Scott & Scott (No. 3)
[2021] FamCA 602
•19 August 2021
FAMILY COURT OF AUSTRALIA
Scott & Scott (No. 3) [2021] FamCA 602
File number(s): CRC 105 of 2016 Judgment of: AUSTIN J Date of judgment: 19 August 2021 Catchwords: FAMILY LAW – COSTS – COURT APPOINTED RECEIVERS – Where the applicant receiver seeks to recover legal costs incurred in litigation – Where the costs were incurred in litigation between the applicant and the respondents, not in litigation brought or defended against third parties to the receivership – Where the applicant seeks to recover these costs as a disbursement incurred by him in his receivership – Where the respondent wife admits the quantum of the applicant’s claim, but the respondent husband objects – Where the reasonableness of legal fees should be considered separately from the reasonableness of the applicant’s conduct in bringing the application against the respondents – Where the quantum of legal costs calculated by the applicant’s solicitors cannot be rationally reconciled with the work reasonably required to contest the subject litigation – Where the applicant should be awarded a fixed, but much reduced, sum to avoid further expense and delay – Where the respondents remain jointly liable for the applicant’s legal costs and, as an alternate method of recovery, the applicant should have recourse to the assets under his control – Costs awarded in a fixed sum – Where outstanding issue of costs for these proceedings is listed for further hearing. Legislation: Corporations Act 2001 (Cth) s 424
Family Law Rules 2004 (Cth) r 19.18(1)(a)
Cases cited: Australian Barristers Chambers Pty Ltd [2019] NSWSC 799
Australian Securities and Investments Commission v GDK
Burke v LFOT Pty Ltd (2002) 209 CLR 282
Financial Solutions Pty Ltd (in liq) (No.4) (2008) 248 ALR 766
Graham & Squibb (2019) FLC 93-892
Nicou v Ngan [2005] NSWSC 570
Say Enterprises Pty Ltd [2018] NSWSC 396
Scott & Scott (No. 2) [2021] FamCA 50
Scott & Scott [2020] FamCA 414
Vetter v Lake Macquarie City Council (2001) 202 CLR 439
Division: General Division Number of paragraphs: 62 Date of hearing: 2, 3 & 16 August 2021 Place: Newcastle Solicitor for the Applicant: Henry William Lawyers (Mr Faraday) The First Respondent: Litigant in person Counsel for the Second Respondent: Mr Kelly Solicitor for the Second Respondent: Green & McKay ORDERS
CRC 105 of 2016 BETWEEN: MR FELTOS
Applicant
AND: MS SCOTT
First Respondent
MR SCOTT
Second Respondent
ORDER MADE BY:
AUSTIN J
DATE OF ORDER:
19 AUGUST 2021
THE COURT ORDERS THAT:
1.Subject to Order 2, the respondents shall forthwith pay, jointly and severally, the applicant’s costs of and incidental to the proceedings concluded by the orders made on 17 February 2021, assessed in the fixed sum of $21,550, which sum it is declared may otherwise be recovered by the applicant from the property of E Pty Ltd.
2.The respondents shall indemnify one another to the extent of one-half of the applicant’s costs recovered pursuant to Order 1.
3.The parties’ respective applications for the costs of and incidental to these proceedings are listed for hearing at 9.30 am on Monday 13 September 2021.
4.Otherwise:
(a)the Application in a Case filed on 16 June 2021 is dismissed; and
(b)the Response to an Application in a Case filed on 22 July 2021 is dismissed.
Note: The form of the order is subject to the entry in the Court’s records.
Note: This copy of the Court’s Reasons for judgment may be subject to review to remedy minor typographical or grammatical errors (r 17.02A(b) of the Family Law Rules 2004 (Cth)), or to record a variation to the order pursuant to 17.02 Family Law Rules 2004 (Cth).
IT IS NOTED that publication of this judgment by this Court under the pseudonym Scott & Scott has been approved by the Chief Justice pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).
REASONS FOR JUDGMENT
AUSTIN J
On 17 February 2021, orders were made between the applicant and the respondent spouses (Scott & Scott (No. 2) [2021] FamCA 50). One order reserved, for four months, the applicant’s costs of and incidental to the various applications determined by those orders. The controversy over such costs has still not been resolved and so, within time, the applicant filed an Application in a Case on 16 June 2021 seeking judicial determination of the issue.
The applicant now seeks:
(a)fixed costs of $45,000 in relation to the applications determined on 17 February 2021;
(b)his costs incurred in making this application (which costs were not specified, but were quantified at $9,051 in the accompanying affidavit); and
(c)an order in the form of a declaration confirming his entitlement to recover such costs from the net proceeds realised on the sale of a parcel of real property owned by the corporation (“E Pty Ltd”), the assets of which he was appointed to receive.
The first respondent (“husband”) actively opposed the applicant’s application in all respects.
The second respondent (“wife”) did not file any process, but indicated her consent to the applicant’s first and third applications. She opposed the second application but, in the alternative, merely opposed her attribution with personal liability for any of the applicant’s costs for prosecuting the present applications and asserted such liability should rest exclusively with the husband.
BACKGROUND
The applicant was appointed as receiver of E Pty Ltd’s property in mid-2020. The respondents are the joint directors of and equal shareholders in E Pty Ltd.
In November 2020, the applicant brought proceedings to clarify certain aspects of his rights and obligations as the receiver and to recover a specified sum as remuneration for work done in the receivership to that point in time. The respondents respectively resisted either some or all aspects of the applicant’s application and the wife additionally pressed her own applications against both the applicant and the husband. Those competing applications were finalised by the orders made on 17 February 2021.
The applicant’s legal costs of those proceedings, commenced in November 2020 and concluded in February 2021, are now said to total $78,934. However, when asked about the quantum of such costs at the hearing in February 2021, the applicant’s counsel announced the costs were “not more than $45,000” (Scott & Scott (No. 2) [2021] FamCA 50 at [40]). The parties were not able to then compromise the issue and so an order was made acceding to their joint proposal to reserve the question of the applicant’s costs for four months.
Notwithstanding the applicant incurred legal costs of $78,934 in those former proceedings, he is now prepared to accept the lesser sum of $45,000 in satisfaction of such costs in view of the concession made in February 2021.
While the wife admits the quantum of the applicant’s claim, the husband objects to it. He admits the applicant is entitled to costs, but asserts the quantum of the claim should be established by formal assessment.
ADJOURNMENT APPLICATION
The Application in a Case was listed for hearing before the Court on Monday 2 August 2021.
While both respondents appeared and were ready to deal with the application on its merits, the applicant was not. The applicant sought an adjournment of the hearing, which was opposed by both respondents.
The applicant’s solicitor asserted he believed the application was only listed for directions, with a view to a future hearing date being allocated. The adjournment was granted because it was accepted his belief was honestly (albeit erroneously) held and it would have been procedurally unfair to force him to immediately proceed with the substantive hearing.
The applicant’s solicitor also contended it would be preferable to adjourn the hearing without any fixed forward date because there was some prospect another application may need to be brought by the applicant (unrelated to his past legal costs) and there was merit in consolidating the two applications. This reason was rejected. The hypothesised further application may not even eventuate but, even if it does, there was no clarity about when that might occur.
Once the adjournment was granted, attention turned to the allocation of a substitute hearing date. The applicant conceded the period of the adjournment only needed to be short, but sought to select a date to suit the convenience of his chosen counsel. The applicant suggested a date be picked early the following week, seven or more days ahead, but that proposal was rejected. Given the availability of judicial time over the remainder of the week and the limited availability of both respondents at corresponding times, the hearing was adjourned for 24 hours to Tuesday 3 August 2021.
Even though it was asserted the date was unsuitable to the applicant’s preferred counsel, the Court does not list work around counsel availability, particularly interlocutory work concerning costs and disbursements. A reprieve of one day was quite sufficient time for alternate counsel to be retained and ready. The evidence fell within a narrow compass, no witnesses were cross-examined, there was relatively little dispute over applicable legal principles, and the hearing comprised only submissions.
EVIDENCE
To prosecute his application, the applicant relied upon:
(a)his affidavit filed on 16 June 2021;
(b)paragraph 59 of his affidavit filed on 9 November 2020; and
(c)page 359 of Exhibit 1 tendered on 9 February 2021.
To resist the application, the husband relied upon his affidavit filed on 22 July 2021.
After the hearing was concluded on 3 August 2021, the husband applied by way of an Application in a Case filed on 10 August 2021 to re-open and adduce evidence in the form of the affidavit filed by Mr Stephen John Green on 10 August 2021. On 16 August 2021, with the consent of the applicant and the wife, the application was granted and the parties were then given the opportunity to make additional submissions in relation to the supplementary evidence.
The wife did not file any material.
No witness was required for cross-examination.
COSTS OF THE FORMER PROCEEDINGS
Legal principles
As a general proposition, it is well accepted that receivers are entitled to the costs, charges and expenses properly incurred in the discharge of their ordinary duties (Say Enterprises Pty Ltd [2018] NSWSC 396 at [6]; Australian Barristers Chambers Pty Ltd [2019] NSWSC 799 at [19]–[21]). Such costs are usually indemnified by payment from the fund being administered by the representative (Australian Securities and Investments Commission v GDK Financial Solutions Pty Ltd (in liq) (No.4) (2008) 248 ALR 766 at [8] and [10]) which, in the case of a receiver, is property under the receiver’s control.
However, the general proposition is not absolute and is subject to qualifications. In particular, when the receiver’s indemnity for such costs is controversial, recovery of the costs depends upon the receiver having acted reasonably (GDK at [8]–[9]) and the costs having been reasonably incurred (Say Enterprises at [6]), the onus for proof of which rests with the receiver (Say Enterprises at [6]).
This case was not unlike the situation in Say Enterprises, where receivers sought the Court’s approval of their remuneration, of which incurred legal expenses were a substantial proportion (at [7]). Their claim for reimbursement of the legal costs as a properly incurred disbursement of the receivership failed (at [29] and [40]), thereby demonstrating how receivers cannot expect courts to simply impress approval upon their costs claims like ink-laden rubber stamps.
As was observed by Brereton J in Say Enterprises (at [6]):
The ultimate question is what amount of remuneration is “reasonable”, and this involves considering whether the work in respect of which remuneration is claimed was reasonably undertaken in the due course of the receivership, and whether the amount claimed for it is a fair and reasonable reward for it.
…
The receiver bears the onus of justifying the reasonableness and prudence of the tasks undertaken for which remuneration is sought, and the reasonableness of the remuneration claimed for them.
…
In respect of disbursements…receivers should scrutinise them to ensure that they are reasonable and properly payable, and the Court has an inherent jurisdiction to review receivers’ disbursements as they are officers of the Court. However, a receiver may seek a direction that he would be justified in paying certain disbursements in order to obtain prior protection in respect of such a disbursement.
(Footnotes omitted) (Emphasis added)
In Nicou v Ngan [2005] NSWSC 570, a liquidator faced a challenge to his indemnity claim for costs incurred in litigation, said to be extravagant. Campbell J (at [14]) acknowledged how such costs claims could be challenged and allowed a motion for Notices to Produce to be served upon the liquidator’s lawyers requiring them to produce documents evidencing work done for the liquidator in the litigation. Of course, here, the applicant is a receiver not a liquidator, but the distinction makes no difference to the underlying policy.
In this particular case, the applicant’s application is brought to recover legal costs incurred by him in the conduct of litigation; not remuneration for his ordinary work in the receivership. Moreover, the legal costs were incurred in litigation contested internally between the applicant and the respondents; not in litigation brought or defended against third parties concerning E Pty Ltd’s external commercial relationships.
In effect, the applicant seeks to recover the legal costs of his representation in the proceedings he commenced against the respondents in November 2020 as a “disbursement” properly incurred by him as receiver in the discharge of his duties.
The husband sought to resist the applicant’s claim on two bases: first, the applicant’s conduct in bringing the proceedings was unreasonable; and secondly, the legal costs incurred by the applicant were unreasonable.
Although initially accepting the availability of both arguments and contesting only the merit, the applicant ultimately sought to argue that the two concepts are one and the same thing, submitting in effect that it must “inexorably” follow that the costs are reasonable if his conduct was reasonable, but the submission is rejected as it conflates two different things. Assuming the applicant acted reasonably by retaining competent lawyers to sensibly prosecute an application for reasonably available relief, it does not necessarily follow that the fees charged to the applicant by his lawyers for the legal work done were reasonably incurred or are reasonably recoverable.
The applicant did indeed have some degree of control over the legal fees he was charged by reaching agreement with his lawyers over the terms of their retainer, including as to their hourly rate. But, once retained and instructed, the work done by the lawyers in pursuit of their instructions was beyond the applicant’s immediate control. He could only rein in such legal work if alerted to the burgeoning cost by his receipt and review of periodic bills of costs. Whether he received and scrutinised periodic bills for their reasonableness, as he should have done (Say Enterprises (at [6]), is not revealed by the evidence. Accordingly, while there may be some overlap, the correlation between the reasonableness of the applicant’s conduct and the reasonableness of the legal fees he incurred is far from complete.
It follows that the reasonableness of the legal fees now sought to be recovered by the applicant should be considered separately from the reasonableness of the applicant’s conduct in bringing and prosecuting his application against the respondents.
Reasonableness of conduct
The husband’s assertion of the applicant’s unreasonable conduct proved fragile when tested for strength. When pressed for elaboration, he contended: the applicant should perhaps not have given an undertaking to the former receivers to bring the proceedings to resolve the former receivers’ outstanding claim for unpaid remuneration; the claim made by the applicant in respect of his own remuneration was brought before the applicant had issued any monthly accounts; and some of the applications for relief brought by the applicant were abandoned at the hearing in February 2021.
Although the application filed by the applicant in November 2020 was multi-faceted, it was principally designed to resolve an impasse which was integral to the orderly progress of the receivership. One very significant asset owned by E Pty Ltd was a parcel of commercial real property, which the applicant contracted to sell. The contract could not, however, be completed because the former receivers had registered a caveat over the title to protect their payment of remuneration which, to that point in time, the respondents could not or would not pay. The sale could not proceed until the caveat was removed from the title and, until the sale was completed, the applicant could not make useful progress in the receivership.
The applicant pressed for an order endorsing his authority to pay out the former receivers’ remuneration in satisfaction of their judgment debt from the proceeds realised on the sale of the property, expecting the former receivers would then relinquish the caveat and allow the sale to proceed, but that application was dismissed (Scott & Scott (No. 2) [2021] FamCA 50 at [14]–[19]). Notwithstanding the form of relief sought and the omission to explicitly invoke s 424 of the Corporations Act 2001 (Cth), the application was effectively made to solicit judicial directions about how to advance the receivership in the face of intractable conflict between the respondents and the former receivers and was reasonably brought. The subsequent dismissal of the proposal to pay the former receivers from the sale proceeds of property owned by E Pty Ltd clarified the situation and sated the applicant’s need for advice, but did not of itself mean the application was unreasonably brought, as the husband implied. Resolution of that dispute was for the ultimate benefit of the parties, not the applicant. The husband’s contention that the application was “unnecessary and premature” is rejected.
The applicant also sought an order approving the amount and payment of his own remuneration and expenses incurred in his receivership to that point in time. Both respondents agreed to the quantum of remuneration sought (Scott & Scott (No. 2) [2021] FamCA 50 at [20]–[28]), so the apparent failure of the applicant to render monthly invoices to the respondents over the preceding few months was of no consequence. The issue was supplementary to the principal relief sought and was conveniently resolved simultaneously.
At the hearing in February 2021, the applicant abandoned his supplementary applications for relief in the form of a declaration of the quantum of anticipated future remuneration, an order for his payment into Court of surplus funds realised in the receivership, and an order for his future discharge. Those aspects of the litigation took no time to resolve and were not issues to which the applicant had to attribute any preparatory time or attendant cost. They ceased to be contentious when the husband’s lawyers wrote to the applicant’s lawyers in December 2020, two months before the hearing in February 2021, outlining further issues requiring attention in the receivership.
The husband’s proposition of the applicant acting unreasonably by bringing and/or then pressing the former Application in a Case is rejected.
Reasonableness of costs
Although notionally indebted to his lawyers for $78,934 in respect of the litigation conducted between November 2020 and February 2021, the applicant sought to recover $45,000 in lieu of the full amount.
According to the evidence adduced by the applicant, he incurred total legal costs of $74,099 or $78,934 (rounded to the nearest dollar), but there were several unexplained discrepancies in the evidence about the quantum of costs.
Three different amounts were claimed for solicitors’ fees: $60,707.90, $55,872.31 and $55,198.00, which discrepancy seems only partly explained by the addition of GST.
Counsel’s fees were $16,000 in total but the lesser sum of $13,294.73 was claimed for such fees in the spreadsheet of costs and disbursements.
Miscellaneous disbursements incurred by the lawyers amounted to $2,226.56, which included the hotel accommodation cost for counsel and two solicitors on the evening before the hearing.
The discrepant figures are puzzling, but really immaterial, because the husband contended even the compromised sum of $45,000 for costs was excessive.
To begin with, the husband’s complaint about the applicant’s failure to provide an itemised bill of costs in response to his requests is rejected. The applicant annexed to his affidavit the excel spreadsheet of total costs and disbursements prepared by his solicitors. In a formal costs assessment, further particularisation of each line item would be required, but there is sufficient particularity to prosecute a lump sum claim for $45,000, being about 58 per cent of the overall costs incurred.
The husband did not seek to cross-examine the applicant about the quantum of the constituent costs and disbursements he incurred, for which there was an obvious reason: there was no point. The applicant was unable to speak authoritatively as to why so much time was spent by his solicitors and barrister preparing for and appearing at the hearing in February 2021. Only the applicant’s lawyers could give that evidence, but they were not called. Only a spreadsheet of their overall costs was produced in evidence.
As earlier noted, the applicant bore the onus of demonstrating that the quantum of his legal costs was reasonable, knowing their reasonableness was in issue. Whether the decision was deliberate or inadvertent, the applicant chose not to adduce evidence from his lawyers in support of his case, thereby depriving the husband of the opportunity to cross-examine them about the asserted unreasonableness of their fees and disbursements. All evidence must be weighed and assessed having regard to the power of the parties to produce and contradict it (Vetter v Lake Macquarie City Council (2001) 202 CLR 439 at 454; Burke v LFOT Pty Ltd (2002) 209 CLR 282 at 330). In this regard, the applicant had inordinately more power than the husband. In effect, the applicant presumes his legal costs will be accepted as being reasonable, but does not deign to prove it.
The solicitors’ spreadsheet reveals the total units of work undertaken by them, but not the time measurement of such units or the hourly rate at which the units were charged. Those omissions were addressed by the fresh evidence the husband was granted leave to adduce.
It transpires that three different solicitors performed work for the applicant, charging hourly rates of between $550 and $290 exclusive of GST (being an average of $420), and that their units of work were charged in six minutes increments. An average hourly rate of $420 plus GST is generous but not exceptional, given the hourly rate allowed to the applicant for his own professional remuneration is $440 inclusive of GST (Order 10 made on 2 June 2020).
By reference to the solicitors’ spreadsheet, they devoted 1,453 units of work to the proceedings, which translates to more than 145 hours and is staggering. The proceedings were commenced in November 2020 and prosecuted by an interlocutory application supported by two affidavits. Though the respondents both filed affidavits in rebuttal, the applicant did not feel it necessary to file any affidavit in reply. The dispute was listed for hearing in February 2021 and was completed well within one day. Judgment was delivered a week later.
As examples of the excess, the solicitors charged $2,940 for two solicitors to attend the hearing on 9 February 2021, even though counsel was briefed to appear. They were merely spectators in Court because the hearing comprised only submissions. Then, when judgment was delivered, the solicitors charged $813 for one solicitor to attend by telephone on its delivery and for three different solicitors to afterwards read and consider the judgment.
It was patently excessive for the applicant’s lawyers to attribute 145 hours work to the case, even though the evidence does not allow an explanation as to precisely why. The quantum of legal costs calculated by the applicant’s solicitors cannot be rationally reconciled with the amount of work reasonably required to contest the subject litigation. At the very least, the applicant failed to prove the costs were of reasonable quantum.
Review of the fees rendered by counsel discloses how work was double-handled by counsel and the solicitors in the early stages of the litigation. Counsel and several solicitors participated in reviewing documentary material and drafting or settling the affidavits. The solicitors should not have spent so much time drafting the affidavits and marshalling documents if counsel was principally relied upon for that purpose. Conversely, if that was the solicitors’ role, there must have been much less scope for counsel’s involvement. As the hearing approached, counsel appears to have charged about $13,000 for preparation time over the preceding week and his attendance at the short hearing, even though none of the witnesses had to be cross-examined and only submissions were made.
The applicant sought to invoke r 19.18(1)(a) of the Family Law Rules 2004 (Cth) to justify his entitlement to a fixed lump sum of $45,000, but no such order will be made because the amount is excessive. However, since the applicant has demonstrated his entitlement to some costs, the question remains as to what order should be made in his favour?
The husband blithely proposed that the parties be referred to the registrar for formal costs assessment, but that proposal is rejected. This particular costs dispute is quite different from an orthodox costs dispute between spouses and would almost certainly be a protracted and expensive affair. I am satisfied the applicant should be awarded a fixed, but much reduced, sum to avoid the further expense, delay and aggravation of an assessment and to move this litigation tantalisingly closer to its end (Graham & Squibb (2019) FLC 93-892 at [92]–[93]).
Taking the “impressionistic, evaluative and ‘broad-axe’ approach” said to be required in such situations (Say Enterprises at [27]), the applicant’s costs are fixed in the lump sum of $21,550, which amount comprises:
(a)solicitors’ fees, allowing 25 hours work at $462 per hour (inclusive of GST): $11,550.
(b)counsel’s fees for conferences, preparation and appearance on hearing: $8,000
(c)disbursements, after deduction of the hotel accommodation cost incurred the night before the hearing for one of the two solicitors: $2,000.
Even that amount should be objectively regarded as handsome indemnity for the amount of work reasonably done in such a short and compact case. Allowing an aggregate sum of greater amount would, in my view, be tantamount to the Court granting its imprimatur to the practice of lawyers who represent external administrators charging excessive, if not extravagant, fees in expectation the fees will be recovered by the external administrators pursuant to the usual indemnity rule and the burden then shifted.
SOURCE OF PAYMENT
This third aspect of the application was not the subject of a solitary submission by either the applicant or the respondents.
On 2 June 2020 (Orders 10–13), the respondents were ordered to pay the applicant’s remuneration in equal shares and to indemnify one another to the extent of one-half of such remuneration (Scott & Scott [2020] FamCA 414 at [100]–[103]).
On 17 February 2021 (Order 1), it was ordered the applicant could recover his remuneration from the assets of E Pty Ltd if unpaid by the respondents (Scott & Scott (No. 2) [2021] FamCA 50 at [20]–[28]).
None of those orders were the subject of appeal. It follows that the respondents should remain equally liable for the applicant’s legal costs (being a legitimate disbursement incurred in the receivership) and, as an alternative method of recovery, the applicant should have recourse to the assets of E Pty Ltd. Orders are made to that effect.
COSTS OF THE CURRENT PROCEEDINGS
At the end of the hearing, the applicant asked for an adjournment of his application for the costs of these proceedings. He asserted he first wanted to ascertain the result of his application for the costs of the former proceedings, as he made an offer of compromise to the husband over that issue which may become relevant to his costs of these proceedings.
Although the adjournment would further fragment this dispute, which is already tangential to the substantive property dispute between the respondents, they consented to the applicant’s proposal to adjourn the subsidiary costs application. An order is therefore made to that effect. This outstanding aspect of the dispute is listed for further hearing a few weeks ahead.
I certify that the preceding sixty-two (62) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Austin. Associate:
Dated: 19 August 2021
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