Schwarz and Conrad as administrators of Kamata Homes Pty Ltd v MCCA Asset Management Limited
[2020] VSC 841
•14 December 2020
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COSTS COURT
COSTS COURT LIST
S ECI 2020 02147
| ANDREW SCHWARZ and BENJAMIN CONRAD IN THEIR CAPACITY AS JOINT AND SEVERAL ADMINISTRATORS OF KAMATA HOMES PTY LTD (ACN 130 155 305) (ADMINISTRATORS APPOINTED) | Applicant |
| v | |
| MCCA ASSET MANAGEMENT LIMITED (ACN 113 728 706) trading as the MCCA PROPERTY LIST & ANOR (according to the attached Schedule) | Respondents |
---
JUDICIAL REGISTRAR: | Matthews JR |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 7 December 2020 |
DATE OF RULING: | 14 December 2020 |
CASE MAY BE CITED AS: | Schwarz & Conrad as administrators of Kamata Homes Pty Ltd v MCCA Asset Management Limited & Anor |
MEDIUM NEUTRAL CITATION: | [2020] VSC 841 |
---
COSTS – Determination of external administrators’ remuneration and expenses following orders made pursuant to s 29 of the Civil Procedure Act 2010 (Vic) – Principles to apply – Analogous to determination of external administrators’ remuneration under the Corporations Act 2001 (Cth) – Schedule 2 (Insolvency Practice Schedule) (Corporations) to the Corporations Act 2001 (Cth) – Order 63 of the Supreme Court (General Civil Procedure) Rules 2015 not applicable – Remuneration and expenses claimed by external administrators approved with minor adjustment.
---
APPEARANCES: | Counsel | Solicitors |
| For the Applicant | Mr A Nicol, solicitor | Aitken Partners Pty Ltd |
| For the Respondents | Dr M Wolff | Hapgood Legal |
JUDICIAL REGISTRAR:
Introduction
This decision concerns an application by Andrew Schwarz and Benjamin Conrad (‘Administrators’), in their capacity as joint and several administrators of Kamata Homes Pty Ltd (ACN 130 155 305) (‘Company’), for approval of their expenses and remuneration incurred in the period between 19 August 2019 and 11 October 2019 (inclusive) (‘Period’) in connection with a meeting of creditors of the Company held on 11 September 2019.
This proceeding (‘Costs Proceeding’) was commenced in the Costs Court by way of a summons for taxation filed 12 May 2020 (‘Summons’) by the Administrators. The Summons was supported by a bill of costs filed the same day (‘Bill of Costs’). The Bill of Costs claimed costs pursuant to paragraphs 3, 4 and 6 of the orders of the Honourable Justice McDonald made on 19 December 2020 (‘Costs Orders’) in Supreme Court of Victoria proceeding number S ECI 2019 03305 (‘Underlying Proceeding’).
It is necessary to set out here the relevant paragraphs of the Costs Orders. These provided as follows:
3.The plaintiffs [i.e. the Respondents in the Costs Proceeding] pay the second and third defendant’s [i.e. the Administrators and another party] costs of and incidental to the proceeding from the commencement of the hearing on 19 August 2019 to 11 October 2019 (inclusive) on an indemnity basis with such costs to be taxed in default of agreement.
4.Pursuant to s 29(1) of the Civil Procedure Act 2010 (Vic), the plaintiffs [i.e. the Respondents in the Costs Proceeding] pay the second defendant’s [i.e. the Administrators] expenses and remuneration incurred in the period between 19 August 2019 and 11 October 2019 (inclusive) in connection with the calling, conduct and consequences of the further meeting of creditors held on 11 September 2019, with such amount to be determined by an Associate Judge or Registrar of the Court in default of agreement.
…
6.The plaintiffs [i.e. the Respondents in the Costs Proceeding] pay the second defendant’s [i.e. the Administrators] costs of and incidental to the summons filed on 6 December 2019 on a standard basis to be taxed in default of agreement.
7.The costs, remuneration and expenses incurred by the second defendant [i.e. the Administrators] in connection with the proceeding, including any unrecoverable costs and expenses the subject of Orders 3 and 4 above, be costs, remuneration and expenses payable in the liquidation of the first defendant [i.e. the Company].
Without going into detail as that is not necessary, the Underlying Proceeding concerned an application by the Respondents to terminate the deed of company arrangement executed 17 July 2019 (‘DOCA’), in respect of which the Administrators were the Deed Administrators. The trial of the Underlying Proceeding commenced on 19 August 2019 but was adjourned on that day, so that the prospect of holding a further meeting of creditors prior to the continuation of the trial could be considered. A further hearing in respect of this possibility was held on 21 August and then in orders made on 27 August 2019, McDonald J approved the content of the circular to be sent to creditors (‘Approved Circular’) in respect of the further meeting, to be held on 11 September 2019 (‘Further Meeting’). The meeting was held and the trial resumed on 11 October 2019, running on that day and on 14 and 15 October 2019. His Honour delivered reasons for his decision to terminate the DOCA and to wind up the Company on 15 November 2019.[1] In the Primary Judgment, his Honour was very critical of the conduct of the Respondents in relation to their communications with creditors prior to the holding of the Further Meeting.
[1]MCCA Asset Management Ltd v Kamata Homes Pty Ltd (admins apptd) [2019] VSC 742 (‘Primary Judgment’).
It is clear from the Primary Judgment that the purpose of the Further Meeting was to enable creditors to vote on the DOCA armed with all of the necessary information. It is also clear from the Primary Judgment that the purpose of sending the Approved Circular was to avoid satellite disputes, such as regarding the information provided to creditors.[2] However, the Respondents independently wrote to creditors and engaged the services of a call centre to contact creditors and provide them with what the Court held to be inaccurate information, which “undermined the primary objective of the course which was agreed to by the parties on 19 August 2019”.[3] His Honour described this conduct as “ill-conceived and opportunistic”.[4] The Respondents’ conduct had so tainted the vote at the Further Meeting that the Court could not safely rely on the outcome of that vote in the resolution of the key question in the Underlying Proceeding, which was whether to terminate the DOCA. His Honour went so far as to say that he would not have adjourned the trial and made orders for the Further Meeting to be convened if he had had any inkling that the Respondents intended to act as they did after 19 August 2019.[5]
[2]Primary Judgment, [17].
[3]Primary Judgment, [20].
[4]Primary Judgment, [22].
[5]Primary Judgment, [22].
Following delivery of the Primary Judgment, the parties made written submissions in respect of the costs of the Underlying Proceeding. His Honour delivered his reasons for judgment in respect of costs on 19 December 2019[6] and made the Costs Orders.
[6]MCCA Asset Management Ltd v Kamata Homes Pty Ltd (admins apptd) (No. 2) [2019] VSC 742 (‘Costs Judgment’).
The Bill of Costs included, at item 575 in the amount of $81,408.65, the following (‘Item 575’):
The second defendant’s expenses and remuneration incurred in the period of 19 August – 11 October 2019 – refer to Orders made of McDonald J (schedule attached)
The Costs Court followed its usual procedure of issuing an estimate of the costs claimed in the Bill of Costs, except for Item 575 (‘Estimate’), following which the Respondents issued a notice of objection to the Estimate.
When the Summons was before a Costs Registrar on 15 September 2020, orders were made for the Bill of Costs (excepting Item 575) to be taxed in the Costs Court and for Item 575 to be referred to an Associate Judge or Registrar for determination. It was noted in the ‘Other Matters’ section of these orders that:
For the purposes of the Costs Court taxation and O63.88 of Rules, Item 575 will be deleted from the bill of costs and the total amounts claimed in the bill will be adjusted accordingly.
Hence Item 575 of the Bill of Costs, which is the amount claimed pursuant to paragraph 4 of the Costs Orders, has been referred to me for hearing and determination, as a judicial officer frequently sitting in the Corporations List with familiarity with remuneration applications made by external administrators.
Accordingly, this decision concerns only the determination of the Administrators’ expenses and remuneration incurred during the Period “in connection with the calling, conduct and consequences of the further meeting of creditors held on 11 September 2019” (‘Purpose’), since the parties have not been able to reach agreement on the amount. The Administrators seek the amount sought in Item 575 except for three items conceded as not falling within paragraph 4 of the Costs Order, such that they now seek a determination in the amount of $80,736.65. I shall refer to this as the Administrators’ Application, since in effect it is an application by the Administrators for the determination of the amount payable by the Respondents in respect paragraph 4 of the Costs Orders.
In support of the Administrators’ Application, the Administrators rely on the following:
(a) affidavit of Mr Schwarz sworn 4 December 2020 (‘Schwarz Affidavit’). An unsworn version of this affidavit dated 12 November 2020 had been served on the Respondents on or around 12 November 2020. The Court was informed that the only difference between the unsworn affidavit and the Schwarz Affidavit was that two invoices, in respect of the expenses claimed, were exhibited to the Schwarz Affidavit;
(b) the schedule attached to the Bill of Costs in respect of Item 575; and
(c) written outline of submissions dated 23 November 2020 (‘Administrators’ Outline’).
In opposition to the Administrators’ Application, the Respondents rely on the following:
(a) affidavit of John Goulding sworn 18 November 2020 (‘Goulding Affidavit’). Mr Goulding is a consultant engaged by the Respondents in respect of this matter for them; and
(b) written outline of submissions dated 21 November 2020 (‘Respondents’ Outline’).
For the reasons which follow, I have determined that the amount which the Respondents must pay the Administrators pursuant to paragraph 4 of the Costs Order is $80,652.65, being $6,338.15 (incl GST) in respect of expenses and $74,314.50 (excl GST) in respect of remuneration.
Evidence
Administrators’ evidence
Mr Schwarz deposes that he and his staff prepared a summary of the Administrators’ expenses and remuneration limited to those for the Period in respect of the Purpose.[7] That summary consisted of a one page list of the time costs incurred by the Administrators and their staff at AS Advisory and of the disbursements, attached to which was a spreadsheet of the work in progress report (‘WIP Report’) for the time costs referred to.[8] This summary is the same document as was attached as a schedule to the Bill of Costs in respect of Item 575.
[7]Schwarz Affidavit, [14].
[8]Exhibit APS-4.
The summary of time costs and disbursements is for a total of $81,408.65 as follows: [9]
[9]Noting that the summary and the WIP Report contain amounts referable to the three items no longer pressed by the Administrators.
(a) total time costs of $75,070.50 (excl GST); and
(b) disbursements of $6,338.15 (incl GST), comprising:
(i) $4,031.65 to Snap Printing in respect of printing and mailing the Approved Circular convening the Further Meeting; and
(ii) $2,306.50 to CQ Functions for the hire of the venue for the Further Meeting
The WIP Report is in a common format used by external administrators in respect of their remuneration, and consists of a list of items in respect of the work performed, containing the date, staff member, position of the staff member, description of the task performed, the number of units spent on the task (a unit is 6 minutes), the hourly rate for the staff member, and the amount incurred in respect of that task.
Mr Schwarz deposes that he has reviewed the WIP Report and, save for the three items he identifies as not falling within the scope of paragraph 4 of the Costs Orders, he considers that all items were necessary and reasonable and fall within the requisite scope.[10]
[10]Schwarz Affidavit, [15].
Mr Schwarz then sets out the categories of work performed by the Administrators and their staff during the Period in connection with the Purpose, as follows:
(a) attending court on 19 and 20 August[11] and 11 October 2019;
[11]I think that the reference to 20 August in the Schwarz Affidavit is an error, as the WIP Report has the attendances as being on 19 and 21 August, which is consistent with the dates recorded in the Primary Judgment.
(b) meetings, telephone discussions and reviewing the draft circular;
(c) reviewing and discussing updated information from the Company’s director in relation to his assets/liabilities for inclusion in the draft circular;
(d) drafting, reviewing and finalising the documents for the Further Meeting (proof of debt form, notice and proxy form);
(e) administrative tasks of finalising and sending the documents for the Further Meeting to all known creditors;
(f) arranging for the Further Meeting including venue and transcript;
(g) liaising with various creditors regarding meeting arrangements;
(h) reviewing proofs of debt and proxies received from creditors;
(i) reviewing and seeking advice regarding the Respondents’ competing report to creditors;
(j) preparing for Further Meeting, including presentation slides, attendance sheet, poll votes spreadsheet and running sheet/talking notes;
(k) attendance at Further Meeting;
(l) reviewing results of Further Meeting, including those who voted by proxy, and those who voted at the Further Meeting but had not voted at any previous meeting;
(m) liaise with lawyers regarding the possibility that creditors were misled by the Respondents’ competing circular to creditors;
(n) reviewing the transcript of the Further Meeting to confirm points raised by creditors (including the Respondents);
(o) liaising with creditors regarding the Further Meeting and the Respondents’ competing circular;
(p) liaising with lawyers regarding further affidavit setting out the conduct of the Further Meeting and information obtained regarding the Respondents’ competing circular and contact with creditors prior to the Further Meeting;
(q) review and consider approach to Court regarding weight to be given to Further Meeting;
(r) reviewing evidence and submissions filed by the Respondents; and
(s) liaising with lawyers and Counsel regarding further conduct of proceeding given the Further Meeting.
From the summary and the WIP Report, the following can be discerned in respect of the time costs of the Administrators and their staff:
Person Position Hourly rate $ Hours (approx.) Total $ Andrew Schwarz Appointee 420 62 26,281.50 Ben Conrad Appointee 420 60 25,300.50 Jon Howarth Partner 420 21 9,033.00 Rob Cleary Accountant 200 36 7,335.50 Brendan Smith Graduate 160 44 7,120.00 Total 223 75,070.50 Respondents’ evidence
To a substantial degree, the Goulding Affidavit can be properly described as containing submissions rather than evidence. I will treat those portions of the affidavit as submissions and refer to them when discussing the parties’ submissions below.
Mr Goulding deposes that he accepts the background to the Application as described by Mr Schwarz.[12] Mr Goulding exhibits a copy of the WIP Report which helpfully has each entry numbered.[13] This is the version of the WIP Report to which I will refer from now on in these reasons. Mr Goulding also helpfully exhibits an extract from the Respondents’ notice of objection to the Estimate, which sets out the objections to the items in the WIP Report, by reference to the same set out numbers (‘Objections’).[14] I will discuss the Objections later in these reasons.
[12]Goulding Affidavit, [7].
[13]Exhibit JG-1, pp 7-12.
[14]Exhibit JG-1, pp 13-17.
Submissions
Administrators’ submissions
The Administrators rely on the following statements made by McDonald J in the Costs Judgment. His Honour said:
(a) The Respondents’ conduct “between 21 August and 11 September 2019 undermined the rationale for convening the further meeting”;[15]
[15]Costs Judgment, [20].
(b) The Respondents’ conduct “in engaging a call centre to canvass creditors and forwarding a letter directly to creditors generated the type of satellite litigation which the Court had been at pains to avoid”;[16]
(c) The “additional cost to the parties as well as the waste of judicial resources arising from the three extra days of trial is directly attributable” to the Respondents’ conduct;[17] and
(d) The Administrators “incurred costs in relation to the preparation of the Court ordered circular. In addition, the Administrators incurred costs relating to their preparation for and attendance at the further meeting on 11 September 2019. These costs have been wasted as a direct consequence of” the Respondents. “It is therefore appropriate” that the Respondents “be ordered to pay these costs”.[18]
[16]Costs Judgment, [21].
[17]Costs Judgment, [22].
[18]Costs Judgment, [25].
His Honour concluded that the Respondents had breached the Civil Procedure Act 2010 (Vic) (‘CPA’) and paragraph 4 of the Costs Orders was made pursuant to s 29 of the CPA.
The Administrators submit that paragraph 4 of the Costs Order is not an order for an assessment of the costs on either a standard or indemnity basis, and must be read on its ordinary meaning. The words “to be determined” bring the Application within the exercise of the general discretion of the Judicial Registrar, and outside the taxation process governed by Order 63 of the Supreme Court (General Civil Procedure) Rules 2015 (‘Rules’).
The Administrators submit that it is clear that his Honour intended to ensure that the Applicants were not out of pocket by reason of the Respondents’ conduct, as described in paragraph 23 above.
They say that the only relevant considerations for the Court in the Application are:
(a) were the expenses and remuneration incurred in the Period; and
(b) were the expenses and remuneration incurred for the Purpose.
They say that the expenses and remuneration claimed in the Application have been incurred and are payable in the external administration of the Company, and in the case of the expenses have already been paid. If they are not met by the Respondents, then the Company’s creditors will be disadvantaged.
In oral submissions, the Administrators’ solicitor said that he had not located a case where an external administrator’s remuneration had been ordered and assessed by the Court for a breach of s 29 of the CPA. The Administrators’ solicitor emphasised that the task before the Court was not a taxation in the meaning of the Rules, and that the analogous situation is where the Court is asked to approve or determine the remuneration of an external administrator pursuant to the Corporations Act 2001 (Cth) (‘Act’). That being the Administrators’ position, it was not explained to me why they had initially included Item 575 in the Bill of Costs.
Respondents’ submissions
The Respondents approached the Application, from first to last, as if it was a taxation of costs under the Rules. That approach permeates the Respondents’ Objections, the Goulding Affidavit, the Respondents’ Outline and their oral submissions.
The Respondents submit that even indemnity costs are subject to the requirement of reasonability and proportionality. They say that these should be the touchstone of consideration of the Application. The Respondents also say that s 24 of the CPA applies here, by setting out the overarching obligation to ensure that costs are reasonable and proportionate.
The Respondents’ position is that for inclusion in paragraph 4 of the Costs Order (noting that I read “expenses” here as meaning remuneration and disbursements):
(a) all of the alleged expenses must be incurred in the Period;
(b) all of the alleged expenses must be incurred in connection with the Purpose;
(c) none of the alleged expenses must result in a duplication of any items to be found elsewhere in the Bill of Costs; and
(d) all alleged expenses must be reasonable and proportionate.
The Respondents’ made submissions of a general nature in respect of the Application, before moving on to specific Objections. It is convenient to set these out later in these reasons, with the Administrators’ response, and then my views, so as to avoid repetition.
Counsel for the Respondents’ indicated during his oral submissions that he wished to go through the WIP Report item by item. There are some 194 items in the WIP Report. In other words, Counsel proposed to treat it as a taxation. I indicated that my view was that this was not the correct approach, as this was not a taxation, and that he should make submissions about types of items or Objections, and then go to specific items that were objected to if he wished. Counsel accepted that course and made his submissions, after which I stood down briefly so as to give him an opportunity to consider whether there were specific items he wished to take me to. Upon resuming, Counsel indicated that for objections to specific items, he relied on the written Objections, the Written Outline, and the Goulding Affidavit (especially paragraphs 18-23) but did not need to elaborate on them further. In my view, that was an efficient position to adopt.
Applicable principles
It may be due to the Administrators’ inclusion of Item 575 in the Bill of Costs that the Respondents approached the Application by reference to the various principles and processes of a taxation of costs under the Rules. That is understandable, at least initially, but it was not apparent to me why they persevered with that approach. Particularly after that Item was expressly not dealt with by the Costs Registrar and separated out from the taxation he ordered.[19]
[19]See paragraph 9 above.
In my view, it is tolerably clear from the Costs Judgment and the terms of the Costs Orders themselves that the exercise confronting the Court in respect of paragraph 4 of the Costs Orders is not a taxation of costs and is not akin to a taxation. First, Order 63 of the Rules applies to legal costs, it does not apply to an external administrator’s remuneration. Second, the Costs Orders specifically separate orders about legal costs from the Administrators’ expenses and remuneration. It is clear that paragraph 4 of the Costs Orders, in referring to expenses, did not extend to legal costs as they are dealt with elsewhere in the Costs Orders. Third, the orders in respect of legal costs all refer to them as “to be taxed in default of agreement”. Paragraph 4 of the Costs Orders is not expressed in this way. Rather, the Administrators’ expenses and remuneration for the Period in connection with the Purpose are “to be determined” by an Associate Judge or Registrar “in default of agreement”.
This clear distinction between a taxation of legal costs and a determination of an external administrator’s remuneration and expenses underpins the views that I have taken about the Respondents’ submissions and the Objections, as will become apparent later in these reasons.
I accept the Administrators’ submission that the analogous situation is the determination of an external administrator’s remuneration under the Act. I do not accept the Respondents’ submission that s 24 of the CPA applies to this determination: that is an overarching obligation on the parties and their lawyers to keep costs reasonable and proportionate. While it may dovetail in some ways with the approach taken by the Court upon a taxation or a determination of the external administrator’s remuneration, it does not guide how such a process is to be carried out.
In IMO Traditional Values Management Ltd (in liq),[20] Gardiner As J, in determining the liquidators’ remuneration pursuant to orders made by Ferguson J (as her Honour then was), observed that in undertaking that task he was not exercising the Court’s jurisdiction under the statutory provisions of the Act. Rather, he considered that he was exercising the Court’s inherent equitable powers. Nonetheless, his Honour considered that the criteria to be applied to the exercise of “determining” the remuneration there was “very much akin to that process.” [21] In a subsequent remuneration decision in the same external administration, Gardiner As J noted that he considered it appropriate to apply the statutory criteria prescribed by the Act.[22]
[20][2012] VSC 650 (‘Traditional Values Management’).
[21]Traditional Values Management, [9].
[22]Re Traditional Values Management Ltd (In Liq) (No 3) [2016] VSC 475, [23].
In my view, the same can be said of the exercise before me in this Application.
The legal principles applicable to applications of this type were summarised by Gardiner AsJ in Traditional Values Management.[23] I have also summarised the statutory provisions and the legal principles in several judgments.[24] Other than what I have noted below, there is no need for these to be set out here.[25]
[23]At [18]-[25], [40], [63]-[69].
[24]For example, see, Re Florin Burhala & Associates Pty Ltd (in liq) [2020] VSC 559, [26]-[33] (‘Florin Burhala’).
[25]Some of those judgments refer to the statutory criteria in s 449E(4) (in respect of administrators) and s 473(10) (in respect of liquidators) of the Act: these have now been replaced, in substantially identical terms, by the criteria set out in s 60-12 of Schedule 2 (Insolvency Practice Schedule) (Corporations) (‘IPS’) to the Act, referring to external administrators (which includes voluntary administrators, deed administrators and liquidators).
In determining an external administrator’s remuneration, s 60-12 of the IPS states that the Court must have regard to whether the remuneration is reasonable, taking into account any or all of the following matters:
(a)the extent to which the work by the external administrator was necessary and properly performed;
(b)the extent to which the work likely to be performed by the external administrator is likely to be necessary and properly performed;
(c)the period during which the work was, or is likely to be, performed by the external administrator;
(d)the quality of the work performed, or likely to be performed, by the external administrator;
(e)the complexity (or otherwise) of the work performed, or likely to be performed, by the external administrator;
(f)the extent (if any) to which the external administrator was, or is likely to be, required to deal with extraordinary issues;
(g)the extent (if any) to which the external administrator was, or is likely to be, required to accept a higher level of risk or responsibility than is usually the case;
(h)the value and nature of any property dealt with, or likely to be dealt with, by the external administrator;
(i)the number, attributes and conduct, or the likely number, attributes and conduct, of the creditors;
(j)if the remuneration is worked out wholly or partly on a time-cost basis – the time properly taken, or likely to be properly taken, by the external administrator in performing the work;
(k) whether the external administrator was, or is likely to be, required to deal with one or more controllers, or one or more managing controllers;
(l)if:
(i)a review has been carried out under Subdivision C of Division 90 (review by another registered liquidator) into a matter that relates to the external administration; and
(ii)the matter is, or includes, remuneration of the external administrator;
the contents of the report on the review that relate to that matter;
(m)any other relevant matters.
While the criteria in s 60-12 of the IPS direct the Court to the factors that are to be taken into account, the ultimate question is whether the remuneration claimed by the Liquidators is reasonable.
Consideration
Generally speaking, I accept the Administrators’ submissions as set out above.
Ordinarily, external administrators are entitled to be paid their remuneration incurred in connection with their administration of the relevant company, which is usually either approved by creditors or by the Court, and is paid out of the assets of the relevant company, in accordance with the statutory priorities under the Act.
In this instance, as a consequence of the Respondents’ conduct in respect of the Approved Circular and the Further Meeting, his Honour made the order in paragraph 4 of the Costs Orders. It is clear that his Honour considered that the Respondents should pay the Administrators’ remuneration and expenses in respect of those matters, rather than disadvantaging creditors by having those costs borne by creditors and thus depleting the amount available for distribution to them.
The Administrators have calculated their remuneration using the time costing method, which is a suitable method.[26] I accept the observation made by the Administrators’ solicitor at the hearing that the rates charged by them are well below typical rates for external administrators. From my experience in matters associated with insolvency administrations, I know that the hourly rates charged in this administration are well below those typically charged. For example, the partner rate here is $420 per hour, whereas it is far more usual to see partner rates in the range of $500 to $650.[27] Further, I note that in some instances Mr Schwarz and Mr Howarth’s time has been charged for at the manager level of $285 per hour. This is indicative of thought being given to the appropriate level of employee for the particular task to be carried out and being charged at that rate, even if the person who carried it out is normally charged out at a higher rate.
[26]In the matter of Sakr Nominees Pty Limited [2017] NSWSC 668.
[27]See, for example: In the Matter of Imagebuild Group Pty Ltd [2019] VSC 213, [61]; Re Nissand Pty Ltd (in liq) [2019] VSC 280, [44]; Re Alternate Dwellings Pty Ltd (in liquidation) [2018] VSC 653, [52], [54]; Re Tuscan Property Development Pty Ltd [2018] VSC 511, [49]; Re Upmarket Services Australia Pty Ltd (in liq) [2019] VSC 523; Re Jugganort Constructions Pty Lty (in liquidation) [2020] VSC 13. These are recent decisions of mine where the hourly rates are specified in the reasons. Of these, only the last mentioned case has rates at the appointee level below those charged by AS Advisory in this Application.
Based on the Schwarz Affidavit and the WIP Report, I am satisfied that the Administrators have made out a prima facie case for payment of their remuneration, as described in Venetian Nominees Pty Ltd v Conlan[28] and the other authorities referred to in Florin Burhala.[29] That is, they have made out a prima facie case that the remuneration is fair and reasonable, and there is sufficient information in the WIP Report to enable potential objectors, in this instance being the Respondents, to review the amounts claimed and to ascertain whether there are matters to which objection should be taken.
[28](1998) 20 WAR 96.
[29]Florin Burhala, [30]-[33].
Consideration of the Respondents’ general objections
As mentioned in paragraph 33 above, here I will describe the Respondents’ general objections and the Administrators’ response to them, and then set out my view.
First, it was said that the Administrators were parties in the Underlying Proceeding and/or witnesses, and that they were therefore not entitled to their costs of attending Court. The Administrators’ response to this was that the Respondents’ position assumes that this exercise is akin to a taxation, which it is not. They said that it is appropriate for them to be able to claim their remuneration incurred in such matters as preparing and reviewing affidavits, and attending Court.
In my view, this objection is misconceived, for the reasons expressed by the Administrators. It is not at all uncommon for external administrators to be parties to litigation in respect of the company they are administering/liquidating and their remuneration in connection with that litigation is routinely included in the determination of their remuneration. There is no reason at all why that ought not be the case here.
Secondly, the Respondents submitted that it is not enough to say that the Administrators have incurred fees, as they have to show the reasonableness of them. For example, the Administrators attended the Court hearings, along with a number of people from their office, as well as a number of solicitors and counsel. This was said to be unreasonable. In response, the Administrators submitted that this was a complex external administration, the litigation was hard fought, and it was appropriate for the persons who attended from AS Advisory to attend Court. The number of solicitors also present was said to be irrelevant.
I accept that the number of persons attending Court goes to the reasonableness of the remuneration claimed in the Application. I do not consider it unreasonable for the Administrators to both be present on the first day of trial, along with those staff members who they considered integral to the administration of the Company. This is particularly so when one considers that it is not unusual for matters to arise during a trial, but particularly on the first day, that have not been anticipated. Indeed, that was the very thing that happened here, when his Honour suggested having a further meeting of creditors. Further, the Administrators and their staff were heavily involved in preparing the draft circular and it was not unreasonable for them to be in attendance at Court when these matters were being discussed with the trial judge and negotiated by the parties.
Thirdly, the Respondents submitted that there was no evidence that any of the people from AS Advisory for whom WIP entries for attending Court are claimed actually attended Court. It was said that the usual practice is for an attendance note to be produced or for the solicitor to go on affidavit as to that attendance. Timesheets, or WIP entries, are not evidence that attendance actually occurred. Counsel submitted that there were no invoices in evidence of the Administrators having billed for their time or any evidence that those invoices had been paid. In response, the Administrators again submitted that this is not a taxation and so evidence of the work actually being performed is not required. Attendance notes, for example, are not required, and Mr Schwarz deposed to having reviewed the WIP Report and his belief that the items were necessary and reasonable.
Remuneration applications do not ordinarily require evidence that the work has been performed, beyond the production of WIP reports, drawn from timesheets as this one was, and confirmed in an affidavit from the external administrator. Such affidavit would usually depose to the categories of work done, which the Schwarz Affidavit does.[30] They certainly do not require invoices from the external administrator to be in evidence or for there to be evidence of payment of those invoices. Therefore, I do not accept the Respondents’ submissions in relation to this third point. The WIP Report, supported by the Schwarz Affidavit, is completely consistent with the Court’s approach in respect of remuneration applications by external administrators.
[30]See paragraph 19 above.
Fourthly, the Respondents objected to a number of items on the basis that they are said to duplicate other items in the Bill of Costs which are not part of Item 575. For example, it was said that the review by one of the Administrators or their staff of the solicitor’s affidavit was not claimable because the solicitor’s time for the affidavit was claimed elsewhere in the Bill of Costs.
I do not accept this submission, as the Administrators are entitled to review the work product of their solicitors and may indeed need to do so in order to perform their functions, including instructing solicitors. Again, this is not a taxation.
Fifthly, the Respondents objected to the expenses in relation to printing and posting the Approved Circular. While they had originally objected to both this and the venue charges for the Further Meeting, once the invoices had been provided by the Administrators they did not press the latter objection. However, the Respondents submitted that on its face the Snap Printing invoice was unreasonable and that it did not make sense that the costs were more than $500. Where that figure came from I do not know. The Administrators disagreed with the Respondents’ submissions, saying that the amount charged by Snap Printing was reasonable for the costs of printing the Approved Circular, preparing for postage including the printing of envelopes, and then posting it to over 200 creditors.
I accept the Administrators’ submission that the Snap Printing invoice was for expenses incurred in printing and distributing the Approved Circular and that having incurred those expenses during the Period for the Purpose covered by paragraph 4 of the Costs Orders, the amount of the invoice should be paid by the Respondents.
Consideration of the Respondents’ specific objections
I have perused the Objections and I have found few, if any, items in the WIP Report which are not objected to. Some of those objections merely seek further clarification, but most are noted as “disallow”. Several say “production of attendance note required” which, as I have already stated above, is not a requirement in this process. Some objections are on the basis that the items are internal attendances and not inter-partes costs. Again, that is irrelevant to the exercise I am engaged in. What matters is whether those attendances were reasonable.
My rulings in the preceding section take care of a number of the Objections. Where they do not, I have found it useful to consider the Objections in the way that they are grouped in the Goulding Affidavit, which is reflected in the Written Outline. I do not consider it necessary or appropriate to rule on each item as set out in the Objections. That is not how this exercise is conducted. However, I have read through each of the items in the WIP Report and considered them.
In relation to the work carried out by each of the five people from AS Advisory, the following submissions are made, and I have set out my responses as well:[31]
[31]Goulding Affidavit, [17].
(a) Mr Schwartz’s time is objected to where it is claimed for matters unrelated to the Further Meeting. There is no specific items referred to in relation to this issue. I have reviewed Mr Schwartz’s entries in the WIP Report and am satisfied that, excepting for the three items he concedes ought not have been included, the tasks performed were in connection with the Purpose during the Period;
(b) Mr Conrad was not a witness in the Underlying Proceeding and played no active part in the conduct of it, so his time claimed for this is objected to. In this regard, I repeat the observations I make at paragraph 53 above and also refer to the matters in paragraph 65 below;
(c) John Howarth, a partner at AS Advisory, had no involvement in the conduct of the Underlying Proceeding and his involvement in the claimed items was not essential to the conduct of the matter, particularly as Mr Conrad is claimed for administrative matters in the Period. All of his time is objected to. I reject this submission, for the reasons set out in paragraph 64 below.
(d) Brendan Smith, graduate, is not opposed limited to his support of the Further Meeting; and
(e) Rob Cleary, accountant, is objected to as a required participant at the Further Meeting.
Items 2, 24, 37-39, 53, 54, 83, 165, 176, 182, 183, 185, 186, 188 and 193 are objected to as items that relate to the conduct of the Underlying Proceeding and not the Further Meeting.[32] I have reviewed these items and with the exception of Item 2, I do not accept the Respondents’ submission. The other items either go to the preparation of the Approved Circular, contact with creditors regarding issues in the lead up to the Further Meeting, or concern parts of the Underlying Proceeding that in terms of either the timing or the content lead to an inference that they are connected with the Purpose. Item 2, however, is for 2 units of Mr Schwarz’s time on 19 August 2019 where the task is described as “review of Alex affidavit”, at a cost of $84. This is self-evidently a reference to Alex Nicol, one of the solicitors for the Administrators. The timing of this, being the first day of trial, suggests to me that it is unlikely to be an affidavit in connection with the Further Meeting. I would therefore not include this amount in the remuneration to be approved in this Application.
[32]Goulding Affidavit, [19].
Items 5, 17-19, 28, 29, 42, 43, 60, 67, 74, 111, 122, 143, 151, 171 and 179 are objected to as items claimed by Mr Howarth and are items not relating to any requirement for the conduct of the Underlying Proceeding or the Further Meeting.[33] I have reviewed these items and they self-evidently relate to the drafting of the Approved Circular, or the conduct or consequences of the Further Meeting, or Court hearings regarding the same. It is clear from the WIP Report that Mr Howarth was heavily involved in those activities and I do not see how the Respondents’ objections and submissions in relation to these items are justified.
[33]Goulding Affidavit, [20].
Items 6-9, 32, 33 and 192 are objected to as they are Mr Conrad’s entries for attendance at Court, which are opposed as he was not a required person at the hearings in the conduct of the Underlying Proceeding.[34] I have reviewed these items and I do not accept the Respondents’ submissions. Mr Conrad was one of the appointed administrators. His presence at Court when the circular and Further Meeting was being canvassed or dealt with, and his discussions with his colleagues and solicitors and counsel regarding those matters, which are the items referred to, are clearly connected with the Purpose and conducted during the Period.
[34]Goulding Affidavit, [21].
Items 49, 61, 73 and 75 are objected to as items claimed for work done by Mr Conrad regarding the Further Meeting which were unnecessary and excessive given that others were carrying out that work.[35] I have reviewed these items and do not accept the Respondents’ submission. There is no obvious duplication in the tasks performed as described in the WIP entries.
[35]Goulding Affidavit, [22].
Item 124 is objected to as an item claimed for Mr Cleary’s attendance at the Further Meeting as that attendance was not required.[36] I have reviewed this item and it is apparent from other tasks carried out by Mr Cleary, particularly those after the holding of the Further Meeting, that his attendance at that meeting was required in order for him to carry out those tasks.
[36]Goulding Affidavit, [23].
In addition, the Respondents submit that the items referred to in paragraphs 63 to 67 above are not covered by the scope of paragraph 4 of the Costs Order.[37] With the exception of Item 2, I reject that submission.
[37]Respondents’ Outline, [21]-[23].
I am satisfied, with the exceptions noted above, that the tasks recorded in the WIP Report, the time spent doing them and the rate at which they were charged lead to the remuneration incurred by the Administrators as being necessary and reasonable. I am also satisfied that these were incurred during the Period and for the Purpose.
Conclusion
For these reasons, I determine the remuneration and expenses of the Administrators incurred during the Period for the Purpose in the amount of $80,652.65.[38] I should note, however, that the only reason Item 2 has been deducted is that I do not consider it to fall within the scope of paragraph 4 of the Costs Orders. It may, however, fall within the operation of paragraph 7 of the Costs Orders, although that is a question for another day.
[38]Being the revised amount sought in the Application after deducting the three items conceded by the Administrators, less $84 in respect of Item 2 (see paragraph 63 above).
The parties should confer on the form of orders and as to the costs of the Application. If they are not able to reach agreement, then by 4.00 pm on Friday 18 December 2020 they should each send their form of order (including costs) to my Associate, along with a brief written submission of no more than three pages as to why their position should be preferred. The form of order and the question of costs will then be determined by me on the papers after 4.00 pm on 18 December 2020.
SCHEDULE OF PARTIES
| S ECI 2020 02147 | |
| BETWEEN: | |
| ANDREW SCHWARZ and BENJAMIN CONRAD IN THEIR CAPACITY AS JOINT AND SEVERAL ADMINISTRATORS OF KAMATA HOMES PTY LTD (ACN 130 155 305) (ADMINISTRATORS APPOINTED) | Applicant |
| - v - | |
| MCCA ASSET MANAGEMENT LIMITED (ACN 113 728 706) trading as the MCCA PROPERTY LIST | First Respondent |
| SANDHURST TRUSTEES LIMITED (ACN 004 030 737) as custodian for the MCCA Property Fund | Second Respondent |
| SANDHURST NOMINEES (Victoria) Ltd (ACN 092 352 442) as custodian for the MCCA Property Fund | Third Respondent |
0
12
0