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
Say Enterprises Pty Ltd [2018] NSWSC 396
Scott & Scott (No. 2) [2021] FamCA 50
Scott & Scott [2020] FamCA 414
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…
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Details
- AGLC
- Scott & Scott (No. 3) [2021] FamCA 602
- Case
- [2021] FamCA 602
- Decision Date
CaseChat Overview and Summary
In the matter of *Scott & Scott (No. 3)*, Austin J of the Family Court of Australia considered an application by an applicant receiver seeking to recover legal costs incurred in litigation between himself and the respondents, Mr Feltos and Ms Scott. The dispute centred on the quantum of these costs, with the respondent wife admitting the amount claimed, but the respondent husband objecting. The applicant sought to recover these costs as a disbursement of his receivership.
The primary legal issue before the Court was whether the legal costs claimed by the applicant receiver were reasonably incurred and, if so, what amount should be awarded. The Court was required to determine the reasonableness of the legal fees separately from the reasonableness of the applicant's conduct in bringing the application against the respondents. The Court also considered the general legal principles governing a receiver's entitlement to recover costs, charges, and expenses properly incurred in the discharge of their duties, noting that such recovery is subject to the receiver having acted reasonably and the costs having been reasonably incurred, with the onus of proof resting on the receiver.
Austin J found that the quantum of legal costs calculated by the applicant's solicitors could not be rationally reconciled with the work reasonably required to contest the subject litigation. Applying the principles that receivers must justify the reasonableness of both the tasks undertaken and the remuneration claimed, and that courts have an inherent jurisdiction to review a receiver's disbursements, the Court determined that a fixed, but significantly reduced, sum was appropriate to avoid further expense and delay. The Court ordered that the respondents remain jointly and severally liable for the applicant's legal costs, assessed in the fixed sum of $21,550, which sum could also be recovered from the assets under the applicant's control. The parties' respective applications for the costs of the current proceedings were listed for further hearing.
The primary legal issue before the Court was whether the legal costs claimed by the applicant receiver were reasonably incurred and, if so, what amount should be awarded. The Court was required to determine the reasonableness of the legal fees separately from the reasonableness of the applicant's conduct in bringing the application against the respondents. The Court also considered the general legal principles governing a receiver's entitlement to recover costs, charges, and expenses properly incurred in the discharge of their duties, noting that such recovery is subject to the receiver having acted reasonably and the costs having been reasonably incurred, with the onus of proof resting on the receiver.
Austin J found that the quantum of legal costs calculated by the applicant's solicitors could not be rationally reconciled with the work reasonably required to contest the subject litigation. Applying the principles that receivers must justify the reasonableness of both the tasks undertaken and the remuneration claimed, and that courts have an inherent jurisdiction to review a receiver's disbursements, the Court determined that a fixed, but significantly reduced, sum was appropriate to avoid further expense and delay. The Court ordered that the respondents remain jointly and severally liable for the applicant's legal costs, assessed in the fixed sum of $21,550, which sum could also be recovered from the assets under the applicant's control. The parties' respective applications for the costs of the current proceedings were listed for further hearing.
Orders
Orders of the court
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).
Background
Background to the litigation
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.
Evidence
Evidence Before The Court
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 PROCEEDINGSLegal 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)
Decision
Reasons for decision
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Ratio Decidendi
Legal Principle Established
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