This is an application concerning trustees' remuneration. It has been brought by way of notice of motion in ongoing proceedings in which the trustees were appointed.
The applicants are Sean Magnus Wengel and Michael Craig Brereton. They were appointed as trustees for sale of two commercial properties pursuant to s 66G of the Conveyancing Act 1919 ("CA"). At the time, the Court made orders fixing their maximum remuneration, subject to any further application, at $40,000. They are applying to have that increased to $132,000. These figures, and the other figures in this judgment, are exclusive of GST.
One of the properties in question was located at Newtown and the other at Ultimo. Before the appointment of trustees for sale, both properties were held by family members. For convenience, and without disrespect, I will refer to them by their given names.
The Newtown property was originally owned by Vittorio La Cava ("Vittorio") and his wife, Gloria La Cava ("Gloria"). A half share in the property had originally been acquired by Vittorio in 1969. Gloria acquired the other half of the property later, in 1981.
Vittorio and Gloria had six children: Peter John La Cava ("Peter"); Marisa Ann La Cava Catanese ("Marisa"); Stephen Michael La Cava ("Stephen"); Vicki Paula Boscov ("Vicki"); Sandra Maria Casey ("Sandra") and Paul Gerard La Cava ("Paul").
In 1989, Vittorio and Gloria transferred their combined ownership of the property to their children, as tenants in common in equal shares. In 2007, with the assistance of borrowings secured on the Newtown property and income derived from that property, the children purchased the Ultimo property, which was likewise registered in their names as tenants in common in equal shares.
Gloria died in September 2021. Vittorio is still alive, but he lives in a nursing home and has lost the ability to manage his own affairs.
Peter died in May 2021. His executor is Robyn McCleary ("Robyn").
During his lifetime, Peter had been responsible, or largely responsible, for the management and administration of the properties. Following his death, disputes arose between the surviving siblings about how income from the properties had been, and should be, applied.
The proceedings were commenced by Summons in March last year. There were four plaintiffs: Marisa, Stephen, Vicki and Sandra. Paul was named as the first defendant and Robyn as the second defendant.
In their Summons, the plaintiffs sought orders for the appointment of trustees for sale. Orders appointing Mr Wengel and Mr Brereton were made by Peden J in May last year. I will refer to them as "the Trustees"; to the five surviving La Cava siblings, and Robyn, collectively, as "the Beneficiaries"; and to the statutory trust for sale as "the Trust".
The Ultimo property was sold for $850,000 and the Newtown property for $3.2 million. The sale of the Ultimo property settled in early October, and the sale of the Newtown property settled in early December. The proceeds of sale of each property are held by the Trustees in separate bank accounts.
On the face of it, the Beneficiaries are each entitled to a one-sixth share of the proceeds. But they remain at loggerheads over the terms on which the properties were held. In particular, it is said that the properties were transferred on the understanding that the income from them would be used to support Vittorio and Gloria during their lifetimes. One possibility is that, rather than having been a gift, the Newtown property (and, by tracing, the Ultimo property, or at least part of it) were held on some form of express trust: Countess of Bective v Federal Commissioner of Taxation (1932) 47 CLR 417. Another possibility is that there was a resulting trust for the La Cava parents.
The proceedings have now morphed into substantive proceedings for the determination of these questions. Vittorio (with the New South Wales Trustee and Guardian acting as his tutor) has been joined as the third defendant. Later, the Trustee and Guardian was appointed as administrator of Gloria's estate and joined as the fourth defendant in that capacity. A statement of claim and at least one statement of cross-claim have been filed seeking declaratory relief, and, depending on the Court's conclusions, orders for account may be required. A hearing date remains some time off.
[2]
Application for approval of increased remuneration and costs
The Trustees are both registered liquidators. Mr Wengel is, in addition, a chartered accountant. Both of them work at the accountancy firm known as "William Buck" in a division known as the Restructuring & Insolvency Team.
The orders appointing the Trustees were made on 19 May last year. They are in conventional form. The orders relevantly provided:
4. Order that the Trustees:
…
b. Pay from the proceeds of sale of the Properties:
…
vi. The Trustees' charges at the rates specified in the consent to act as trustee for each of them [see [32]-[33] below] and in the total sum not exceeding $40,000 (excluding GST);
vii. Any other costs properly related to the sale of the Properties as agreed between the parties in writing;
…
…
7. The Trustees have liberty to seek directions or further orders from the Court with respect to the sale of the Properties and any additional remuneration approval as may be necessary, noting the cap referred to in order 4(b)(vi).
The proceedings first came before me on 26 April this year. The Trustees' notice of motion and supporting evidence had only recently been served, and had not been formally filed. In these circumstances, it was not possible to proceed with the hearing of the application. But I did raise some issues with Mr Meyerowitz-Katz, counsel for the Trustees, on two matters.
The first matter was not directly raised by the Trustees' application. As the two properties were both commercial in nature, their sale was going to result in a significant capital gains tax liability. I was unsure about whether the capital gain would be a liability of the Trust which would need to be disclosed by the Trustees in the Trust's tax return. Mr Meyerowitz-Katz (understandably) did not have this information at his fingertips and indicated that it could be provided.
The other topic on which I asked some questions was more directly related to the application. It appeared from one of Mr Wengel's affidavits in support of the application that tax advice (on GST and CGT) had been obtained from members of the tax department of William Buck. I suggested to Mr Meyerowitz-Katz for his consideration that, if obtained from an external advisor, the fees for such advice would be a disbursement and would thus not fall within the cap imposed by the Court's orders in the Trustees' remuneration. I invited Mr Meyerowitz-Katz to consider whether this would be an argument for increasing the cap at least so as to cover those additional fees.
In asking this question, I had assumed that William Buck was a partnership of which Mr Wengel and Mr Brereton were, individually, partners. In making this assumption I was basing myself on my experience, although I did not refer to the case by name, in Shazbot Pty Ltd v Warner Capital Pty Ltd [2018] NSWSC 1645.
That case concerned an insolvency practice purportedly conducted by a company as trustee for a unit trust. This was obviously an attempt at income-splitting. But an appointment as a liquidator or a trustee in bankruptcy is a personal one. The remuneration from the principals' insolvency appointments was earned by them individually, not by the company (which could not, of course, hold such appointments). I found that the principals of the practice were, individually, parties to a partnership, and that the company which employed staff and incurred practice expenses such as rent was, in truth, acting as nominee for the partnership: Shazbot at [246]. My conclusions in this regard were upheld in the Court of Appeal: Warner Capital Pty Ltd v Shazbot Pty Ltd [2020] NSWCA 121 at [80]-[82].
I made the assumption about William Buck being a partnership because the office of trustee under s 66G, like the office of liquidator or trustee in bankruptcy, is a personal appointment. A company (other than a trustee company: see the definition of "trustee corporation" in CA s 7) cannot hold such an appointment: see s 66G(3)(a). I therefore assumed that the fees claimed were being claimed by the Trustees for work done by them as individual partners in the practice, or for work done by other partners, or for work done by other staff who were employed in the practice as employees of the Trustees and the other partners.
Mr Meyerowitz-Katz, however, told me that, on his instructions, "William Buck [was] a company". I thought that this potentially complicated matters. If the William Buck staff for whom fees were being claimed were employees or agents of a corporate entity which was not itself the appointed trustee, questions would arise as to how such fees could be claimed as remuneration under the Trustees' (individual) appointment. Mr Meyerowitz-Katz indicated that he would consider these questions and perhaps supplement the Trustees' evidence before the hearing of the application.
In due course, the application came on for hearing on 28 June. Agreement had been reached between the Trustees, the four plaintiffs and Robyn as to the outcome of the application. Counsel for the plaintiffs and Robyn indicated that their clients consented to orders being made in favour of the Trustees. They therefore took no part in the hearing. In the meantime, Vittorio had been joined as the third defendant, but he had not been named as a respondent to the notice of motion, and his solicitor, Mr Sinnadurai, neither consented to nor opposed it. The application was, however, opposed by Paul, and Mr Hemsworth, solicitor, appeared on his behalf.
Mr Wengel's supplementary affidavit attached an advice prepared by staff of William Buck's Taxation Team dealing with the CGT question I had raised in April. It is not necessary to go into the advice in any detail, other than to say that it indicated that a taxable capital gain had occurred at the time the properties were transferred to the Trustees, but it had been a gain by the Beneficiaries. There was no capital gain to be declared by the Trustees.
Mr Wengel deposed that the total fees accrued, at the approved rates, for the William Buck staff who had worked on the matter (including members of the Taxation Team), for the period up to 20 June this year, was $112,474. Mr Wengel estimated the further fees for the completion of the administration at $20,000. He sought to have the remuneration cap increased to $132,474. Taking into account the $40,000 which has already been approved (and paid), this is an increase of $92,474.
Mr Wengel also sought approval for the Trustees' legal costs on the application to be paid out of the Trust in "a sum capped at $20,000". This was based on fees and disbursements incurred or accrued as work in progress ("WIP") (I assume up to 20 June) of $12,000, with an estimate of further fees and disbursements taking the total up to $20,000.
[3]
Evidence
Mr Wengel was first approached to act as trustee by Mr Marc Baddams of Swaab, the solicitor for the plaintiffs, in November 2022. Mr Baddams asked Mr Wengel whether he and Mr Brereton were willing and able to accept appointment as trustees for sale of the properties and, if so, Mr Wengel was asked to provide an estimate of their costs of undertaking the administration, "including, as best you can, likely disbursements".
In his response, Mr Wengel wrote:
…
Our estimate of the professional fees to be incurred by us as trustees for the sale of the two properties is $45,000 plus GST, utilising appropriate staff with the necessary experience required to complete the tasks. I note that this is an estimate only and the actual costs may be less or more depending on particular issues that may arise during the course of the trustees' engagement.
In addition to the above estimate of professional fees there will be other out of pocket expenses that will be incurred in connection with the sale such as real estate agents fees, property search fees, title registration fees and other incidental expenses. A conveyancer will be engaged to prepare sale contracts. These incidentals will be charged at cost.
…
Mr Wengel and Mr Brereton swore affidavits four months later, in March last year, for the purposes of the plaintiffs' s 66G proceedings. The two affidavits were in relevantly the same terms, and, for convenience, I will only refer to Mr Wengel's.
Mr Wengel described himself as "a Director, Restructuring & Insolvency, in the Sydney offices of William Buck". He described Mr Brereton as likewise being "a Director at William Buck".
Mr Wengel deposed (emphasis added):
I am not aware of any conflict of interest or duty that would make it improper for me to act as trustee for sale. Where appropriate I will utilise staff in my employ, with the requisite skill and experience, to assist me carry out my duties as trustee. I do not know, and to the best of my knowledge and belief, have never met any of the registered proprietors of the Properties.
If the Court appoints me as a trustee for sale I intend to seek remuneration for any work done by me in my role as a trustee for sale. My hourly rate, for the purposes of acting as trustee of the Trust Estate as at the date of this affidavit is $680 per hour. Annexed to this affidavit … is a copy of my firm's charge out rates referable to my proposed appointment as trustee with respect to the Properties.
The schedule was headed "William Buck" and set out a series of hourly rates ranging from "Directors/Appointee" at $680 per hour, down to "junior/administrative assistant" at $200 per hour.
On 19 December last year, the Trustees wrote to the Beneficiaries reporting on the completion of the sale of the Newtown property, which had taken place two weeks before. They advised that the net proceeds of the two sales had been deposited into two separate bank accounts pending further order of the Court. The letter stated:
The Trustees will pay their fees in accordance with the orders dated 19 May 2023. If required, an application will be made to the Court for further fee approval.
Two days later, on 21 December, the Trustees wrote again to the Beneficiaries. They advised that they had received a request to advise what fees they had incurred, and a breakdown of those fees. They advised that their WIP to 15 December was $76,000 and that they had drawn down remuneration of $40,000 in accordance with the limit imposed by the Court's orders. They went on to provide a breakdown of the WIP. Nothing further was said in the letter about any application to increase the cap under the May orders.
Four months later, on 15 April this year, the Trustees wrote to the Beneficiaries giving notice that they would be making such an application. The letter stated that the Trustees' WIP had increased to $86,000 as at 14 April, and the application would seek an increase to cover that amount, together with a further $10,000 to complete the administration. The Beneficiaries' consent was sought by 17 April.
When there was no response within the deadline, the Trustees' solicitors wrote again to the Beneficiaries on 18 April seeking consent by the following day, 19 April. That consent was not forthcoming, and, as I have described, the Trustees then proceeded with the present notice of motion.
In his affidavit of 24 April in support of the application, Mr Wengel deposed that the estimate of $45,000 provided to Mr Baddams in November 2022 was calculated on the assumption that completion of the task would require work to be done in four "task areas": initial inquiries and statutory tasks; property sale and completion; communications with parties; and administration and file maintenance. The fee estimates for those four task areas was $42,720. An estimate of contingencies of $2,280 brought the estimate up to $45,000.
Mr Wengel deposed:
... The Estimate was prepared on the assumption that the work that would be required to be undertaken would not be out of the ordinary in respect of a sale of a property by a statutory trustee. In doing so I made the following assumptions:
(a) the Properties would sell at auction after a marketing and advertising campaign;
(b) the conveyances of the Properties would be standard conveyances, with minimal, or no, unforeseen complexities or complications;
(c) the Trustees would be required to provide updates to the Parties only in respect of milestones concerning the sale of the Properties, such as:
i. listing the Properties for sale at auction and sale; and
ii. final settlement;
(d) there would be no delays or other issues in respect of the sale and settlement of the Properties; and
(e) it would not be necessary to acquire specialist advice concerning the sale of the Properties.
A comparison between the estimated fees and actual WIP accruals is shown in the following table. The first part of the table shows a breakdown of the estimate between the four task areas identified by Mr Wengel and the corresponding actual figures up to 21 April this year (no further WIP in those categories appears to have been accrued in the period up to June). The second part of the table shows WIP accrued up to 20 June for tax advice and for work by the Trustees and their staff on the present application, as well as estimated fees to complete the administration.
Task Area Estimate (Nov 22) Actual WIP (to 21/4/2024)
Initial Enquiries & Statutory Tasks $8,290.00 $2,328.50
Property Sale & Completion $19,000.00 $40,535.50
Communication with Parties $8,070.00 $18,369.50
Administration and File Maintenance $7,360.00 $9,429.00
Contingencies $2,280
Sub totals $45,000.00 $70,662.00
Task Area
Tax Advice re sale of Newtown Property: Restructuring & Insolvency Team (actual WIP to 21/4/24) $8,291.50
Tax Advice re sale of Newtown Property: Taxation Team (actual WIP to 21/4/24) $7,550.00
s $23,150.00
Advice re applicability of CGT and Income Tax obligations: Taxation Team (to 20/6/24) $2,820.00
Estimated future tax compliance work in relation to sale of property $5,000.00
Trustee's estimate to finalise job incl. payment to the Parties, closure of Trustee's accounts and instructions to McCabes. $15,000.00
Grand total $132,474.00
[4]
The explanations offered by Mr Wengel for the increases above the estimated figures were as follows.
Initial Enquiries & Statutory Tasks: The actual figure was $6,000 (72%) less than the estimate.
Property Sale & Completion: Mr Wengel identified a need to obtain specialist tax advice concerning aspects of the sale of the properties, which I deal with below. Apart from that, he deposed that the Ultimo property failed to sell at the auction, which took place on 17 August last year. The Trustees were able to sell the property by private treaty six days later, on 23 August. Mr Wengel deposed that it had been assumed, for the purposes of the fee estimate, that both properties would sell at auction and no allowance had been made for the possibility of extra fees being incurred by selling the Ultimo property by private treaty.
Mr Wengel also deposed that the sale of the Newtown property was originally due to take place on 15 November last year but was delayed due to some concerns about GST until 5 December. There was also a mortgage on the property, the loan for which had been repaid, but which needed to be removed. The concerns with GST resulted in a deed of variation of the sale contract which, Mr Wengel deposed, had not been foreseen at the time of the estimate.
Communication with Parties: Mr Wengel deposed that Paul was dissatisfied with the price for which the Newtown property was sold. Beginning in late August last year and ending in mid-October, there was correspondence between Paul, the real estate agents, and staff of William Buck about this subject. Mr Wengel referred to around a dozen specific emails which passed back and forth between Paul and the staff of William Buck. At the end of that correspondence, Paul asked Mr Wengel to provide details of the purchasers (presumably so that he could contact them directly) but Mr Wengel refused.
Mr Wengel did not expressly state that such communications were unexpected. But later in his affidavit he stated:
It is my experience that, where | have been appointed as a statutory trustee to exercise a power of sale pursuant to an order of the Court, where the parties sought to communicate with me they would generally do so through correspondence from their lawyers. However, in this matter, the Trustees, and other employees at William Buck had regular, and often repetitive, teleconferences and exchanged email correspondence with some of the Parties [the Beneficiaries] directly to provide updates as to the status of the sale of the Properties. This is reflected in our time entries, many of which refer to direct communications with Marisa La Cava, Paul La Cava, and Stephen La Cava. That contact and the queries raised created additional work which had not been accounted for in the Estimate. Mr Brereton and I formed the view that, in circumstances where the Parties were regularly and directly requesting updates as to the status of the sale of the Properties, it was in the interests of all Parties, and for the sake of parity, that the Trustees provide them each with answers to the questions and concerns raised directly.
The Trustees did not anticipate, at the time of preparation of the Estimate, that we would be required to engage in the voluminous, and oftentimes repetitive correspondence with individual Parties directly.
Administration and File Maintenance: Mr Wengel deposed that, in his experience, work in this task area tended to increase in proportion to increases in other task areas.
Tax issues: In his affidavits, Mr Wengel identified two aspects of the administration which required assistance from the William Buck Taxation Team. One was the sale of the Newtown property, where advice was sought about GST on the sale (and associated questions as to whether the Trustees were required to register for GST purposes). The other was CGT, which involved one enquiry seemingly in September last year and another which resulted in the memorandum of advice produced for the hearing in June this year.
The figures shown in the above table show separate figures for the Restructuring and Insolvency and Taxation Teams for WIP accrued on tax issues up to 21 April this year. They also include WIP for the Taxation Team for the advice provided this year. The WIP accrued by members of the Restructuring and Insolvency Team on that advice was included in the WIP for the present application and are not separately shown.
Present application: This is self-explanatory.
Estimate for future taxation compliance work: Mr Wengel's estimate included "…obtaining instructions, preparation and lodgement of tax return including dealing with CGT issues, and liaising with ATO, to be undertaken by employees of the [William Buck] Taxation Services team…".
Estimate of future fees to finalise administration: This figure was broken down into four parts: distribution of proceeds to the beneficiaries ($5,000); legal proceedings ($5,000); tax compliance ($3,000); and administration ($2,000).
The "distribution of proceeds to the beneficiaries" estimate appears to have assumed that the Trustees will be required to calculate the Beneficiaries' entitlements, and deal individually with them for that purpose, and to obtain orders from the Court authorising the distribution. The "legal proceedings" estimate was not concerned with the present application but apparently envisaged some sort of monitoring role for the Trustees in the ongoing part of this litigation.
The "tax compliance" component was on top of the $5,000 estimate to which I have just referred. It was described as "compliance" and included:
supply of financial information and relevant documentation to the tax/business advisory team in preparation of compliance lodgements;
assistance in answering queries as raised; and
maintenance of detailed tax records, capital gains schedule and relevant ATO communications.
The figure for administration refers broadly to the filing of documents and reviewing files, checklists, bank account reconciliation and closing of bank accounts, notification to the ATO under the statutory authorities, and internal steps to close off the William Buck file.
Mr Wengel's affidavit also responded to the question which had emerged in my discussions with Mr Meyerowitz-Katz about the legal structure of William Buck. Mr Wengel deposed that there is a company named William Buck (NSW) Pty Ltd ("WBNSW") of which he and Mr Brereton are both directors and shareholders. He described "William Buck" as an "association of firms" trading under that name throughout Australia and New Zealand.
Mr Wengel deposed that, while not expressly stated in their affidavits of March last year, it had been his and Mr Brereton's intention to "engage WBNSW to perform services for [them] in performing [their] roles as Trustees", and that they in fact did so. Mr Wengel stated:
It is my belief that by engaging WBNSW in this manner the costs incurred were substantially less than they would have been had the work instead been done by me and Mr Brereton personally at our hourly rates.
No details were provided in the affidavit, or otherwise, of the terms on which WBNSW had been "engaged" by the Trustees, nor did the affidavit attach any invoices for fees rendered pursuant to that engagement.
[5]
Increased remuneration
The parties' submissions were brief. Mr Meyerowitz-Katz emphasised that the Trustees were entitled to reasonable remuneration for their work. It was not merely a matter of discretion. He took me through Mr Wengel's affidavits in support of the application. He pointed out that there had been no objections to individual items on the ground that the cost was excessive or unnecessary. He submitted that, in the circumstances, I should accept that the work done was necessary for the discharge of the Trustees' obligations and that they ought to receive remuneration at the specified rates for it.
Mr Hemsworth submitted that Mr Wengel's explanation for why the actual WIP incurred had exceeded the estimate which had been given were vague and imprecise. The costs of the specific additional tasks identified by Mr Wengel were not quantified and those tasks did not appear particularly substantial or unforeseeable. Mr Hemsworth reminded me that the Trustees were now seeking remuneration of more than triple the figure originally fixed by the Court.
Mr Hemsworth argued that the additional work attributable to tax investigations fell into the same category. He submitted that the administration was a 'run-of-the-mill' one, and the need to consider GST and CGT should have been obvious from the outset, especially to a person of Mr Wengel's experience. He submitted that the need to vary the Newtown contract to take account of GST had apparently been an error by the Trustees or by their legal advisors, the cost of which should not fall on the Beneficiaries.
In reply, Mr Meyerowitz-Katz pointed out that no application had been made to have Mr Wengel attend for cross-examination, and a line-by-line breakdown of the Trustees WIP was included in the evidence. He submitted that, in these circumstances, Mr Wengel's explanations should be accepted.
In the course of his submissions, Mr Meyerowitz-Katz referred to the evidence from Mr Wengel about William Buck operating through a corporate structure, but he said that this was consistent with the appointments of the Trustees being personal (which he accepted to be the case). Although there was no direct evidence of this, and apparently no written contractual arrangement, Mr Meyerowitz-Katz told me that the Trustees had subjected themselves to personal contractual obligations to pay WBNSW for the professional services rendered in the course of the administration by its staff at the rates specified in the Court's order.
Mr Meyerowitz-Katz also told me that if approval was received for an increase, an invoice would be issued by WBNSW to the Trustees, who would then pay it, effectively as a disbursement. This invoice would include the fees attributable to the Trustees' own individual work, at the approved rate. He submitted that it was legitimate for the Trustees to charge for their own services through WBNSW in this way.
This represented a departure from the way the application had been presented to that point. Mr Meyerowitz-Katz accepted that the application really involved seeking approval for payment of a disbursement. Nevertheless it was proper to seek approval because of the potential of conflict of interest involved (and, it seems to me, because the orders made by the Court last year clearly proceeded on the basis that the fee cap would apply to all of William Buck's charges as if they were remuneration of the Trustees).
At this point, I should say that there is a strong air of ex post facto justification in Mr Wengel's affidavit. I suspect that the Trustees never thought of the fees to be charged by William Buck as a disbursement at all, even if they now apparently consider that they have undertaken some form of tacit contractual obligation to WBNSW.
I was also unimpressed by the justification which Mr Wengel offered, and which I have already quoted, for employing other staff of WBNSW on the administration. Of course, the retainer of more junior staff was more cost- effective than having all of the work done by the Trustees personally. But the Trustees were obliged, as part of their duties to the Beneficiaries under the statutory trust, to take reasonable steps to minimise costs, and it could never have been justified for them to undertake tasks personally which could be undertaken at a fraction of the cost by less experienced accounting and support staff.
The engagement of staff employed by WBNSW seems to me to have been simply a product of the corporate structure the Trustees were using, or thought they were using, to conduct their practice. It had nothing to do with achieving economies by delegation, as such.
When, later in the argument, I asked Mr Meyerowitz-Katz about the drawings which had already been made, he seemed to be less confident that what he was telling me reflected the prior practice. The invoices on which those drawings were based were not in evidence. When I told Mr Meyerowitz-Katz that I could not help thinking that the fees had probably been billed as such, rather than as disbursements contractually incurred by the Trustees, he was inclined to agree.
On the basis of Mr Meyerowitz-Katz's earlier assurances, I am nevertheless prepared to accept that the Trustees undertook a contractual obligation to WBNSW to pay for the services of William Buck staff who worked on the administration. That would extend to any services provided through the Taxation Team by co-directors and co-shareholders of WBNSW.
It cannot, however, apply to the work undertaken by the Trustees themselves. They are entitled to payment, at the rate specified in the Court's order, for work they have personally done. But that entitlement, it seems to me, is a personal one arising from their appointments, individually, as trustees of the Trust. It cannot be delegated to, or re-routed through, WBNSW, which is not, and is not capable of, discharging responsibilities as such a trustee.
It follows, it seems to me, that the professional fees which are the subject of this application will ultimately need to be the subject of two invoices: one from the Trustees to the Trust for the services personally provided by them in acting as trustees, and the other from WBNSW to the Trustees for the professional services supplied to assist them in their administration of the Trust. I will return to this below. For the moment, it is convenient to deal with the application as if it were an application for fees incurred by all staff of William Buck.
I did not understand it to be disputed, and I accept, that the Trustees have an entitlement to reasonable remuneration, rather than a mere expectation which depends upon the exercise of discretion. I also accept that the orders made in May last year allowed for the possibility of an application to increase the remuneration cap imposed by those orders.
But the existence of the cap, in my view, is relevant to the determination of what remuneration is reasonable. There is a competitive market for the supply of trusteeship services of the present type. An estimate of fees from a prospective trustee is often a significant factor in the Court's decision. Trustees cannot expect to underquote, whether deliberately or by failing to give sufficient attention to the likely level of costs, and have that ignored by the Court.
When the estimate is for a maximum fee, which is reflected in the order of the Court, its importance is all the greater. The Court is entitled, when such a figure is presented to it, to assume that it represents a considered judgment which includes provision for additional expenditure which is foreseeably likely.
It is also relevant to the reasonableness of the costs to which the Trustees are entitled that the application did not come forward until well after the cap imposed by the order had been exceeded and the administration had effectively been completed. According to the breakdown provided by the Trustee in April this year, $44,000 in WIP had been incurred by 22 August. It would have been obvious well before then that the WIP would exceed the cap. Yet no application was made until April the following year, by which time the WIP accrued had more than doubled.
It is one thing for counsel for the Trustees to say that the work has in fact been done, but the application has been presented as fait accompli and there has been no opportunity to consider whether some other approach was warranted or whether the administration should have been completed by different trustees.
Against this background, I turn to deal with the different categories of WIP claimed. It is convenient to begin with the point made by Mr Meyerowitz-Katz that there was no application to cross-examine Mr Wengel. In what follows, I have taken that into account, but I do not think it necessarily has very great weight.
Mr Meyerowitz-Katz accepted that the onus in the present application lay on the Trustees to justify an increase in the cap imposed under the Court's orders of May last year. Clearly, Mr Wengel's affidavits were prepared on the basis that it was necessary to offer an explanation for why the WIP actually incurred was so much greater than the estimate on which the cap was based. As I will explain below, I accept the submission by Mr Hemsworth that, in this regard, the affidavit was vague and uninformative. I do not think that a party responding to such an affidavit has an obligation to cross-examine the deponent with a view to elucidating the details, before, depending on what emerges, challenging them.
A second point is related. The application is, or at least has been treated as being, interlocutory. Cross-examination would have required leave. Had I been asked to grant such leave, I would have been reluctant to do so. An application such as the present should usually be dealt with, in effect, on the papers. It should not become a lengthy and expensive piece of satellite litigation. In these circumstances, failure to cross-examine should only be a factor where the case for it was so obvious and compelling that the point raised could not fairly have been dealt with in any other way.
It is convenient to deal first with the WIP incurred by the members of the Tax Team. The course of the proceedings has confirmed the preliminary view which I expressed to Mr Meyerowitz-Katz (see [19] above) that these fees should be seen as no different from fees charged by external tax advisors, which could have been charged as a disbursement without the need for any authorisation from the Court.
There can be no quarrel with the fees associated with providing the advice on CGT which was the subject of the request via the Court in the course of the proceedings. In any event, the amount is extremely modest.
The WIP charged by the Tax Team for advice on tax issues incurred during the course of the sale is also relatively modest. I do not accept the submission by Mr Hemsworth that such advice should have been unnecessary because of the Trustees' own experience. In my view, the very fact that the Trustees found it necessary to refer the matter to tax specialists within their own firm suggests that it cannot have been routine. This is, perhaps, the one area where, had Mr Hemsworth wished to press this submission, he should have sought leave to cross-examine.
I will therefore increase the cap under the orders of May last year so as to permit the recovery of the Tax Team WIP ($10,370) in full.
This brings me to the WIP accrued by the Trustees themselves and by other members of the firm in the Restructuring & Insolvency Team who reported to them. I will deal with four categories where the amount accrued substantially exceeds the estimate.
Property Sale and Completion: The WIP accrued exceeds the estimate by approximately $21,500, and is more than double the estimated amount. In my view, the evidence to explain this is unimpressive.
The causative events specifically referred to (having the Ultimo property passed in and then negotiating a private treaty sale six days later; removing a discharged mortgage from the title; and negotiating an amendment to the contract for the sale of the Newtown property to accommodate GST) are typical of minor hiccups which might occur in any conveyance. The time lost was short and the additional costs would, one would expect, have been modest. They hardly seem likely to explain a doubling of the amount of work required. It is more likely that the initial estimate was inadequate.
I must, of course, bear in mind that there is no dispute that the work has actually been done and no suggestion is made that the rates were excessive for work of that character. I do not accept Mr Hemsworth's submission that the variation of the sale contract for the Newtown property is the Trustees' own fault; this is something which, if pressed, should have been the subject of an application to cross-examine. I think that I should accept that the work would have been required even if undertaken by other trustees.
At the same time, the rates do not reflect the out-of-pocket costs of providing the services of the Trustees' firm. They no doubt include a significant profit element.
It is also relevant that the cap fixed under the orders made in May last year was $5,000 (or 11%) less than the Trustees' estimate. I can only assume that the Trustees were made aware of the limit imposed by the Court and accepted the appointment on the basis that the cap would be less than their estimate and, to that extent, they were prepared to take the risk of bringing the work in under the capped figure.
I must also take account of the fact that because of the inadequacy of the estimate, and, to a lesser extent, the failure to make the application when it became clear that the cap would be exceeded, the Beneficiaries have been deprived of an opportunity to consider whether the administration, or at least part of it, might have been performed more cost effectively by other trustees. There is no evidence of where the fee rates, and general fee charges of William Buck, sit in the market. But if it were to be contended that competitors would inevitably have cost more, I think that is something on which the Trustees should have led affirmative evidence in this application.
In the result, I think it would be going too far to deprive the Trustees of any remuneration for the additional work which has been undertaken. The appropriate course is to increase the limit so as to accommodate some additional fees for that work, but to apply a discount to those fees on account of the matters I have mentioned.
Communications with Beneficiaries: Similar considerations apply here. Again, the actual WIP exceeds the estimate by more than 100% ($10,300). The evidence in Mr Wengel's affidavit is short on concrete details of the additional works said to have been undertaken and lacks a convincing explanation which would account for the large increase in the estimate. Again, recognising that the work has been done, the appropriate course is to allow for an increase, but a discounted one.
Taxation issues: The WIP accrued by staff in the Restructuring & Insolvency Team for dealing with the taxation issues (including liaising with the Taxation Team) is $8,300 (this does not include costs involved in obtaining the advice for the Court, which is included in the WIP for work on the present application and is not separately calculated). I have accepted that the referral to the Taxation Team was a legitimately incurred additional expense.
The same does not, however, apply to the WIP accrued by members of the Restructuring & Insolvency Team. Their work was presumably of a more administrative nature, involving the giving of instructions to, and the taking of steps as a result of advice received from, the Taxation Team.
I agree with Mr Hemsworth that GST and CGT must arise, in general terms, for consideration in many s 66G administrations, and that would presumably have been clear to the Trustees at the outset. Again, the evidence to explain why this was not taken into account in the estimate lacked specifics about what in fact was done that was supposedly so difficult to foresee. A further concern is that, counter-intuitively, the WIP accrued by the Restructuring & Insolvency Team for the period up to April this year was more than the corresponding WIP for the Taxation Team.
Again, the appropriate course is to recognise that the work was done, but to apply a discount.
Present application: In my view, the claim for these fees gives rise to quite different considerations. I do not doubt that the work was undertaken, but the application, in my view, is an application for an indulgence. It is the product of a failure to give the proper estimate in the first place, compounded by a failure to raise the exceedance of the cap in a timely way.
The need in the course of the application to go into questions about the way in which the William Buck business was structured and the fees have been, or will be, billed, is also the responsibility of the Trustees. Mr Meyerowitz-Katz referred to the description of the Trustees as "directors" in the affidavits they provided in support of the application. He submitted that this implied that William Buck was a corporate entity. I do not agree. There is no way in which a Judge dealing with the s 66G application would have deduced, from the material provided in support of it, all of the structural information which has emerged on the present application. In my view, all of that information should have been disclosed at the outset.
In these circumstances, I do not propose to make any increase in the cap so as to accommodate these fees.
Estimates of future costs: In passing, it should be noted that the total estimate was $20,000, whereas the amount foreshadowed in the letter of 15 April was only $10,000, and no explanation has been offered for the difference. And again, I found the evidence on this subject generic and unimpressive.
This is particularly obvious for the tax compliance estimates, which refer to CGT issues when, in fact, for reasons which have been explained (and allowed for in the fees which the Trustees will recover), there are no such issues.
The estimate also refers to the lodgement of tax returns, but this task was covered in the "statutory tasks" part of the estimate which is still well in credit. It would have been obvious to the Trustees, taking office in May last year, that the sale would not happen before 30 June and tax returns would be required at least for 2022-2023 and 2023-2024.
It might legitimately be said that the Trustees would not necessarily have foreseen the administration extending into the 2024-2025 financial year, as it has. But all the Trustees have been obliged to do in the current financial year is to hold the monies, and the preparation of a tax return seems unlikely to be expensive. At all events, no specific estimate has been included for that and it is impossible to tell from the evidence on the application how much that would cost and whether it had previously been allowed for in the estimate.
The remaining estimate for completion of the administration suffers from similar difficulties. Two thirds of the remaining estimate is attributable to costs of distribution and monitoring the ongoing nature of the proceedings. I cannot see any need for expenditure of that level for that purpose. No application by the Trustees for directions will be necessary. Nor can I see any reason why the Trustees should play any ongoing role in the litigation amongst the Beneficiaries which has ensued.
So far as I can see, all the Trustees will be obliged to do is hold the monies until the Court has made orders which will specify how they are to be divided up, and then comply with those orders. Indeed, even that may be unnecessary. If the parties can agree, they can simply have the monies transferred to a controlled monies account once the Trustees' fees have been paid, and hold the remainder there until the outcome of the proceedings is known. The administration can then come to an end.
The justification offered for further expenses for tax compliance ($3,000) and administration ($2,000) are also thin to non-existent. Nor is there any explanation for why these amounts are not already covered by the administration component which is the subject of the original estimate, and which has not yet been exhausted. Indeed, the tax compliance amount seems to be a duplicate of the separate estimate to which I have already referred.
I do not propose to make any allowance on account of the estimates. I appreciate that there is likely to be some statutory and administrative costs in winding up the administration, and that the administrative costs exceed the estimate, although not by much. But overall, I see no need to make any allowance for this, bearing in mind that I will not be awarding the full amount of the WIP claimed, and that the original "statutory tasks" estimate is still effectively in credit.
The remaining task is to identify the discount to be applied to the categories identified above. This must be a matter of judgment. The total exceedance is about $40,000 and, in the exercise of my judgment, I think a discount of about 25% is appropriate. Taking into account the Tax Team's WIP and rounding, I will increase the cap by $40,000, to $80,000.
Having regard to what I have said above, it will be necessary for the fees to be split between fees charged by the Trustees personally and fees charged for the other members of WBNSW's professional staff, as a disbursement incurred by the Trustees. The precise allocation between the two of the fees so far paid and the additional fees permitted under my order can be left to them to determine, but the Court will need to be satisfied that this has occurred. I will leave it to the Trustees to suggest how this should be done.
[6]
Costs
I have already made the point that the application is for an indulgence which has been occasioned by the Trustees' own conduct. And although I have increased the cap, I have done so by less than half the amount sought. Taking these matters into account, I do not consider that I should make any allowance for the Trustees to charge their costs of this application to the Beneficiaries. The application for an allowance for those fees will be dismissed, to the intent that the Trustees will bear their own costs of presenting the application.
Finally, there are Paul's costs of the application. I have generally accepted the submissions made on his behalf and even where I have not done so, the submissions were not unreasonable. His opposition to the application has resulted in a considerable saving for the Beneficiaries. In my view, his costs should be paid, on a solicitor and client basis, out of the funds in the administration.
[7]
Orders
The above was circulated to the parties in draft form on 18 December and they have agreed on orders to give effect to my conclusions.
The orders of the Court are:
1. Order 4(b)(vi) of the orders of Justice Peden made 19 May 2023 be amended such that the Trustees' charges be fixed to a total sum of $80,000.00 (excluding GST).
2. Note that the Trustees' charges (excluding GST) are to be apportioned as follows:
1. of the charges of $40,000 paid to date:
1. the sum of $14,282.80 was paid to the Trustees personally by way of remuneration;
2. and the sum of $25,717.20 was paid by the Trustees as a disbursement to William Buck (NSW) Pty Ltd for work performed in the service of the Trustees;
1. of the charges of $40,000 yet to be paid:
1. the sum of $14,282.80 is to be payable to the Trustees personally by way of remuneration; and
2. the sum of $25,717.20 is to be payable by the Trustees as a disbursement to William Buck (NSW) Pty Ltd for work performed in the service of the Trustees, inclusive of $10,370.00 to be paid to the William Buck (NSW) Pty Ltd Tax team.
1. The costs of the first defendant, Paul Gerard La Cava, of the Trustees' motion filed 29 April 2024 be paid, on a solicitor and client basis, out of the sale proceeds of the properties at 223 King Street, Sydney and 34/17-19 Macarthur Street, Ultimo as agreed or assessed.
2. The Trustees' motion filed 29 April 2024 otherwise be dismissed.
[8]
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Decision last updated: 20 December 2024