Australian Securities and Investments Commission v Letten

Federal Court of Australia|2014-09-12|Before: Gordon J

The Interlocutory Process dated 28 March 2014 is dismissed.
The Australian KPMG partnership, a non-party, pay the costs of the Independent Assisting Counsel in relation to the Interlocutory Process.
Otherwise no order as to costs. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011 (Cth).

IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY GENERAL DIVISION VID 95 of 2010

BETWEEN: AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION

JUDGE: GORDON J DATE: 12 SEPTEMBER 2014 PLACE: MELBOURNE

INTRODUCTION 1 On 25 February 2010, 4 March 2010 and 30 July 2010, identified unregistered managed investment schemes (the Schemes) were wound up pursuant to s 601EE(1) of the Corporations Act 2001 (Cth) (the Act). Mr Damian Templeton and Mr Philip Hennessy of KPMG (the Receivers) were appointed as joint and several receivers and managers of identified property of the Schemes and as joint and several receivers and managers of certain property of identified corporate defendants who were parties to these proceedings (the Appointment Orders). 2 Under each Appointment Order, the Receivers were: … entitled to reasonable remuneration and reasonable costs and expenses properly incurred in the performance of their duties and the exercise of their powers as receivers and managers [of] the Property of [each Scheme], as may be fixed by the Court on the application of the Receivers, such sum to be calculated on the basis of the time reasonably spent by the [receivers and managers], their partners and staff, at the rates specified in Annexure B to [this Order] … (Emphasis added.) 3 Annexure B to each Appointment Order stated: $ (excluding GST) Partner 595 Director 520 Associate Director 475 Manager 420 Assistant Manager 320 Senior Analyst 280 Analyst 210 Administration 140

4 The Receivers sought approval for their remuneration, costs and expenses for the period 1 January 2012 to 31 March 2013 (the Relevant Period). The remuneration claim divided the Receivers' work into seven categories - Administration and Risk Management, Assets, Creditors, Investigations, Investors / Distribution, Statutory Obligations and Trade On. The total amount claimed was $4,309,813.79 comprised of: $ (excluding GST) Receivers' Remuneration $3,309,239.70 Receivers' Disbursements (other than Legal) $10,223.04 Legal Fees $888,502.05 Legal Disbursements $101,849.00

5 On 17 March 2014, Registrar Luxton fixed the Receivers' remuneration, costs and expenses for the Relevant Period at $3,764,738.39 (excluding GST) (the Remuneration Decision). In general terms, the Registrar: 1. Applied a 20% reduction to the Receivers' remuneration for the "Investor / Distribution" category of work; 2. Applied a 5% reduction to the Receivers' remuneration for all work other than identified in 1. above, and to the Receivers' claim for disbursements; and 3. Applied a 2.5% reduction to the Receivers' claim for legal fees (but not for legal disbursements). 6 On review, the Receivers sought an order fixing the Receivers' remuneration, costs and expenses for the Relevant Period at $4,303,813.79. The Receivers informed the Court that this was the first time they have sought review of a Registrar's decision of their remuneration, costs and expenses in this receivership, despite the fact that their fees were reduced by a Registrar on two previous occasions. The Receivers also informed the Court that KPMG (the firm to which they are attached) will bear the costs of the review and will not seek recovery of the fees associated with the review from the receivership. 7 On review, the Receivers' submissions focused on the three aspects of the Registrar's decision identified in [5] above, as well as the impact of a voluntary reduction of 10% in the remuneration of the Receivers and the professional costs of their solicitors. 8 The application was listed for hearing on 11 June 2014. That hearing was adjourned to allow for the appointment of Independent Assisting Counsel (IAC) to act as a contradictor to the Receivers' application. Dr Bigos was appointed, instructed by the Australian Securities and Investments Commission (ASIC). Dr Bigos filed written submissions and appeared at the hearing. His participation in the hearing assisted in the proper identification and resolution of the disputed issues. 9 For the reasons that follow, this application is dismissed. The costs of the IAC will be paid by KPMG, and, as noted above, KPMG will bear the Receivers' costs of the review.

APPLICABLE PRINCIPLES 10 It was common ground that this was a hearing de novo: s 35A of the Federal Court of Australia Act 1976 (Cth) and Mazukov v University of Tasmania [2004] FCAFC 159 at [24]. Notwithstanding that, the Receivers directed their submissions to specific areas of complaint about the Registrar's review. 11 The first question which arises is the method by which the Court is to assess the reasonableness of the remuneration, costs and expenses of the Receivers in fixing the amount the Receivers are entitled to receive pursuant to the Appointment Orders. The Receivers and the IAC were at odds about the principles to be applied by the Court. 12 Initially, the Receivers did not make any submissions about the approach to be adopted by the Court. The IAC submitted that although the Receivers were appointed as receivers of unregistered managed investment schemes rather than receivers of a company, the Court nonetheless ought to be guided by the principles which apply when company receivers seek to have their remuneration fixed by the Court under s 425(1) of the Act. The IAC submitted that the list of factors outlined in s 425(8) of the Act should be applied in this case in determining whether remuneration was reasonable. The Receivers rejected that contention. They submitted that the basis of calculation and the rates to be applied had already been decided by the Court when it made the Appointment Orders. 13 A number of matters should be noted about those Appointment Orders: see [2] above. First, the Receivers are entitled to reasonable remuneration and reasonable costs and expenses. Second, that remuneration and those costs and expenses must be properly incurred in the performance of their duties and the exercise of their powers as receivers and managers. Third, the Receivers must make application to the Court and the amount they are entitled to receive is fixed by the Court. Fourth, the sum is to be calculated on the basis of the time reasonably spent by the receivers and managers, their partners and staff, at specified rates. 14 Certain other facts and matters inevitably follow. The Receivers must make a claim and they must provide sufficient information to enable the Court to properly assess their claim: Re Korda; in the matter of Stockford Ltd (2004) 140 FCR 424 at [37]. It was agreed that the onus is on the Receivers to justify the reasonableness and prudence of the tasks done: Ide v Ide [2004] NSWSC 751 at [42]. Next, to adapt the language in Re Korda, the Court is required to fix the Receivers' reasonable remuneration and reasonable costs and expenses. That is the ultimate object: Re Korda at [38]. Why? Because that is what the Receivers are entitled to receive: see [13] above. 15 The reasonableness or otherwise of remuneration and costs and expenses incurred will depend on a number of different aspects. Each case will depend on its own facts. The Receivers submitted that there are three things that need to be demonstrated: (1) that it was necessary and appropriate for the work claimed to be done; (2) that the work was done at an appropriate level of seniority; and (3) that the work was done efficiently in the sense that a reasonable time was taken to do it. The Receivers accepted that this third limb must pick up the quality and complexity of the work done. I agree.

receivers' remuneration claims 16 The next section of the judgment considers the Receivers' remuneration claims under the following headings: 1. Reduction of 20% on "Investors / Distribution" category of work; 2. Reduction of 5% on Receivers' other remuneration and disbursements; 3. Other items in the fee schedule; 4. Voluntary 10% reduction in fees charged by Receivers; and 5. Conclusion on Receivers' remuneration claims. Each item is addressed in turn, followed by the question of the 2.5% reduction on legal fees and the question of the costs of the IAC.

3.1 Reduction of 20% on "Investors / Distribution" category of work

3.1.1 Introduction 17 This category of work totalled $2,369,274.50 for some 9,600 hours of work. It comprised approximately 71.9% of the total remuneration claimed by the Receivers. 18 The Registrar applied a 20% reduction on the amount claimed by the Receivers under the heading "Investors / Distribution". The Registrar identified the reasons for that reduction as: 1. An excessive amount of time spent adjudicating investor claims; 2. Repetition of narrative entries and insufficient detail in some entries; 3. The question of proportionality; 4. The telephone hotline; and 5. Seniority of staff and nature of work undertaken. 19 Although this is a rehearing, the parties addressed each of the matters identified by the Registrar.

3.1.2 Time spent on adjudication of claims, repetitive or insufficient narrations, and proportionality 20 There were approximately 1,350 investors and approximately 5,000 individual investments. There was significant variation in the number of investments claimed in the investor claim forms, from 1 to over 30. On average, there were about 3.7 investments per investor. The adjudication process was a massive undertaking. It was complex and lengthy. The information available to the Receivers to assess and determine the claims was not of the same type and often could not be reconciled. The issues which arose were not consistent between investors. Unsurprisingly, often the Receivers requested further information from investors, sometimes on more than one occasion. The evidence disclosed that requests for further information were made to 62% of investors. Mr Templeton set out the process and the issues faced in detail in the affidavits that he filed in support of the remuneration claim. 21 The Registrar considered the time spent on adjudication of claims at [28] and stated: The time records for the Letten Common Fund record a total of 9,618.5 hours for the category "Investors/Distribution" (for the Letten Common Fund), which accords to a charge at the approved hourly rates of $2,643,627.50 (before the 10% reduction). I have inferred that the category "Investors/Distribution" is the category under which work on the adjudication process was recorded. I accept that it is likely that some of this time was not specifically devoted to the adjudication process. It may have been spent on ancillary or other work related to determining possible distributions to Investors (for example, recording Investor claims). Conversely, it is possible (although I put it no more highly than that) that some work on the adjudication process may have been captured under other categories. Of the 9,618.5 hours of work, 234 hours was undertaken before 19 April 2012, being the date upon which the Investor claim forms were circularised (Affidavit at [29]). But looking solely at the "Investors/Distribution" category, the calculations are stark; 9,618.5 hours of billed time was taken up with issues relating, broadly speaking, to 1,350 Investor claim forms. That is, an average of 7.1 hours in respect of each form. That is a lot of time. In my view, too much. 22 The Receivers' principal complaint was that calculating the average time per investor form was misleading because the real driver of the amount of work necessary was the total number of investments, not the total number of investors and that the Registrar did not take this fact into account in concluding that too much time was spent on the adjudication of claims. 23 There are answers to the Receivers' complaint. First, there is some merit in the Receivers' contention that it is appropriate to consider the time on a per claim or per investment basis rather than on a per investor or per form basis. Each claim required separate adjudication. However, that contention must be considered in context. Each claim form was 1 page long and provided for particulars of the claim - the name of the scheme or project and the amount invested - and requested documents substantiating the claim. The staff processed the form using a 2 page adjudication worksheet and followed a process set out in a planning memorandum. 24 In his reasons, the Registrar (at [30]-[31] of his reasons) referred to the repetitiveness of the narrations used by staff when recording the time spent on these adjudications. Further, the Registrar referred to the fact that some narrations were lacking essential details. For example, one entry recorded 14.5 hours spent on "Letten Scheme investor admit / reject letter preparation". None of the narrations refer to or permit identification of the specific claim that was being processed. 25 Using the figures most recently provided by Mr Templeton, it appears that on average about 1.6 hours was spent on each investment. Even accepting Mr Templeton's assertion that hours recorded do not relate "solely to the adjudication process" and extended to include communications with investors (which are not specifically recorded or able to be identified in these entries), the amount claimed by the Receivers for this category of work is too high. The material filed does not indicate whether any review was undertaken of the process being adopted to ensure that it was being done in the most efficient manner or whether it required alteration in some respect or respects. In any task of this magnitude you would plan for and anticipate that changes would be required. 26 Further, as the IAC submitted, in an earlier decision, the Court expressed concern about the length of time taken for the proof of claim process to commence, and observed that this "may later bear on how the remuneration and expenses of the Receivers should be dealt with": Australian Securities and Investments Commission v Letten (No 20) [2012] FCA 1283 at [9]. Two years had elapsed between the date that pooling orders were made (11 November 2010) and the Receivers' application for directions on distribution (filed on 4 October 2012). Mr Templeton's evidence was that planning for the process of adjudicating investor claims commenced after the Court delivered judgment on the trustees' right of indemnity on 12 December 2011: Australian Securities and Investments Commission v Letten (No 17) [2011] FCA 1420. Accordingly, almost the entire period between the commencement of planning for adjudication and the application for directions on distribution falls within the Relevant Period in the present application. 27 Next, proportionality. The Registrar observed (at [29] of his reasons) that the claim for work in the "Investor / Distribution" category is large when compared with the distribution actually made or the amount available for distribution. This was and remains a relevant consideration in assessing remuneration. As the IAC submitted, the particular circumstances of the appointment and the nature of the assets are relevant to this issue. 28 So what is the position here? The Receivers have distributed $6.1 million to investors. There is a further $4.8 million which has been retained by them as a contingency for certain rejected investor claims, which may be distributed. That would bring the total sum of funds available for distribution after deduction of the Receivers' remuneration, costs and expenses incurred but not paid as well as an allowance for estimated future expenses, to $10.9 million. The present claim, for over $4 million, appears large compared with these figures, all the more so given that the Receivers have already received about $14.2 million and there will be additional future claims by the Receivers. 29 The circumstances of this case are extraordinary. When Mr Letten was recently sentenced in the County Court for offences relating to these schemes, the sentencing judge described the schemes as an economic shamble or shemozzle, and the whole enterprise as having more structural defects than the Titanic: Commonwealth Director of Public Prosecutions v Mark Ronald Letten [2014] VCC 1285 at [9]. Those statements were not an exaggeration. Notwithstanding the difficulties faced by the Receivers, they were at the coal face, and it was beholden on them to seek to adopt measures that would ensure that the process was as streamlined and cost effective as possible. If that could not be achieved without further directions from the Court, the solution was to apply to the Court for those directions, as they did in relation to trustees' rights of indemnity (application filed around 29 August 2011, judgment delivered 12 December 2011), and the methodology for adjudicating the claims and making distributions (application dated 4 October 2012, orders made 19 November 2012).

3.1.3 Investor Hotline 30 The Registrar (at [32] of his reasons) criticised the Receivers for maintaining an investor hotline to address investor queries as and when they arose. The Registrar asked whether the existence of the hotline encouraged some investors to engage in communications with the Receivers when they would not otherwise have done so, "... thus increasing the cost of the administration of the Schemes". The Receivers and the IAC disagreed with this conclusion. I do not accept the Registrar's criticism of the investor hotline. Of course, there is a balance to be struck between access and costs. However, most large corporate collapses have utilised this facility and, as a matter of public policy, it should not be discouraged.

3.1.4 Seniority of staff and nature of tasks undertaken 31 This issue is relatively straightforward. It has two aspects. 32 First, the Registrar (at [33]-[34] of his reasons) was critical of relatively simple administrative tasks (such as filing) being done by senior staff. Mr Templeton addressed those concerns in two places. In his 46th Affidavit at [17] Mr Templeton stated: ln paragraphs 33 to 34 of the Decision, the learned Registrar expresses concern about narrations referring to "administrative" type tasks. This was a matter that Registrar Pringle also highlighted, but he appears to have come to a different conclusion. In particular, on page 56 of Registrar Pringle's decision, he writes: For all categories, I did at one point, have some concerns regarding the relatively high level of filing and similar work done by less experienced non-administrative staff when that might have been done by administrative staff. I am satisfied however, that it was in most cases more efficient for a staff member (other than a very senior person) who had taken a phone call or sent an email, to attend to the filing of the document given that it may take more time for that same person to delegate the task and explain which of the many scheme files it related to by giving it to an administrative staff member. 33 Mr Templeton went on to confirm that the same approach was adopted during this phase, particularly during the investor adjudication process where it was more efficient and cheaper for the junior staff working on the adjudication to file the paperwork themselves as they completed their tasks, rather than to spend time instructing non-professional staff to do it. 34 Mr Templeton also addressed these issues in his 50th affidavit when he stated: [T]o ensure that the claims adjudication process ran as efficiently as possible, KPMG staff under the Receivers' supervision were instructed to: (a) create an investor library of individual claims received (including the claim form, the supporting information, a copy of the Letten schemes books and records and adjudication summary); (b) index the individual claim forms; and (c) maintain the investor library in alphabetical order. The benefit of this process was to allow the adjudication team to efficiently identify and locate claim packs that were not yet finalised and locate adjudication packs for response to telephone calls and emails throughout the adjudication process. The creation of the investor library involved a number of different KPMG staff, including Ms Rita Tam and Ms Servat Cinar, amongst others. Ms Tam and Ms Cinar were heavily engaged in filing investor claims over the period 21-28 March 2013. The filing work undertaken by Ms Tam and Ms Cinar included: (a) sorting the investor claims into finalised (ie. admitted claims or claims that were rejected in whole or in part where the appeal period had lapsed) and active claims (where investor information was outstanding or the appeal period remained open); (b) indexing the investor claims into a traceable sheet; and (c) preparing the investor packs for offsite filing. Despite the narrations referring to filing only, Ms Tam and Ms Cinar also assisted the distribution team with other tasks during this period, including preparation of notices of admittance, part admittance and part rejection and rejections of claim. Use of Senior Analysts The reasons why Senior Analysts were appropriate to undertake these tasks were: (a) the work needed to be undertaken straight away (so as to not hold up adjudications); (b) Ms Tam and Ms Cinar had been on the adjudication team and were familiar with the adjudication process, the documents being used (including client packs, adjudication worksheets and correspondences to investors) and the master investor database; and (c) an assessment was made as to the additional costs of using Ms Tam and Ms Cinar against the inefficiency associated with up-skilling and supervising new junior staff who would need to be absorbed into the team. It is my belief that utilising Ms Tam and Ms Cinar in these circumstances was more cost effective than training and supervising new junior staff that were unfamiliar with the matter and the claim adjudication process (including the complex hotchpot calculation required). In any event, had Analysts performed this work in the same time as the Senior Analysts (ie Ms Tam and Ms Cinar), it would have resulted in a difference of approximately $4,900 (including the 10% reduction). I believe that a significant portion of the difference would have been absorbed in any event by the time taken to train and supervise the new junior staff. 35 The second aspect addressed by the Registrar (at [35] of his reasons) was that tasks such as adjudication of claims could have been performed more efficiently if senior staff had taken a more active role. 36 As the IAC submitted, in determining the most efficient way to undertake administrative tasks, it is appropriate to consider whether those tasks are: 1. ancillary to other work performed by a senior staff member so that it may be efficient for that staff member to undertake the administrative task; or 2. stand-alone tasks which are more efficiently done by a junior staff member. 37 The Registrar stated (at [34] of the decision) that a concluded view on the actual amount of time spent on administrative tasks cannot be reached from the time records. On the rehearing, that position has not changed. Mr Templeton's explanations raise more questions than they answer. To take one example, his statement that "[d]espite the narrations referring to filing only, Ms Tam and Ms Cinar also assisted the distribution team with other tasks during this period, including preparation of notices of admittance, part admittance and part rejection and rejections of claim", is troubling. Is the Court to proceed on the basis that the fee schedules are accurate or is the Court to infer or adjust them according to other material and, if so, what material? This is a rehearing. As was the position in Modtech Engineering Pty Ltd v GPT Management Holdings Ltd (No 2) [2013] FCA 1163 at [96], there is insufficient evidence to conclude that the amounts charged were reasonably incurred. For the above reasons, the 20% reduction to the "Investors/Distribution" category by the Registrar at [36] is justified.

3.2 Reduction of 5% on Receivers' other remuneration and disbursements 38 The Receivers claimed $929,974.95 for "other work" and $10,223.04 for disbursements (other than legal disbursements). The Registrar applied a 5% reduction to these amounts. The reduction was $47,010.90. 39 The Receivers said that the Registrar identified the following reasons for the reduction: 1. Repetition of narrations and insufficient detail, and vague descriptions of disbursements; 2. Proportionality; and 3. Filing carried out by wrong level of employee. 40 These categories can be considered together. The issue of proportionality has been addressed: see [27] and [28] above. That analysis applies equally to these categories of work and disbursements. A review of the schedule of entries necessarily leads to issues (1) and (3). The review is broad brush. It is neither possible nor appropriate to consider each item individually. The analysis at Section 3.1.2 applies equally to these categories of work and disbursements. The reduction by the Registrar is justified. 41 That conclusion is fortified by the following section of the judgment: see Section 3.3 below. As will become apparent, that section of the judgment raises issues of some concern about the veracity of the narrations in the fee schedule and the nature of the work sought to be charged to the Common Fund.

3.3 Other items in the fee schedule 42 Any review of this kind is necessarily broad in nature. The printed spreadsheets contained a number of entries which appeared unusual or, at least, required explanation. These matters were raised by the Court at the hearing. After the hearing, the Receivers filed written submissions addressing these matters.

3.3.1 Criminal Proceedings 43 One group of entries related to remuneration claimed by the Receivers for work done in responding to a subpoena issued by Mr Letten in connection with criminal proceedings against him in the County Court of Victoria. A list of the items was provided in an Annexure. As Counsel for the Receivers identified, some of the entries also related to other matters. The Receivers did not seek to allocate the work between the various matters. 44 In addition to that claim, after the hearing the Receivers informed the Court that they had identified some additional items which did not specifically relate to the subpoena but which were described as "closely connected in that they relate to time spent assisting the [Director of Public Prosecutions (DPP)] and giving evidence at the committal or time spent in relation to a subpoena unrelated to the criminal proceedings". Again, some of the entries also related to other matters and the Receivers did not seek to allocate the work between those matters.

3.3.2 Westpac Proceedings 45 The time spent in relation to the other subpoena was separately identified in an Annexure. That subpoena was issued by Mr Letten in proceedings between him and Westpac in relation to a guarantee he provided in connection with the Cimitiere House Joint Venture, one of the unregistered managed investment schemes. Again, some of the entries also related to other matters and the Receivers did not seek to allocate the work between those matters.

3.3.3 Analysis 46 The Receivers submitted that they were entitled to this remuneration because: 1. In relation to the subpoenas, the receipt of them by the Receivers clearly arose out of the fact that they had, in the performance of their duties, obtained possession of and created documents concerning the affairs of the Schemes and the claims of investors and the production of those documents in response to a subpoena is a necessary incident of the performance of their duties; 2. In relation to the dealings with the DPP and giving evidence at the committal, the only facts about which Mr Templeton could have given relevant evidence were known to him solely by reason of him being the Receiver. The Receivers' position was said to be supported by two authorities - Mirror Group Newspapers plc v Maxwell (No 2) [1998] 1 BCLC 638 and Ide. 47 The Receivers' submissions are not supported by those authorities. It is not in dispute that the Receivers would not have been involved at all in these activities if they had not held the office to which the Court had appointed them and, absent some other reason, they would be entitled to claim remuneration for that work: Mirror Group at 658-660. However, unlike the position in Mirror Group (in relation to the costs of appearing before the House of Commons Select Committee on Social Security and time spent dealing with inquiries from the Serious Fraud Office) and Ide (in relation to the costs of assisting with police investigations), here part of the cost of the work undertaken (and in some respects a significant part of the work undertaken) by the Receivers was work the Receivers were entitled to claim from the person seeking or requiring their assistance. It is necessary to address the subpoenas separately from the other work. 48 A person subpoenaed to produce documents is usually entitled to their reasonable costs of complying with that subpoena: see for example Federal Court Rules 2011 (Cth) r 24.22; Supreme Court (General Civil Procedure) Rules 2005 (Vic) r 42.11; County Court Civil Procedure Rules 2008 (Vic) r 42.11 and County Court Criminal Procedure Rules 2009 (Vic) r 1.09. Here, no application was made by the Receivers for the costs of complying with the subpoenas and no orders were made. Why should the investors pay for that work? The party or person that sought the subpoenaed documents (here, Mr Letten) should have met the Receivers' reasonable costs. If the costs were not entirely recoverable from that party or person, then the principles identified in Mirror Group may have been relevant and the costs would be assessed by reference to the applicable principles. Here, that position was not reached. The Receivers are not justified in not pursuing the costs of the subpoenas. The remuneration claimed in relation to the subpoenas should not be allowed. 49 Is the work undertaken in relation to the dealings with the DPP and giving evidence at the committal hearing of Mr Letten of a different character? The work undertaken appeared to fall into two general categories - assisting the DPP prior to giving evidence including the provision of documents and then giving evidence at the committal. It is accepted that the Receivers and their staff would not have been involved in these activities if the Receivers had not held the office to which the Court had appointed them, but was there an entitlement to claim costs from the DPP? Section 401(1) of the Criminal Procedure Act 2009 (Vic) states "all criminal proceedings in the Magistrates' Court are in the discretion of the court and the court has full power to determine by whom, to whom and to what extent the costs are to be paid". I am not persuaded that it is appropriate that the investors bear these costs. Given the description of the work (and the references to other matters) in the Annexure provided, 50% of the remuneration claimed in relation to the dealings with the DPP should be allowed. 50 Before leaving this issue, it is necessary to address the costs claimed by King & Wood Mallesons (KWM) in connection with these matters. These items were also listed in an Annexure. Again, some of the entries also related to other matters and there was no attempt to allocate the work between those matters. But there are other difficulties. There was no attempt to allocate the entries between work undertaken in relation to the subpoenas and the committal. Some of the entries are strange - "research into M Letten's barristers". Some of the other costs also raise questions because they would, in the ordinary course, be expected to have been recoverable from the party seeking the production of documents (see [48] above), and some of the costs may have been met by the DPP (see [49] above). There was and remains a positive obligation on the part of the Receivers and their solicitors to seek to recover their costs and disbursements from those obliged to pay them. In the circumstances, these fees should not be met out of the Common Fund. Given the description of the work (and references to work on other matters) in the Annexure, 25% of the fees claimed by KWM which were listed in the Annexure should be allowed. However, the method by which those items are addressed in the overall claim for remuneration will be considered in Section 4 below entitled "Reduction of 2.5% on legal fees". 51 Next, the Receivers submitted that to the extent that the Court finds that the Common Fund should not bear these costs, then the Receivers referred to the statement by Finkelstein J in Australian Securities and Investments Commission v GDK Financial Solutions Pty Ltd (in liq) (No 3) (2008) 246 ALR 580 at [19] that: [A] receiver's costs are, first of all, payable from the funds in his hands and no part is chargeable against the party at whose instance the receiver was appointed. But where there is no fund out of which the expense can be paid, or the fund is insufficient, the usual rule is that the party at whose instance the receiver was appointed is required to provide the means of payment: Brill v Southerland 14 A 2d 408 (Del 1940) at 413 citing 1 Clark on Receivers, 2nd ed, 1929, p 890; Beach on Receivers, at s773 and 4 Pomeroy's Equity Jurisprudence, 4th ed, 1919, p 3879. 52 Consistent with that so called "principle", the Receivers submitted these costs should be borne by the ASIC. I reject that submission. The principle identified by Finkelstein J in ASIC v GDK has no application. This is not a situation where the Receivers do not have funds available. They do - the Common Fund. The question is whether they should be entitled to have recourse to that fund where the Receivers and their legal advisers failed to seek to recover costs from a third party that should have borne all or a substantial portion of the costs. In my view, the answer is no. There is no basis for visiting these costs on ASIC.

3.4 Voluntary 10% reduction in fees charged by Receivers 53 The next issue is the significance of the Receivers' voluntary 10% reduction in the fees actually charged. The Registrar's view was that the Receivers' voluntary 10% reduction was a matter that could be taken into account as part of the factual matrix within which the assessment was undertaken, but that any percentage reduction should be applied to the actual claim, rather than to a notional true claim: [16]-[17] of the reasons. 54 In general terms, the Receivers' complaint was that the approach adopted by the Registrar did not give sufficient recognition to the 10% reduction in assessing the amount of percentage reductions which are to be applied "across the board" to the claim as a whole or a substantial part of it, as was the case with this assessment. The Receivers submitted that the 10% reduction should be given greater significance, for example, by extending to "giving the Receivers the benefit of the doubt on minor points", and should not be applied in addition to any reductions made by the Court. In other words, the Receivers should not be "forced to be generous". Additionally, the Receivers queried whether the Registrar had acknowledged the financial benefit to the Common Fund from the Receivers not seeking to increase their hourly rates since the initial appointment, and submitted that the Court should be slow to discourage gestures such as the voluntary discount. 55 The amount charged to a file number is not the "actual" claim. It reflects no more than the fact that people have allocated units of time to a particular matter. The Receivers appear to largely proceed from an assumption that they were entitled to every unit charged to the matter (reduced by their voluntary discount of 10%), without assessing whether the remuneration was reasonable and calculated on the basis of the time reasonably spent, and whether the costs and expenses were reasonable and properly incurred. That is wrong. A review of the work charged to a file is always necessary to identify, inter alia, work allocated to the wrong matter, work that took too long, work that should not be charged to a client and so on. The fact that this is a receivership does not alter that fact. Whether a review of that nature occurred in relation to these claims is unclear. Mr Templeton's evidence was that "comprehensive" reviews of the fee summaries and schedules of work were undertaken, the appropriateness of time charged was considered on an ongoing basis and that write offs were made when reviewing the bills for the purpose of this application. The nature and extent of those reviews, and the nature, extent of, and reasons for, those write offs, remained unclear. 56 Time charging is an historic measure of value and has been described as unfair: Re Korda at [26] and the authorities cited. Its use has become common place and comes at a cost to the claimant - review, identification of the real claim and then justification of the amount claimed by the claimant. Each step is important: cf Re Korda at [17]. The Receivers' solution appears to have been to apply a 10% discount across the board. The 10% reduction was said to have been provided "in recognition of the substantial nature of these receiverships, the significant hardship faced by investors and the significant amounts claimed by the Receivers". Discounts are not discouraged but should be made on informed basis after review, identification of the real claim and then justification of the amount claimed by the claimant. 57 As the IAC submitted, it was appropriate to take the 10% reduction into account when assessing the reasonableness of the Receivers' remuneration (see, by way of example, Thackray v Gunns Plantations Ltd (2011) 85 ACSR 144 at [207]) and the Registrar said he did so: at [17] of his reasons. The further discounts identified by the Registrar (and the subject of this rehearing) were applied to the discounted (or net) amount rather than the gross amount of fees claimed. There is no identifiable error in that approach.

3.5 Conclusion on Receivers' remuneration claims 58 This matter has been approached in two ways. The review has been conducted by applying a broad brush and by considering each of the Receivers' complaints about the approach adopted by the Registrar. The result is the same. There are swings and roundabouts. Some facts and matters favour the Receivers. Others do not. For the reasons set out above, there is no basis for adjusting or varying the 20% reduction in the remuneration claimed by the Receivers in relation to the "Investors / Distribution" category of work or the 5% reduction in the remuneration claimed for the other categories of work. That conclusion takes into account each of the matters addressed in Section 3 including, without limitation, the specific reductions identified in Section 3.3 above.

REDUCTION OF 2.5% ON LEGAL FEES 59 The final ground of complaint by the Receivers was the 2.5% reduction to the Receivers' claim for legal fees (not including legal disbursements). The total claim was $888,502.05. There are two elements to this issue - the Registrar's reasons for the 2.5% reduction and KWM's fees considered at [50]ff above. Each will be considered. 60 The Registrar considered (at [40] of his reasons) that there was substantial time spent on legal research. Mr Templeton addressed that claim at [29] of his 46th Affidavit as follows: 29. At paragraph 40(1) of the Decision, the Registrar raised the issue of the amount of time spent by graduates and junior solicitors undertaking legal research. I am informed by Nick Kelton of KWM, and believe, that over the course of 15 months, approximately 90 hours of research was conducted (out of a total of 1,828.60 hours of KWM time during this period). I believe this was reasonable considering the myriad of legal matters the Receivers were confronted with during this period including, amongst other things: (a) the extremely complicated question of the correct distribution methodology to apply, which ultimately resulted in the Court's decision of 19 November 2012; (b) the desire to maximise the return to investors in a fair and equitable way, consistent with existing precedents; (c) substantial and complex taxation issues; (d) an application to the liquidator of Forster Developments for a substantial priority payment to the Common Fund on the basis of a constructive trust (with the payment ultimately being made, following directions by Justice Murphy); (e) various litigation issues arising out of the involvement of Mr Boerkamp in the sale of the Glenbelle assets, which ultimately resulted in Mr Boerkamp issuing proceedings against the Receivers in the Supreme Court of Victoria (which I believe were discontinued shortly thereafter, in part due to the research undertaken by KWM, which highlighted major problems with Mr Boerkamp's claim); and (f) real property issues with the sale of assets. 30. The Registrar expresses some comments at 40(1) at the small amount of research that was conducted into court rules and procedure and research into general legal principles. No examples are provided by the Registrar, so I am unsure what the Registrar is referring to. I believe a meeting with Registrar Luxton, as was conducted with Registrar Pringle, would have provided the appropriate forum for the Registrar to provide specific examples of his concerns and to enable me and KWM to respond. I am informed by Mr Kelton that all research that was carried out was absolutely necessary. 61 The IAC submitted that the Common Fund should not be burdened with large claims for research into what, as the Registrar observed, included general legal principles and court rules and procedures. As the IAC submitted, often basic research is written off. This is a rehearing. Other than these broad statements by Mr Templeton (see [59] above), no attempt was made at this rehearing to seek to justify these amounts using evidence. The Receivers submitted that "of the 90 hours charged for research, at least half relates to tracing, hotchpot, and other equitable concepts and remedies: these are not really basic legal principles. The amount charged for court rules and procedure is not completely transparent, but probably is not much more than 6 hours". As was the position in Modtech Engineering at [96], there is insufficient evidence to conclude that the amounts charged for research were reasonably incurred. 62 The second aspect of the reduction in relation to legal fees about which the Receivers complained was the Registrar's finding that the charge out rates for some KWM solicitors were too high. These charge out rates specifically applied to KWM's tax team. In particular, the Registrar highlighted the charge out rate of one senior associate at up to $960 per hour and one partner at $1,200 per hour (both before the 10% discount). The Registrar said it was not reasonable to incur solicitors' fees at this rate and it was open to the Receivers to seek a lower rate. 63 It is common ground the charge out rates of a tax senior associate were around $800 per hour and the charge out rates of a tax partner were around $1,080 per hour (both before the 10% discount). This appears to be an error by the Registrar. 64 Next, the reasonableness of the charge out rates. Mr Templeton's evidence was that, given the complexity of the taxation matters affecting the Schemes, it was reasonable for him to engage tax lawyers from a major law firm. That is not in dispute. What has been challenged is the charge out rate. Mr Templeton's further evidence was that in his experience, the rates charged by KWM are on a par with the rates charged by other similar taxation practitioners and that by using KWM, it was far cheaper and more efficient than using an alternate comparable firm, owing to KWM's background and knowledge of the receiverships. Mr Templeton submitted that although the Registrar observed that it was open for the Receivers to seek a lower rate, they in fact did obtain a lower rate through the overall 10% reduction from KWM, and KWM had agreed not to seek payment of their fees from the Receivers until Court approval was obtained. 65 Mr Templeton further submitted that the work by KWM's tax lawyers was of enormous financial benefit to the receivership. Over a period of 15 months, the KWM tax lawyers charged a total of $90,290.00 (out of total fees of $987,224.50) before the discount of 10% was applied. Mr Templeton submitted that the proportion of this amount to the benefit generated should be taken into account when assessing the reasonableness of the fees incurred. I agree. 66 This is a rehearing. These statements by Mr Templeton (see [63]-[64] above) arguably do not provide sufficient justification for the hourly rates: Modtech Engineering at [96]. Is the Court to assume that these charge out rates are the same rates charged to large commercial clients? Is the Court to assume that the rates charged to large commercial clients should be the same rates applied to these receiverships? Is the Court to assume that there was no attempt at negotiating these fees? These questions remain unanswered. 67 In addition, the fees charged by KWM in relation to the "Other items in the fees schedule" (see [50] above) are relevant in assessing the 2.5% reduction. As was apparent, a reduction of 75% was appropriate for those fees. However, given the amount and nature of those fees, it is appropriate to include each of them in the overall 2.5% reduction applied to legal fees (rather than applying a separate reduction to those entries). For all those reasons, that reduction is appropriate.

IAC's COSTS 68 As noted earlier, the Receivers informed the Court that KPMG (the firm to which they are attached) would bear the costs of the review and would not seek recovery of the fees associated with the review from the receivership. 69 At the hearing, the Receivers opposed the suggestion that they should pay the costs of the IAC. In supplementary written submissions, the Receivers submitted that the IAC's costs should be borne by ASIC. In support of that contention, the Receivers again referred to the statement by Finkelstein J in ASIC v GDK. For the same reasons (see [52] above), that submission is rejected. There is no basis for visiting these costs on ASIC. KPMG should also pay the costs of the IAC. I certify that the preceding sixty-nine (69) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Gordon.

County Court Civil Procedure Rules 2008(Vic)r 42.11

County Court Criminal Procedure Rules 2009(Vic)r 1.09.

Supreme Court (General Civil Procedure) Rules 2005(Vic)r 42.11

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