Pearce v Clear Island Investments Pty Ltd - [2010] FMCA 37

FEDERAL MAGISTRATES COURT OF AUSTRALIA

PEARCE v CLEAR ISLAND INVESTMENTS PTY LTD

[2010] FMCA 37

BANKRUPTCY – Reasonable costs of representation.

Legal Profession Act 2007 (Q.), ss.300, 337, 341, 342

Applicant:

MARK WILLIAM PEARCE AS TRUSTEE OF THE BANKRUPT ESTATES OF NEIL IAN LEGGETT & JULIE LEGGETT

Respondent:

CLEAR ISLAND INVESTMENTS PTY LTD AS TRUSTEE OF THE CII SUPERANNUATION FUND

File Number:

BRG 310 of 2009

Judgment of:

Wilson FM

Hearing date:

By written submissions

Date of Last Submission:

7 August 2009

Delivered at:

Brisbane

Delivered on:

22 January 2010

REPRESENTATION

Solicitors for the Applicant:

Shand Taylor Lawyers

Solicitors for the Respondent:

Hemming & Hart Lawyers

ORDERS

That for the purpose of determining the reasonable legal costs and expenses of defending these proceedings, in accordance with Order 1 made on 5 June 2009, the solicitors for the respondent shall obtain an assessment of their costs pursuant to s.337 Legal Profession Act 2007 (Q.) from a costs assessor.
That in addition to the notice required to be given pursuant to Order 2 made on 5 June 2009 the solicitors for the respondent shall provide the solicitors for the applicant with a copy of any assessment of costs, omitting any details that may attract privilege.

FEDERAL MAGISTRATES
COURT OF AUSTRALIA AT
BRISBANE

BRG 310 of 2009

MARK WILLIAM PEARCE AS TRUSTEE OF THE BANKRUPT ESTATES OF NEIL IAN LEGGETT & JULIE LEGGETT

Applicant

And

CLEAR ISLAND INVESTMENTS PTY LTD AS TRUSTEE OF THE CII SUPERANNUATION FUND

Respondent

REASONS FOR JUDGMENT

The parties are engaged in litigation as to whether the applicant trustee in bankruptcy of two debtors is entitled to certain monies held by the respondent superannuation fund, of which the debtors were the only members.
Consequent upon an application brought by the trustee in bankruptcy, on 14 May 2009 orders were made for the preservation of the assets of the superannuation fund pending the final hearing of this matter. A question arose as to whether the respondent was entitled to use its assets to meet its costs of defending the proceedings
In Reasons for Judgment delivered on 5 June 2009 I concluded that the respondent should be entitled to meet its reasonable legal expenses from its assets otherwise frozen. At paragraph [29] of my Reasons I stated:
“I am therefore persuaded that, in the exercise of my discretion, the respondent should be permitted access to the superannuation fund to meet its legal expenses of these proceedings. However, the respondent should not have carte blanche to incur needless or excessive expenses. The conduct of the litigation will need to be carefully monitored. The respondent’s lawyers will have to justify their costs and expenses to a taxing registrar. Much more detail will be required to determine what is a reasonable level of costs in proceedings such as these. I do not propose, at this stage, to set a cap or a limit to the legal costs that can be incurred. What I propose to permit is the incurring of reasonable legal costs and expenses, and a prior reporting of such expenses to the solicitors for the applicant. If the applicant has genuine concerns about the level of costs incurred it can apply to the Court for appropriate relief.”
Orders were made on 5 June 2009:
(1)That, subject to and conditional upon compliance with Order 2 hereof, Order 1 made on 14 May 2009 be varied to permit the respondent to meet its reasonable legal costs and expenses of defending these proceedings from the assets of the CII Superannuation Fund.
(2)The solicitors for the respondent shall give to the solicitors for the applicant not less than seven (7) days notice in writing of any request for a payment by the respondent towards legal costs and expenses, specifying the amount of payment required and the date on which such payment is due.
(3)Each parties’ costs of and incidental to the interlocutory application of 14 May 2009 are reserved.
An issue has arisen as to how the reasonableness of the respondent’s costs be monitored, and the practical implementation of the orders of 5 June. What was contemplated by my earlier orders was that the applicant could apply to the court for relief if a payment thought by it to be excessive was notified in accordance with Order 2 made on 5 June. As is apparent from my reasons, the procedure to be adopted was for the respondent’s solicitors to have their costs assessed by an appropriate person. The Court nominated a taxing registrar, but under the Legal Profession Act 2007 (Q.), the reasonable legal costs can be assessed by a ‘costs assessor’ (a defined term in s.300 of the Act). Once assessed, the respondent’s solicitors were entitled to payment and had to notify the applicant’s solicitors.
By letter dated 10 June 2009 the solicitors for the applicant proposed a procedure by which the reasonableness of the respondent’s costs could be monitored. The respondent’s solicitors disagreed with that procedure. They simply submitted a tax invoice issued to their client.
By an affidavit filed on 31 July 2009 the solicitor for the applicant deposed to genuine concerns regarding the level of costs incurred by the respondent. He elaborated on these concerns at paragraph 5 of his affidavit.
Accordingly, on 31 July the following orders were made:
(12)That any submissions as to the respondents entitlements to its reasonable legal costs and expenses provided for in order 1 made 5 June 2009 be filed and served by 7 August 2009.
(13)That the respondent file and serve any submissions in response by 14 August 2009.
(14)That the applicant file and serve any submissions in reply by 21 August 2009.
Submissions were received from the solicitors for the applicant. No submissions were received from the solicitors for the respondent.
The Court must be careful when considering what information is provided by the respondent to the solicitors for the applicant not to infringe any legal professional privilege, or privilege against self-incrimination to which the respondent, or its officers, may be entitled to maintain. In my view, whilst the respondent ought not be allowed to incur excessive legal fees, so as to dissipate what is arguably the applicant’s asset, nor should the applicant be entitled to use its entitlement to monitor the incurring of such legal expenses as either a forensic tool, nor as a weapon of oppression. I am not suggesting that any of those matters have occurred to date.
In my view, the way in which both parties’ interests can be protected is as follows.
By s.337 of the Legal Profession Act, the respondent’s solicitors can request an assessment of their legal costs from an appointed costs assessor. By s.341 of the Act that costs assessor will determine:
(a) whether or not it was reasonable to carry out the work to which the legal costs relate; and
(b) whether or not the work was carried out in a reasonable way; and
(c) the fairness and reasonableness of the amount of legal costs in relation to the work.
Once the legal costs have been assessed in accordance with the Act, the solicitors for the respondent should then submit that assessment (together with any itemised assessment (omitting details that may attract privilege) to the solicitors for the applicant in accordance with Order 2 made on 5 June.
If the solicitors for the applicant then have any issue with either the amount of the assessment or any matter incidental thereto, they can seek the Court’s assistance.
A copy of any client costs agreement will have to be provided to the costs assessor. The costs of the assessment will form part of the reasonable defence costs, unless s.342(2)(a) of the Legal Profession Act applies. It should be made clear to the costs assessor that the respondent’s solicitors are only entitled to recover, from the preserved fund, the reasonable costs of defending these proceedings, and not for any collateral purpose.

I certify that the preceding fifteen (15) paragraphs are a true copy of the reasons for judgment of Wilson FM

Associate: Lynnette Chin

Date: 22 January 2010