VSC approves remuneration after liquidator incurs $7k fee justifying $34k
In the recent decision of Custometal Engineering Pty Ltd (in liquidation) [2018] VSC 726, two liquidators incurred almost $7,000 in fees whilst seeking to justify their $34,000 remuneration.
The case ensued after Custometal Engineering Pty Ltd entered voluntary administration on 21 September 2017, with Sam Kaso and Daniel Juratowitch appointed as administrators.
On 11 October 2017, the Supreme Court of Victoria ordered that the administration be terminated, that the Company be wound up and that Kaso and Juratowitch be appointed as joint and several liquidators.
Subsequently, in September 2018 the liquidators sought approval of their remuneration as the Company’s administrators pursuant to s60-10(1)(c) of the Insolvency Practice Schedule for the amount of $33,872.50. They also sought that the costs of the application be costs in the Company’s liquidation, hence bringing the total claim to $40,860.
Accordingly, the court was required to consider whether liquidators had prima facie established a case for remuneration and subsequently whether that remuneration should be approved under r9.2 Supreme Court (Corporations) Rules 2013 (Vic). In doing so, the court was required to consider whether the remuneration being claimed was reasonable.
In determining the reasonableness of the remuneration, Matthews JR considered the following factors:
- Whether there was an appropriate delegation of the work performed;
- Whether the tasks conducted were necessary to have been performed;
- Whether the time taken to complete those tasks, and therefore the amounts charged for them, was reasonable; and
- Whether there was any evidence of unnecessary duplication of work.
Ultimately the court was satisfied to approve the remuneration sought by the liquidators, holding that the liquidator’s costs of application be costs in the Company’s liquidation.
In an era where issues of proportionality are high on the agenda, particularly with the judiciary, this case presents an interesting example of a situation where the costs of making such an application seem disproportionate to the costs being sought and presents yet a further example of why approval of these costs should be facilitated in a different manner, possibly by legislative change as the current law sees many liquidators spending significant resources to justify their remuneration at additional cost to creditors.
HCA allows ASIC v Lewski appeal
In the matter of Australian Securities & Investments Commission v Lewski & Anor, the High Court has partly allowed an appeal by the corporate regulator, after it alleged the directors of Australian Property Custodian Holdings Pty Ltd (APCHL) breached their duties by amending the constitution of a failed aged care and retirement trust.
In December 2000, Australian Property Custodian Holdings Pty Ltd (APCHL) created a unit trust called the Prime Retirement and Aged Care Property Trust, of which it was the responsible entity. The trust was subsequently registered by ASIC as a managed investment scheme in July 2001, and the consolidated trust deed became the constitution of the managed investment scheme.
In July 2006, after struggling to sell the units, the directors of APCHL amended the constitution by introducing substantial new fees payable to APCHL. In doing so, the directors introduced a 'listing fee’, which was payable once the scheme's units were listed on the Australian Securities Exchange.
The amended constitution was lodged in 2006, and the following year the directors determined that the listing fee would be paid to companies associated with William Lewski, one of APCHL's directors who controlled the trust's responsible entity.
Subsequently, the case ensued after ASIC alleged that Mr Lewski was improperly granted $33 million from the company for consulting on its ASX listing, and a further $60 million for the purchase of the management rights for the portfolio of villages owned by the company.
At first instance the trial judge held that the fees were invalid, and that the directors had subsequently breached their duties.
However, the directors subsequently appealed to the Full Federal Court, where it was held that the trial judge erred in its finding. In doing so, the court held that the certain amendments had 'interim validity' unless and until they were set aside, and that the directors were thus entitled to act in accordance with their honest belief that the amendments were valid.
ASIC then appealed to the High Court, which ultimately held that the Full Federal Court had erred in this decision. In doing so, the court concluded that the directors had breached various provisions of the Corporations Act 2001 (Cth), having failed to take reasonable care, to be loyal to members of the trust, to not use their position improperly and to comply with the legal requirements for amendment.
Despite this, the court held that the Full Federal Court was correct in finding that the directors had not been complicit in a breach of s 208. The case has now been remitted to the Full Federal Court for determination of penalty and disqualification orders, costs and ASIC's cross-appeal to that court.
VSC orders review of liquidator's conduct and fees
In the recent decision of Westpoint Corporation Pty Ltd (in liq) v Yeo [2018] VSC 705, Westpoint Corporation (WPC) have been successful in having the Victorian Supreme Court inquire into the remuneration of the liquidators of Westpoint Finance (WPF). WPC is the major unsecured creditor of WPF.
The case ensued after WPC alleged that WPF's liquidators ‘failed to properly perform their duties' in incurring legal costs of approximately $600 000 and accruing remuneration in excess of $455 000, after pursuing three legal claims for commission in respect of the sale of real estate in circumstances where WPF did not hold the requisite licence and where there were statutory provisions prohibiting the recovery or retention for reward.
Consequently, in February 2017, WPC filed a complaint with the Supreme Court of Victoria seeking that the court conduct an inquiry into the conduct of the liquidators of WPF, pursuant to s536 of the Corporations Act.
WPC also sought a review of the liquidators remuneration pursuant to s504, contending that by pursuing the three legal claims, the amount available for distribution to the creditors of WPF was diminished by approximately $1 million. In doing so, WPC contended that the remuneration approved and paid to the liquidators to date, totalling over $1.4 million, was disproportionate to the $3.8 million recovered by the liquidators in the winding up.
Ultimately the court found in favour of WPC, concluding that an inquiry should be held into the liquidator’s conduct, pursuant to s536(1)(b) of the Corporations Act (now repealed). Despite this, Sloss J held that the review should be confined to their conduct in pursuing PRD Realty Qld; one of the three real estate agents originally targeted by WPF's liquidators.
In relation to WPC’s request for a review of remuneration, the court held that the monies generated by the liquidators between March 26 2006 and October 2 2011 ought to be reviewed pursuant to s504(1).
Whilst inquiries into the conduct of insolvency practitioners is not a common occurrence, they can occur and this case presents a useful example of what the court might consider in determining whether to order an inquiry. The case is useful both to insolvency practitioners and creditors.
PPSR: Your registrations may be expiring soon!
The Personal Properties Securities Register (PPSR) is a vital risk minimisation tool for both businesses and consumers in buying, selling, leasing, renting and hiring transactions. However, over 120,000 registrations are set to expire on 31 January 2019! It is imperative that you ensure any lapsing registrations are extended to protect your interests.
Why you should renew
Registration on the PPSR solidifies your position as a secured creditor, ultimately allowing you to recover property when a customer becomes insolvent or defaults on a payment. However once your registration expires, you will be unable to extend or renew it, and will thus risk losing priority to another secured party when you attempt to re-register.
What you need to do
- Review the status of your existing registrations and take note of any which are due for renewal
- Ensure that you update any changes to your original registrations, such as party details, new contracts or property upgrades
- Extend you registrations to continue to secure your interest.
We are here to help
We understand that navigating a PPSR expiry can be a stressful and challenging time. We have assisted numerous clients through the process and are here to ensure your experience is not a stressful one. If you want to ensure that your property and interests are protected, please do not hesitate to call us.
Limitation period for costs assessment application runs from date of delivery of lump sum bill
In the matter of QLD Law Group – A New Direction Pty Ltd v Crisp [2018] QCA 245, the Queensland Court of Appeal held that the limitation period for an application for costs assessment by a client runs from the date of delivery of a lump sum bill of costs and not a later itemised bill.
Background and the proceeding below
The respondent, Ms Crisp, had been a plaintiff in a personal injuries proceeding, represented by the appellant in that proceeding.
After the conclusion of that proceeding, the appellant issued a lump sum bill to the respondent on 28 April 2015.
Almost 11 months later in March 2016, the respondent requested that the appellant provide an itemised bill pursuant to section 322 of the Legal Profession Act 2007 (Qld) (the LPA).
The itemised bill was provided by the appellant on 19 May 2016 and almost a year after that (i.e. almost 2 years after the initial lump sum bill was delivered in April 2015), the respondent applied to have the appellant’s costs assessed pursuant to section 335 of the LPA.
Section 335(5) of the LPA provides that a client may make a costs application within 12 months after
- the bill was given, or the request for payment was made, to the client or third party payer; or
- the costs were paid if neither a bill was given nor a request was made.
The central issue of contention was whether the 12-month period commenced from the delivery of the lump sum bill on 28 April 2015 (and therefore expired in April 2016) or from the delivery of the itemised bill on 19 May 2016 (and therefore not expiring until May 2017).
At first instance, the Magistrate applied the former interpretation and found that the respondent’s costs application had been made out of time. The Magistrate also dismissed the respondent’s application to extend time to bring the costs application and accordingly, dismissed the costs application.
On appeal to the District Court of Queensland, Judge Kent QC preferred the latter interpretation and granted the appeal, overturning the decision of the Magistrate.
The appellant then applied to the Queensland Court of Appeal for leave to appeal the decision.
The appeal
Sofronoff P (with whom Morrison and Philippides JA agreed) analysed the wording of the relevant provisions in Part 3.4 of the LPA and noted that section 335 provided for the assessment of costs, not the assessment of a bill (or bills) of costs. His Honour stated:
The statute does not make the delivery of an itemised bill, or indeed the delivery of any kind of bill, a condition precedent to the right to make a costs application. This is consistent with the absence of an idea that it is a bill that is to be assessed. Section 335 does not refer to an assessment of a bill but to “an assessment of the whole or any part of legal costs”. The legal costs may be those referred to in a lump sum bill or an itemised bill. But they may also be the legal costs that have been the subject of the “request” or the payment that are also referred to in s 335(5). It is not only the delivery of a bill that triggers the beginning of the limitation period; it is triggered by a solicitor’s request for payment or by a client’s payment of costs. It can therefore be concluded that there is nothing in s 335 that, for the purposes of an application for an assessment of legal costs, promotes the importance of an itemised bill over a lump sum bill or even that distinguishes between them.
His Honour also noted that section 332 of the LPA distinguished between the effect of delivery of a lump sum bill and delivery of an itemised bill in respect of a law practice’s ability to commence legal proceedings to recover legal costs, stating further that:
These express provisions that distinguish between the legal effects of the delivery of one kind of bill from the legal effects of the delivery of another kind of bill suggest strongly that the absence of any similar distinction in s 335 means that, for the purposes of s 335(5), there is no distinction.
As a result, his Honour determined that the 12-month period within which a client may apply for costs assessment under section 335(5) of the LPA commenced from the delivery of a lump sum bill and did not restart upon the provision of a later itemised bill at the request of a client.
Accordingly, the application for leave to appeal was granted and the appeal was allowed. The proceeding was remitted back to the District Court for the respondent’s appeal against the decision of the Magistrate to refuse to extend the time within which the application for costs assessment could be brought to be determined (determination of this issue was not previously required given that Judge Kent QC had found that the application for costs assessment was made within time).
Conclusion
The decision is of interest to practitioners because it clarifies just when the 12-month limitation period for an application for costs assessment by a client commences and confirms that the later delivery of an itemised bill after the delivery of an initial lump-sum bill does not restart the limitation period afresh.
The decision also has application near nationwide given that the terms of section 335 of the LPA have similar counterparts in most other states, including in New South Wales and Victoria where similar wording to that contained in section 335(5) is to be found in section 198(3) of the Legal Profession Uniform Law, the successor in those jurisdictions to the legislation arising from the Legal Profession Model Bill formulated by the Standing Committee of Attorneys-General and implemented in most Australian states in the mid-2000s upon which the Queensland LPA is based.
FCA clarifies aspects of compensable loss
A recent decision of the Federal Court has given guidance on how damages for loss arising from a wrongly-granted injunction are calculated. The case of Sigma Pharmaceuticals (Australia) Pty Ltd v Wyeth [2018] FCA 1556 belongs to a long running pharmaceutical patent litigation regarding a patent for an extended-release formulation of the medicine venlafaxine. The judgement is important not just in the area of patents, but for any case involving an injunction leading to economic loss such as restraints of trade.
This litigation began in 2009 when the Court granted interlocutory injunctions restraining three generic drug companies from (among other things) supplying their generic brands of venlafaxine in Australia. This decision was confirmed in 2010 by Jagot J who granted final injunctions against the generic manufacturers. This was overturned a year later in 2011 by the Full Federal Court with the High Court refusing any further appeal.
Following the Full Court’s decision, the three manufacturing companies, as well as their upstream suppliers and the Commonwealth of Australia, began proceedings against Wyeth who had sought the injunction in 2009. The claim of the manufacturers and suppliers were based upon economic loss suffered by the manufacturers during the injunction period. The Commonwealth’s claim was based on monopolisation by Wyeth causing the cost of subsidising venlafaxine to rise, however this claim was settled before the judgement was delivered.
In the published reasons for judgement, Jagot J provided an extensive overview of the manner in which damages are to be calculated. In summary there are three key questions to be answered:
- What is the loss?
- Did the loss flow directly from the order?
- Was the loss foreseeable at the time of the order?
In assessing the claims from the remaining parties Jagot J made several important findings:
First, that this principle does not protect a party from the ordinary consequences of litigation, it only protects from those losses arising “from the operation of an order made by a court before the rights of the parties are able to be fully determined” ([128] - [140]). Similarly, anticipatory steps in regard to a pending interlocutory application cannot engage the principle for similar reasons.
Second, simply because an applicant was successful in obtaining an order at first instance does not mean an injunction was not wrongly granted, an assessment of whether an injunction was wrongly granted must be made in reference to the final appeal decision ([234] to [237]).
Third, the discharge of the interlocutory injunctions marked the end of the relevant period for the claimant’s loss, loss suffered as a result of a final injunction does not flow directly from an interlocutory injunction ([238] – [272]).
Fourth, interlocutory injunctions can have a foreseeable and direct adverse effect on a person who is neither a party, nor bound by the injunction ([219]).
