BETWEEN : ANDREW KOH NOMINEES PTY LTD (ACN 009 067 761)

Corporations Law - Application by receiver for payment of costs - Whether parties to joint venture in receivership can require receiver to have solicitors' costs taxed

Legal Practice Act 2003 (WA), s 228(2)(a)(iii)

Cholditch v Jones [1896] 1 Ch 42

Debney v Semerdziev [1982] 2 NSWLR 391

Deputy Commissioner of Taxation v Moore Bank Pty Ltd [1987] 1 Qd R 414

Equuscorp Pty Ltd v Short Punch & Greatorix [2001] 2 Qd R 580

Littlewood v George Wimpey & Co Ltd [1953] 2 QB 501

Parramatta River Lodge Pty Ltd v Sunman, unreported; SCt of NSW; 24 May 1991

Re Barber [1845] EngR 1265; (1845) 153 ER 665

Re Early [1897] 1 IR 6

Re Taylor [1854] EngR 126; (1854) 52 ER 65

Venetian Nominees Pty Ltd & Ors v Conlan (1998) 20 WAR 96

Australian Securities and Investments Commission v Rowena Nominees Pty Ltd (In Liq) (Receiver and Manager Appointed) (Supervisor Appointed) [2006] WASC 36

Re Freehill Hollingdale & Page's Bill of Costs [1998] 1 Qd R 616

Re Western Continental Corporation Limited (In Liq) (1990) 1 WAR 402

1 MASTER SANDERSON: This is an application by the receiver and manager for approval of his remuneration. To understand the very limited nature of the dispute between the parties, it is necessary to say something about the background facts.

2 On 24 March 2004 Roberts-Smith J appointed a receiver, Garry John Trevor (the "Receiver"), as receiver of the Balneum Joint Venture (the "Joint Venture"). The plaintiff and the defendant were participants in the Joint Venture. Difficulties had arisen between them and it was determined that the Receiver, being independent of the parties, should take control of the Joint Venture and bring it to a conclusion. For present purposes, it is not necessary to say anything about the nature of the dispute between the parties, nor indeed is it necessary to detail the nature of the Joint Venture. What is important is the fact of the appointment of the Receiver. Paragraph 7 of the orders made by Roberts-Smith J are in the following terms:

"(a) The Receiver shall be entitled to reasonable remuneration and reasonable costs and expenses properly incurred in the performance of his duties and the exercise of his powers as set out in this Order, to be calculated on the basis of the time reasonably spent by the Receiver, his partners and staff in accordance with the scale of fees charged from time to time by the firm Ferrier Hodgson or such other scale as the Registrar may decide (the 'Receiver's fees').

(b) The Receiver's fees are to be paid from the assets of the Balneum Joint Venture, unless otherwise ordered by the Court."

3 The order made by his Honour as to the remuneration of the Receiver is in a form which is common in applications of this nature. By its terms, the order does not specify how the remuneration is to be assessed. However, it is reasonable to approach the assessment of the remuneration of a receiver in the same way as the remuneration of a provisional liquidator or a liquidator is assessed. The approach to be adopted was set out by the Full Court in Venetian Nominees Pty Ltd & Ors v Conlan (1998) 20 WAR 96. This application must be viewed against the background of those principles.

4 During the course of the receivership, the Receiver has instructed solicitors and those solicitors have charged the Receiver for their services. Along with his own remuneration, the Receiver seeks approval of his payment of the legal fees. The present objectors, who are the two participants in the Joint Venture, have no difficulty with the Receiver's fees. They also accept that the solicitors appointed by the Receiver must be paid. However, they are not prepared to accept the accounts, as rendered by the solicitors, are reasonable. They maintain that the Receiver should have these accounts taxed. The Receiver has declined to do so. The objectors say they are entitled to insist that the solicitors' accounts are taxed under the provisions of the Legal Practice Act 2003 (WA).

5 The objectors rely on s 228(2)(a)(iii) of the Legal Practice Act 2003. That section is in the following terms:

(a) a reference to the person or party charged includes a reference to -

(iii) a person liable to pay or to reimburse another for costs in a bill ..."

6 The objectors say that they are the "party charged" in relation to these solicitors' accounts. They say that ultimately they are liable to pay the accounts because the funds they will ultimately receive when the Joint Venture is wound up will be reduced by the amount of the solicitors' accounts. As an alternative, they submit they have effectively reimbursed the Receiver for his solicitors' costs. Thus, it is said they are entitled to have the accounts taxed.

7 In support of this proposition, counsel for the objectors referred to the decision of Young J (as his Honour then was) in the Supreme Court of New South Wales Equity Division in Parramatta River Lodge Pty Ltd v Sunman, unreported; SCt of NSW; 24 May 1991. His Honour was there dealing with a question of whether mortgagors of certain property which had been sold pursuant to the mortgage had the right to have bills of costs rendered by a solicitor engaged by the mortgagee taxed. His Honour said (at 4):

"There was also some initial argument as to whether the mortgagors were persons who were liable to pay the bills. There are a series of decisions that the words 'paid, or who is liable to pay' ... mean the person who has the ultimate burden of providing the money which is paid to the solicitor to meet his bill."

8 His Honour then goes on to say that this question was not argued before him. However, he referred to three cases which he said supported the conclusion. The cases are Re Taylor [1854] EngR 126; (1854) 52 ER 65; Re Early [1897] 1 IR 6 and Debney v Semerdziev [1982] 2 NSWLR 391. It is worth considering each of these cases in turn.

9 The facts in Re Taylor (supra) as taken from the headnote are as follows:

"A, a solicitor, being one of three mortgagees, arranged with another solicitor, B, to 'act as his agent' in the matter of the mortgage, on agency terms. B accordingly acted, and sent in his bill prepared as between solicitor and client, and was paid by the mortgagees. B allowed A £100 as his share of the profits. After this, on the application of the second incumbrances the bill was taxed. Held, that the Taxing Master was right in taxing it on the principle of solicitor and agent, for the agreement between A and B was valid, although it enured to the benefit of the mortgagees; and that the bill was properly taxable, at the instance of the second incumbrancers, as between them and B."

10 The Master of the Rolls, Sir John Romilly, dealt with this petition by way of an appeal from the decision of the taxing master. His Lordship said (at 68):

"An agreement was entered into by which the Petitioner undertook to transact the business on agency terms; this is all that the trustees were bound to pay. In other words, my opinion is, that the trustees are entitled to have the bill of the Petitioner taxed, on the principle on which he agreed with Mr Tourle to conduct it, and the Respondents, to use the words of the statute, are entitled to have the same course pursued, in all respects, as if the application to tax had been made by the trustees, the clients of the Petitioner."

11 There are two things to note about this decision. First, it deals with a mortgage. That was the case in the Parramatta River Lodge decision (supra) and it is the case in one of the other two cases which I will discuss below.

12 It is not uncommon for a party who is arranging for the discharge of a mortgage and thus incurring legal fees not to be liable for payment of those fees. Ultimately, the fees are paid by the mortgagor. The second point to note is that there is a very direct relationship between the person called upon to pay the fee and the service performed by the solicitor. A mortgage is being discharged and payment of the fee comes out of the pocket of the mortgagor. There is no question of a fund which is garnered as a result of the activities of a party such as a receiver or a liquidator. There is, in effect, a straight line between the realisation of the mortgaged property and the payment of the fee to the solicitor.

13 The facts in Re Early (supra), again taken from the headnote, are as follows:

"A suit having been instituted in the County Court to establish the will of M by C the executor, the widow and daughter of the deceased opposed, with the result that a compromise was effected, by which certain legacies were abated, and the residue of the assets, after payment of the costs of both parties, was to be divided between the widow and daughter. E, the solicitor for the executor, furnished an account to H, the solicitor for the widow, in which he claimed three bills of costs, including one for £52 for untaxed miscellaneous costs. The widow objected, and, on the suggestion of H, E moderated his bill by deducting £5, and sent a cheque to the widow for her share, after deducting the costs. She again objected, and after some correspondence, within twelve months of the delivery of the bill, moved for an order for taxation."

14 At first instance, Vice Chancellor Chatterton rejected the widow's application for taxation on the basis that she was not "the person liable to pay" the bill. Rather, it was for the executor to make payment of the bill. This decision was reversed on appeal. The Chancellor, Lord Ashbourne, said (at 8):

"She [the widow] has never been satisfied, and she is a person under the Act who has a vital interest in seeing the matter put right. It is really not material that the executor, who has nothing to do with payment, is satisfied. I think it does not require more than the facts disclosed in this case to see that this is a case in which taxation cannot be refused on the application of the person liable to pay."

15 Again, as with Re Taylor (supra), there is a direct connection between the beneficiary of the estate and the amount received after deduction of costs. But it must be acknowledged that the primary responsibility for dealing with the estate of the deceased falls to the executor. It is he who is obliged to undertake all aspects of the administration of the estate including the engagement of solicitors. No doubt he is primarily liable to make payment of any fees charged by the solicitors, albeit that he has a right of indemnity from the estate. This case goes somewhat further than the decision in Re Early (supra).

16 In Debney v Semerdziev (supra), the New South Wales Court of Appeal was dealing again with costs payable on discharge of a mortgage. The summary of the case, taken from the headnote, is as follows:

"Where, after the solicitor's costs of a first mortgagee's sale have been paid, there is a deficiency in the amount paid to the second mortgagee by reason of that deduction, in substance it was the second mortgagee's money that was liable to pay the costs and which in fact paid the costs, and he is accordingly entitled to delivery of a bill of costs pursuant to s 32 [of the Legal Practitioners Act 1898]."

17 Hope JA, with whom other members of the Court agreed, said (at 394):

"As is apparent from the facts which I have described, the respondent, as second mortgagee, bore the burden of either the whole or the greater part of the costs retained by the appellants, for their amount was deducted from the proceeds of sale and thus from the amount which remained available for payment of the debt to the respondent after the first mortgagees had been paid out. The result was that the costs having been paid out of the fund, the respondent, being entitled (to the extent of his debt) to the residue of the fund received, by reason of the deduction of the costs, an amount which was deficient by approximately the amount of the costs. It can thus be said that in substance it was his money that was liable to pay the costs and which in fact paid the costs."

18 In reaching that conclusion, his Honour referred to Re Early (supra) and another English case of Cholditch v Jones [1896] 1 Ch 42. That case had to do with the payment of an auctioneer's commission. Under the conditions of sale, the auctioneer's commission was paid by the purchasers. However, North J considered that in reality, the commission had been paid by the vendor. His Honour said (pages 45 - 46):

"No doubt the clients are not charged directly with such commission: the auctioneer is not their creditor for the amount. But, in my opinion, if the burden of such commission falls ultimately upon the clients - if it is not provided for by the solicitor out of the scale fee, but comes even indirectly upon the clients, and has thus been borne by them - it is 'paid by the clients' ...

It is beyond all question that, even if the auctioneer's fee is paid in the first instance by the purchaser, it does ultimately fall upon the vendors, because the purchase-money is diminished by a corresponding amount. If the whole sum a purchaser pays does not go to the vendor, but part of it has to go to some other person, it is obvious that what the vendor receives is so much less."

19 Once again, what is striking about both the Debney decision (supra) and North J's decision in Cholditch v Jones (supra) is the direct link between the amount received by the person seeking to have the bill taxed and the amount that person will receive. But it must also be acknowledged that the focus in all of the cases mentioned is the party who will ultimately bear the cost of the solicitors' bill because the fund that the party ultimately receives is directly reduced by the amount of those costs. None of the Judges involved in these decisions had any difficulty with the idea that the reduction in the fund payable to a party rendered him "a person liable to pay the bill of costs".

20 On behalf of the Receiver it was argued that it was for the Receiver to instruct solicitors, enter into a costs agreement with those solicitors and have primary and ultimate liability to pay the solicitors' costs. It was central to the Receiver's argument that as between the solicitors and the Receiver, it was the Receiver who was "liable to pay".

21 It was the submission of counsel for the Receiver that the words "liable to pay" meant "responsible in law". Reference was made to Littlewood v George Wimpey & Co Ltd [1953] 2 QB 501 at 515. Further, counsel submitted that a person liable to pay is "a person against whom payment of the (costs) can be enforced". Reference was made to Deputy Commissioner of Taxation v Moore Bank Pty Ltd [1987] 1 Qd R 414 at 416.

22 Counsel also referred to the Queensland Court of Appeal decision in Equuscorp Pty Ltd v Short Punch & Greatorix [2001] 2 Qd R 580.

23 The facts in this case were relatively straightforward. Equuscorp Pty Ltd owned the majority of units in a particular unit trust. The third respondent, Permanent Trustee Company Ltd, was a trustee, and the second respondent, Hallcorp Management Pty Ltd, was the manager. The applicant brought court proceedings against the trustee and the manager. The manager was represented by a firm of solicitors, the defendant in this action. Another firm of solicitors acted for the trustee. The solicitors rendered bills of costs to their respective clients. The applicant unit holder sought to challenge these bills. Under the Queensland Law Society Act 1952 (QLD), "client" was defined to include "a person who has paid, or is liable to pay, the account of a client".

24 In the course of his judgment, de Jersey CJ had this to say (par 10):

"... was the applicant shown to be 'liable to pay (the client's) account' to the solicitors, the matter agitated before the learned judge and comprehensively developed before us? The liabilities to the solicitors were in the immediate sense borne by the manager and the trustee, the entities I have called the true clients. The words 'liable to pay' in s. 3 carry their usual meaning, 'responsible in law' ... and a person liable to pay is 'a person against whom payment of the (costs) can be enforced' ... Neither the solicitors nor the true clients could successfully have sued the applicant for the amounts of these costs."

25 In the course of his judgment, de Jersey CJ refers to the decision of Re Barber [1845] EngR 1265; (1845) 153 ER 665. This case perhaps illustrates the point which arises in the Equuscorp case (supra). The parish surveyor for the township of Rastrick incurred costs in taking legal proceedings to remove an obstruction to a local highway. To meet these costs, he exercised his statutory power of levying the ratepayers to obtain funds from which to pay the solicitor. The Court held there was no right in a ratepayer to apply to refer the solicitor's bill for taxation. Pollock CB said the question was whether a person who contributed to a fund out of which an attorney's bill was to be paid was "liable to pay" the attorney. Parke B, with whom Rolfe B agreed, said (at 700):

"This is a mixed fund in the hands of the surveyor, consisting partly of the contributions of the rate-payers already in his hands, and partly of the rates which he is empowered to make under the [statutory power], and out of which he is to pay, not only the attorney's bill, but also other expenses, penalties, and forfeitures which may be payable out of it. He is, however, the party liable to the attorney for his bill, and the rate-payers are not in any sense the person liable to pay it ..."

26 These two cases emphasise the importance of the fact that there are diverse sources of the money which make up the fund from which the lawyers' fees are paid. There is not that straight line connection found in the cases that I have referred to above. It could not be seriously suggested that a ratepayer could call upon a firm of solicitors acting for a local authority to have accounts rendered to the local authority for work undertaken by the solicitors to be taxed. It might be said that the ratepayer is "liable to pay" the solicitors' account because, in common with all other ratepayers, it is his rates which go in part to paying that account. But there is not the direct connection necessary to give to the ratepayer the right to call for the accounts to be taxed. But the position is different where a mortgagee sale takes place. The amount left over after the sale or the amount of any shortfall is of particular interest to the mortgagor. The fund is used for no purpose other than to pay the solicitors' account. Therefore, the mortgagor can call upon the solicitors to tax their costs.

27 In a situation such as this, I am not satisfied that there is a sufficiently direct connection between the objectors and the fund to enable the objectors to require the solicitors to have their bills taxed. The party liable to pay those bills is the Receiver. Even if the present objectors are regarded as the "true clients", it cannot be said that they have the right to call for the solicitors to tax their costs. Payment to the solicitors is made out of a fund collected by the Receiver. It is for the Receiver to deal with the solicitors and it is for him, if he sees fit, to require the solicitors to tax their costs.

28 I would dismiss the objector's application. I will hear the parties as to the form of orders and as to costs.