] Where there is insufficient information to enable a reviewer to determine what work the accountant actually did for the charge, then prima facie that entry is inadequate.
[174] The unit method of charging is now quite common. It also does not matter too much that a telephone call might take four minutes, yet the client is charged for one unit, ie six minutes, because it does take some time to readjust the mind from the telephone call to the work that the accountant was previously doing before the call took place.
[175] However, most fair unit charging systems work on the nearest unit basis, that is, that if a telephone call takes 10 minutes, it is charged as two units; if it takes 14 minutes it is charged at two units.
[176] The system that the referee seems to have used is that if something takes 6½ minutes it is charged as two units rather than one unit.
[177] In Australian Securities and Investments Commission v Atlantic 3 Financial (Aust) Pty Ltd [2004] QSC 133; BC200402436, Mullins J had to review an accountant’s bill in the winding up of a managed investment scheme.
[178] Her Honour looked at the unit charging system at [56] and following and noted that the system used by those accountants had an “unders and overs” policy, so that if tasks took less than three minutes no charge was made, three to nine minutes one unit, 10 to 15 minutes two units etc.
[179] Her Honour said at [58]:
“Provided the result of the time recording is an accurate reflection of the time actually spent in working on the matter, charging by reference to time recording equates with charging for the time spent in doing the work. Again, it is not a matter of looking at each item in which the time taken for undertaking the work was rounded up to the nearest six minute unit ... but looking at the overall effect of the systems employed by the accountants for recording and charging of time.”
[180] Accordingly, were I satisfied that the unit charging system had been used responsibly, I would not have made any adverse comment about it. However, there was one instance where a letter which took 20 seconds to read in Court was charged as two units. This just could not be justified. There are other situations where one wonders about the charge. For instance, on 26 May 2005, Mr Newbould had charged $479 merely marked “brief on job from Walt” and on 29 June, $718.50 “handover from Walt”. In August, Mr Newbould charged over $3,000 for “read affidavits”. Without more, this is just quite insufficient.
[181] That of course, leads me on to another thought. Prima facie, only the most inefficient person takes seven hours to read the affidavits in proceedings. Most lawyers are able to read the most complicated sets of affidavits within two hours. Even allowing for the fact that Mr Newbould was an accountant, not a lawyer, seven hours spent reading affidavits seems excessive and one might wonder why it was Mr Newbould who was spending all this time rather than either Mr Wily, or alternatively a junior officer who could précis the affidavits for Mr Wily.
[182] However, the fact, if it be fact, that the referee chosen by the parties is inefficient and slow or even incompetent, is really to be laid at the feet of the parties. The referee is not to be denied a fee for work which he or she actually did even though some other person might have done it in half the time.
[183] (3) There are a number of charges for conferences between members of Mr Wily’s staff or with members of Mr Wily’s staff and Mr Wily.
[184] Mr Wily is the referee and it is Mr Wily who has to make the decisions and do the work. However, if every step in the process was done by Mr Wily personally at $475 an hour there would be just cause for complaint. Accordingly, it is reasonable that the work that can be done by a less qualified person and less expensive person be so done. However, this is subject to a couple of exceptions.
[185] The principal exception is that a skilled officer is liable to do things in the fraction of the time of an unskilled officer. Accordingly, it is quite appropriate for a skilled person to charge for doing work in one hour when it may well be that if an unskilled person was doing it, even though that person would be charging at a lower rate, it might take them three or four hours to do it.
[186] The second exception is that if a person at a lower rate does the job, then it may be that time had to be spent by the person at the lower rank informing the referee of his or her provisional views so that time is charged for such a conference, again meaning that the final bill is greater.
[187] The Court requires common sense to be used in this and the matter is not merely judged by hindsight. However, where one sees numerous instances of comparatively simple work being done by a person at the highest charge out rate without there being any apparent justification then the cost may well be disallowed.
[188] It is difficult to justify internal conferences. The person who was appointed the referee was Mr Wily. In principle, he is the person who should be doing the work, though if the work can be done by a person at a lesser charge out rate efficiently, and that even with the debriefing conference with the person of lower ranking, money will be saved, so be it. However, there is no justification for a person at the higher charge out rate giving the matter to a partner at the same rate to do the work and then also charging a debriefing fee.”
The reasonableness of the account
The invoice in question was annexed to a number of affidavits but it was also tendered into evidence as exhibit 4 in these proceedings. It is a four page document headed with the letterhead “[P] chartered accountants” with the remittance advice at the bottom of page one requesting to return this slip with payment to [P] Pty Ltd.
The account itself, is under the heading “RE: LANDIS – MATRIMONIAL” and it is a narrative of what work was done.
On page one for example, it says:
“Our fee for professional services rendered from 28 May 2008 to 3 December 2008 in connection with proceedings before the Family Court of Australia, including:
Receiving joint instructions from the legal representatives of the Husband and Wife and noting your request in relation to the entities and dates specified below:
1. Valuation as at 30 June 2000 in relation to:
- [B] Pty Ltd
- [T] Pty Ltd
- [Mr & Ms Landis]
- The [Q] Partnership
2. Valuation as at 31 May 2008 in relation to:
- [B] Pty Ltd
…”
On the bottom of the first page, the invoice has the words:
“Carried Forward $0.00”.
On the second page of the invoice, there is further narrative reviewing certain valuation reports in relation to various locations. At the top of the second page, the invoice has the words:
“Brought Forward $0.00”.
At the bottom of the second page, the invoice has the words:
“Carried Forward $0.00”.
At the top of page 3, the invoice again states:
“Brought Forward $0.00”.
This continues until the final page of the invoice, where the memorandum of fees has brought forward a balance of $0.00 and then states:
“Preparation of my report dated 3 December 2008.
Corresponding with the parties’ legal representatives at various times.
33,478.50
Disbursements and out of pocket expenses including photocopying and ASIC searches.
650.04
OUR FEE
34,128.54
GST
3,412.85
AMOUNT PAYABLE
$37,541.39”
The invoice and the work in progress (WIP) report
Mr M was asked on numerous occasions to identify for me from the WIP Report or from the invoice, how much time and therefore the subsequent cost that was included in the invoice of certain work. This was because Mr M had indicated that the particular work carried out by him was time consuming as it was necessary to put his questions to
Mr Landis in writing. This exchange occurred in the cross examination (as set out in the transcript, lines 24-45, p 112, 9 September 2010):
“So you can’t determine from the WIP report how much time was spent on these three requests for information?---I’ve answered – you’ve asked me that question. I’ve given you - - -
I certainly have. I want a “yes” or “no”?---No, I’ve given you my answer.
Well I’ll ask it again: you can’t tell me from the WIP report how much time was spent on those three requests for information?---What I can tell you is that the hours that it took in relation to a compilation of my valuation is included in that.
You can’t tell me from your invoice how much time was spent on those requests for information?---I’ve just answered that question, I’m afraid.
No, I didn’t ask you that question; I said “your invoice”?---From the invoice, I gave an overall value of what that job costs, yes, that’s correct.
No, you gave a one line figure at the end, didn’t you?---An overall value of what that job cost, yes.
No, I didn’t ask – I’m asking you this: can you tell me from the invoice, because it’s clear you can’t tell me from the WIP, how much time was devoted to those three requests?---No, it’s not stipulated in the invoice, no.”
The WIP Report is set out in an affidavit as an annexure that was sworn by Mr M on 7 September 2010 and filed on 8 September 2010. Mr M, in Annexure “BMc-1” to that affidavit, sets out the Landis WIP Report. The counsel for the respondent sets out at paragraph 46 of his submissions an interchange between himself and Mr M in relation to the WIP Report and I have relied upon that evidence in coming to the decision that I have.
“In fact, there’s no details of any tasks performed, is there?---There’s details for tasks for me to understand that the job was done, and how it was done.
Well, show me those ones that you understand?---Well, they’re there. I understand – that’s how I produced – they give a brief description of it. This is my work in progress report that I - - -
So you were engaged to do a valuation?---That’s correct, yes.
[T: Line 39, p119 to Line 29, p120, 9 Sep 10]
So on 13 November, when you spent two hours on the valuation, what were you doing? I was working on the valuation report.
Which part? The entire report.
What, the whole report, start to finish? I work on the report. I work on different sections of the report at different points of time. I don’t record what specific task I do on a particular entity, on a particular year or whatever.
I’m not asking you even about a particular entity. I’m just asking you what you did on that day. Where you looking at summaries of profit and loss accounts? Were you looking at balance sheets? Were you reviewing research into the nature of the company? Something; what is it that you were doing? I was doing the work that I considered appropriate for me to undertake the valuation. It could have been any of those number of examples that you gave.
But there is no way that anybody can know? I spent the time. I’m saying – I disclosed that I spent the time.
So your – and that is your case. Your case is, “If I have said that I spent the time, nobody can question it”? My case is if I said I spent the time I did spend the time on it.
That’s right. That’s right? Yes.
[T: Lines 21-44, p121, 9 Sep 10]”
This evidence basically confirms that Mr M accepted that his WIP Report does not allow an outsider, whether it be Mr Landis, or the court, to actually determine what was being done at any particular time in relation to those valuations, other than in fairly general terms.
The correlation between the invoice and the WIP report
Mr M agreed that there was no correlation between the entries in the invoice and entries in the WIP Report.
I accept that evidence.
The applicant’s arguments in relation to the reasonableness of the account
The applicant argues that the evidence of Mr M was not challenged in the sense that there is no dispute that the valuation report was produced.
In my view, the evidence of Mr M was challenged to the extent that the respondent sought to ascertain what, precisely, Mr M and his staff did in the hours that he sets out as having spent on this valuation. There is not available, on any of the material that I have before me, a clear indication of what exactly he or his staff were doing at any time during the period that they valued the entities for the report.
That therefore makes it difficult for the court to determine the reasonableness of the account rendered.
The applicant also argued that the authorities that I rely upon should not be applied in the present case and they would be of no assistance to the court.
I do not accept that argument because they provide guidance in the absence of cases on point. The Old v Hodgkinson (supra) case assists me in particular. I see that case as analogous to the present situation in that it was an accountant who was put in to value a partnership, a legal partnership, in a partnership dispute. That is not dissimilar to the circumstances of the present case, where an accountant was put in to value a series of companies held by a couple in a matrimonial property dispute. In particular, the Old v Hodgkinson (supra) case assists me to understand the level of detail that is reasonable for a court to expect of its experts.
The applicant argued that a court should be cautious in imposing standards from other situations, but as I have indicated, I consider the Old v Hodgkinson (supra) case to be analogous to the present case.
Whilst it is important to ensure that experts who are appointed by the court are properly remunerated for their efforts, it is equally important that the invoice of that expert is reasonable.
To the extent that the applicant argues that the contractual relationship between the parties overrides the application of Rule 15.11, I do not agree that that could be the case. A contract can not oust the jurisdiction of the court to determine the reasonableness of the retainer.
The applicant also argues that Mr M has not been afforded procedural fairness by virtue of the order that requires the husband to pay the full fee, rather than having the husband and the wife being jointly responsible for the fee, however I do not accept this argument. There is no dispute that the fee will be paid. This position has been confirmed in open court. The dispute is as to the reasonableness of the fee. Once that has been determined, Mr Landis has, through his counsel, indicated that the fee will be paid.
The applicant submits also that there should be a finite time within which Mr Landis could raise the objection to the account and beyond that he is, for some reason, prevented from raising the reasonableness of the account as an issue. I do not accept that that is the case.
If Mr Landis had delayed unreasonably, it is my view that Mr Landis would still be entitled to raise the issue. The argument might go to costs, however it is available to him given the legislative requirements that the fees be reasonable, to argue that they are not reasonable before a court.
Having considered the arguments raised by the applicant in his submission supporting a finding that the fees are reasonable, I do not accept that they have discharged the onus and proved that the fees that were charged with respect to the valuation are reasonable.
The applicant says at paragraph 27 of his submissions filed 28 October 2010:
“[27] Whilst there was cross examination of Mr M about whether descriptions of the work matched up with the work in progress time sheets, it was not suggested that either the work described in the account or the work in progress reports was not in fact done and was necessary to complete the task of providing a valuation. Mere criticism of the level of detail in the description of the work does [not] mean that the work was not done and that the fee charged was unreasonable.”
Mr Schulte’s submission is, in effect, that criticism of the lack of detail does not allow me to conclude that the work was not done, or that the work was not necessary. That is the point that was made by
Mr Johnstone.
It is not a matter of not trusting Mr M. It is a matter of the applicant discharging the onus and proving that the work was done and that it was necessary. The only way, in my view, that can be achieved, is by detailed notes in the WIP Report so that another expert, or indeed
Mr Landis, can survey a fully itemised account and determine whether two hours should have been spent doing (a), (b) or (c) – or whatever it was said to have been done during the two hours. The time elements cannot be generalisations but specific statements of what exactly was done. So I do not make a criticism of Mr M or challenge his integrity. I simply observe that he failed to discharge the onus as was observed in Old v Hodgkinson (supra). The mere listing of persons who performed the work, the hours worked by each and the amounts claimed may not be sufficient. That is the case here and it is not sufficient to establish reasonableness.
What fee is reasonable
Mr Landis has always indicated that he would pay the reasonable fee of the expert. He made an open offer to pay $22,000.00 in court on the first day of the trial. The opinion of Mr C, the respondent’s expert, was that the report should have cost between $22,000.00 and $24,000.00.
I am not able to form an opinion about that, however I am in a position, given that Mr Landis has made that open offer, to adopt that as the figure that is appropriate to be paid to ensure that the expert is paid at least some remuneration for the work that he no doubt did to prepare the valuations that are found in exhibit 3.
Therefore the application is dismissed, however I note that Mr Landis will pay $22,000.00 by way of fees to the applicant.
I will make some directions to enable the costs to be determined on the papers in the event that either party seeks to apply for costs.
I certify that the preceding sixty-six (66) paragraphs are a true copy of the reasons for judgment of Cassidy FM
Date: 25 November 2010
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