CONLAN v ADAMS [2008] WASCA 61

Court of Appeal (WA)|2008-03-17|Before: Lure JA, Buss JA

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA

CITATION : CONLAN -v- ADAMS [2008] WASCA 61

BETWEEN : MARK ANTHONY CONLAN as Liquidator of ROWENA NOMINEES PTY LTD (Receiver and Manager Appointed) (In Liquidation) (ACN 008 818 273)

Jurisdiction : SUPREME COURT OF WESTERN AUSTRALIA

Citation : AUSTRALIAN SECURITIES AND INVESTMENT COMMISSION -v- ROWENA NOMINEES PTY LTD (IN LIQ) (RECEIVER AND MANAGER APPOINTED) (SUPERVISOR APPOINTED) [2006] WASC 36

Corporations law - Remuneration of liquidator - s 473(3) Corporations Act - Sufficiency of evidence - Broad brush approach - Relevance of considerations taken into account - Approach to time based costing - Turns on own facts

1 McLURE JA: This is an appeal from the order of Master Sanderson made on 30 March 2006 allowing remuneration for the appellant for the period 21 July 1999 to 31 August 2003 in the sum of $200,000 plus GST. The appellant applied under s 473(3) of the Corporations Act 2001 (Cth) for remuneration in the sum of approximately $597,970 plus GST.

2 The application was largely heard by the master on 6 and 7 September 2004. His reasons were delivered on 8 March 2006 and the order under appeal was made on 30 March 2006. The master took what he described as a broad brush approach in deciding to approve just over one-third of the amount sought by the appellant. The appellant claims in his grounds of appeal that, inter alia, the master erred in taking a broad brush approach, acted arbitrarily and unreasonably, took into account irrelevant considerations and failed in his duty to give adequate reasons in a timely fashion with the result that he overlooked relevant evidence.

3 The appellant is the liquidator of Rowena Nominees Pty Ltd (receiver and manager appointed) (in liquidation) (Rowena) and Oakleigh Acquisitions Pty Ltd (in liquidation) (Oakleigh). Rowena was a finance broker licensed under the Finance Brokers Control Act 1975 (WA) and carried on business under the name 'Graeme Grubb Finance Broker'. Rowena and Oakleigh were controlled by Graeme Grubb. Rowena and Oakleigh collapsed in 1999. The appellant was appointed liquidator of Rowena on 21 July 1999 and of Oakleigh on 25 August 1999. On 23 July 1999 the appellant was appointed the supervisor of Rowena's finance broking business pursuant to s 73 of the Finance Brokers Control Act. The tasks to be performed by the appellant as supervisor (defined as 'Services') were set out in a letter of instruction dated 21 July 1999 from the Finance Brokers Supervisory Board. The Services were specifically stated not to include any work that was solely referable or reasonably incidental to any of the duties performed by the appellant as liquidator of Rowena and Oakleigh. The appellant was to be remunerated by the Government of Western Australia (GWA) for the Services.

4 Rowena brokered pooled mortgages by which investors' funds were pooled and loaned to borrowers on the promise of the security of a registered first mortgage over identified property. Oakleigh did little more than act as trustee of the mortgages for investors.

5 Rowena maintained a trust account for investors' funds. Its business records were very seriously deficient. The appellant was unable to identify with certainty who was entitled to particular mortgages and to the interest and principal payable thereunder. The appellant sought and obtained an interlocutory injunction which eventually resulted in the establishment of a regime for dealing with individual mortgages so that they could be discharged and the proceeds paid to the mortgagees if there was no dispute and to hold the proceeds in trust if there was a dispute. In the course of implementing the court-ordered regime, some preliminary issues were identified as requiring directions from the court. A particular mortgage arrangement (the borrower being Hardie Developments Pty Ltd) was chosen as the factual vehicle to which some of the preliminary issues could be related. Directions were given by Owen J in Conlan (as Liquidator of Oakleigh Acquisitions Pty Ltd) v Registrar of Titles [2001] WASC 201; (2001) 24 WAR 299 (Conlan No 1). The purpose of the directions was to provide guidance to the appellant in dealing with other similar claims.

6 In Conlan No 1, Owen J identified limitations in the powers of a supervisor under the Finance Brokers Control Act. He concluded (at [326] - [332]) that the power did not extend to winding up a finance broking business and did not extend to sorting out the trust account and assessing competing claims. Despite this, GWA continued to remunerate the appellant for activities of that nature. To control the costs associated with the appellant's services, his accounts were subject to the scrutiny of a probity auditor. The appellant incurred costs in preparing accounts for, and negotiating with, the probity auditor. Those costs are included in the present claim for remuneration.

7 On 1 August 2002 the appellant's appointment as supervisor was terminated. He continued in his position as liquidator of Rowena.

8 The appellant unsuccessfully sought to have his remuneration approved by a resolution of creditors in accordance with s 472(3) of the Corporations Act. He then sought to have his remuneration determined by the court. The claim related to three periods as follows:

9 The appellant also claimed an additional sum of $31,261 which was billed to GWA in relation to work done but which GWA refused to pay having regard to the terms of the contract between them.

10 The appellant tendered six affidavits as well as extensive time costing records for himself and his staff.

11 There were two groups of objectors. The first was a group of investors represented by Solomon Brothers (the first respondents) and the second a creditor of Rowena, Karri Oak Ltd (in liquidation) (the second respondent). According to the master's reasons, the objectors opposed the appellant's claim for remuneration on four bases being that:

(1) the appellant should not be remunerated for the costs of accounting to the probity auditor as this was not incidental to his duties as a liquidator;

(2) there was no extra work done by the appellant as liquidator over and above the work done as supervisor; alternatively, if work was done, it was so closely related to his work as supervisor there could be no justification for imposing a further charge on the creditors; and

(3) a number of the actions undertaken by the appellant were misconceived or unnecessary and provided no benefit to Rowena's creditors.

12 The second objector, Karri Oak, was primarily concerned with remuneration claimed by the appellant for the conduct of litigation instituted by Rowena against Karri Oak. The liquidator of Karri Oak had rejected a proof of debt lodged by Rowena in its liquidation. The appellant appealed from the rejection which appeal was discontinued just prior to the hearing.

13 The master concluded that there was not much to be gained from looking at the daily timesheets or the monthly computer records derived from those timesheets. He said:

In every sense they appear to be an accurate record of what was done. But even dipping into these timesheets at random, in much the same way an auditor might dip at random into the accounts of a company being audited, is of little value. The work that was done is cryptically described and there is no way of telling whether or not the time spent was either appropriate or necessary. All that can be said is that the timesheets appear to have been rigorously maintained and that there are no obvious deficiencies in the recording methods [15].

14 In one of his affidavits the appellant summarised the broad categories of work undertaken by him and the staff working under his direction. The master commented on the generality of the information but observed that there was probably no other way that the appellant could express in summary form what he actually did. He continued:

It must be borne in mind that this was a very difficult, complicated and extremely messy liquidation. What can be said then is that based upon his affidavit evidence Conlan appears to have undertaken his task as liquidator with diligence and with attention to detail. He also appears to have recorded all of the time taken by he and his staff to perform the tasks in the liquidation [17].

15 The master referred in detail to the steps in the Karri Oak litigation. In summary, he said the appellant appealed from the rejection of the proof of debt despite having little evidence to support his claim. The appellant also failed to comply with court orders and instituted unsuccessful interlocutory applications before eventually discontinuing the appeal at substantial cost to Rowena. The appellant was cross-examined on this matter at the hearing but provided no satisfactory explanation for the conduct of the litigation.

I appreciate that in the context of a large and complex liquidation seizing on one particular act is apt to be misleading - perhaps even unfair - in circumstances where the liquidator is not entirely sure which parts of his claim for remuneration are to be attacked. But under cross-examination [the appellant] was unable to provide any reasonable explanation for taking the actions he did. Furthermore, given that counsel for the liquidator of Karri Oak gave notice well in advance of his intention to appear, one might have expected, if [the appellant] had reasonable grounds for taking the action he did, then they would have been explained. But they were not and that gives rise to a concern. The concern is whether or not [the appellant] did actually conduct this litigation in a cost-effective way [29].

17 The master voiced concern about other litigation conducted by the appellant. He said:

But again there are aspects of [the appellant's] conduct which are of concern. In his affidavit evidence he refers to a number of 'test cases' which he conducted and which he says were necessary to obtain directions as to the conduct of the liquidation ... He refers to three cases - Re Oakleigh Acquisitions Pty Ltd (In Liq); Ex Parte Mark Anthony Conlan (As Liquidator of Oakleigh Acquisitions Pty Ltd) & Ors [2003] WASC 75, Lane v Conlan [2004] WASC 15 and Patroni v Conlan [2004] WASC 16. With respect, none of these cases would seem to me to fit into the category of what might be called a 'test case'. For instance, the Oakleigh Acquisitions (supra) matter involved a particular charge which [the appellant] conceded at trial was valid. In the course of his judgment Pullin J said ([36]), 'I am ... somewhat puzzled by the continued existence of these proceeding.' Clearly his Honour did not think that the action was a test case and clearly it is not.

Assessment of a liquidator's remuneration, particularly when the amount claimed is substantial and the liquidation is large and complex, presents considerable difficulties both practically and in matters of principle. The practical difficulties can be illustrated by reference to the so-called test cases that I have referred to above. I find it difficult to see why the Oakleigh Acquisitions (supra) case was brought because it is not apparent what it was likely to achieve in the context of the liquidation. That is a judgment made on the limited evidence available. It may be that [the appellant], in taking the steps he did, was relying on legal advice. But even assuming that the action was unnecessary, how are the costs in the liquidation associated with that unnecessary action to be excised from the other costs properly claimed? It is an impossible task to sort through the tens of thousands of pages of time-costing records to tease out all the costs associated with one particular court action. That necessitates, I think, the adoption of a broad-brush approach - and perhaps means that the bigger and more complex the liquidation, the broader the brush has to be [31] - [32].

18 The master made no allowance for work done in the period while the appellant was supervisor of Rowena under the Finance Brokers Control Act. He said:

[I] should say that I would allow [the appellant] nothing for the period he was acting as supervisor and was paid by GWA. I am not satisfied that the costs incurred in preparing accounts for, and dealing with, the probity auditor are costs properly payable by the creditors. Nor am I satisfied that there was sufficient extra work undertaken by [the appellant] over and above his work as supervisor which should be charged to the creditors [38].

19 The master then took a broad brush approach to the balance of the claim. He said:

That claim, I think, must be looked at with the background that [the appellant] has been paid millions of dollars by GWA for the work that he has undertaken. I would accept that there can be no doubt that the work he has undertaken since the termination of his position as supervisor is the work of a liquidator. But I am by no means satisfied that the work has been conducted in a way that is of benefit to the creditors. The Oakleigh Acquisitions case ... for instance, is difficult to explain. Furthermore, [the appellant] is being paid by GWA in relation to two actions at least. Those two actions would appear to be the main activities the liquidator needs to undertake to benefit the creditors. Otherwise it is difficult to see precisely what [the appellant] is doing and what he hopes to achieve. That is not in any way to be critical of his activities [39].

20 The master also took into account the conduct of Rowena's creditors in declining to approve the appellant's remuneration.

21 Both respondents filed Schedules of Objections to specified entries in the time sheets. The first respondents had 696 objections. However, the ground of each objection is not identified in the Schedules. Moreover, with limited exceptions the individual objections in the Schedules were not addressed by the respondents in submissions or evidence below and were not determined by the master. In the absence of elaboration of the basis of the specific objection the master was not in a position to determine all the objections. In any event, the respondents do not cross-appeal from the master's failure to determine the specific objections.

22 There are 11 grounds of appeal with numerous sub-grounds. They are to the effect that the master erred:

(1) in adopting a broad brush approach in assessing the appellant's remuneration on the following grounds:

(i) he reduced the remuneration without making a finding that any particular court action was unnecessary or involved a breach of duty by the appellant as liquidator;

(ii) even if the concerns identified by the master justified a reduction in remuneration he should have:

(b) assessed the costs associated with the actions or if there was insufficient information, make further directions to facilitate that assessment. In fact there was information as to the costs associated with the four actions referred to by the master at [31], being as follows:

The Karri Oak litigation - $487.70;
The Oakleigh litigation - $33,275.89;
The Lane litigation - $8,779.30;
The Patroni litigation - $4,980.10;

(iii) as an alternative to adopting the broad brush approach, the master could have focussed on the particular items to which the objectors objected in their Schedules of Objections;

(iv) the master erred in fact in concluding that there were tens of thousands of pages of time-costing records to tease out.

(2) in acting in an arbitrary and unreasonable manner in his application of the broad brush approach to allow only $200,000 for work done in the first and third periods;

(3) in taking into account an irrelevant consideration being that the appellant had received millions of dollars in fees from GWA in relation to other work not the subject of the remuneration claim;

(4) in taking into account an irrelevant consideration being that the creditors had declined to approve the appellant's claim for remuneration;

(5) in taking into account irrelevant considerations being whether the appellant had shown:

(i) that his work had added value to the position of creditors and was of benefit to them;

(ii) precisely what the appellant had done or hoped to achieve; and

(iii) that the work was necessary as well as beneficial.

(6) in finding that it was difficult to see precisely what the appellant was doing and what he hoped to achieve to benefit the creditors;

(7) in finding that there were aspects of the appellant's conduct of the Oakleigh litigation, the Lane litigation and the Patroni litigation that warranted the rejection of the appellant's remuneration claim in relation thereto;

(8) in finding there were grounds for concern as to whether or not the appellant conducted himself in the Karri Oak litigation in a cost-effective way which concern warranted a reduction in his remuneration;

(9) in concluding in respect of the claims for $122,000 and $31,261, that he was not satisfied there was sufficient extra work undertaken by the appellant over and above his work as supervisor which should be charged to creditors and was not satisfied that the costs incurred in preparing accounts for and dealing with the probity auditor are costs properly payable by the creditors;

(10) based on the lengthy delay in providing the judgment, the inadequacy of the reasons for judgment, the mistakes of fact in those reasons and in overlooking large parts of the affidavit material and argument such that his findings were unsafe resulting in a substantial miscarriage of justice;

(11) in failing to award an uplift amount on the base sum assessed at 6% per annum in view of the significant delay in the determination of the application by the master.

23 Neither respondent filed a cross-appeal. The first respondents filed a notice of contention in the following terms:

1.1 The appellant represented to creditors that trust moneys ... would not be used to pay fees for his work as Supervisor (a representation never changed or corrected);

1.2 In the Application, the appellant has sought to use trust moneys to pay for his work as Supervisor (para 39 of the First [respondents'] submissions is repeated); and

1.3 It would be unconscionable to allow the appellant to resile from the representation;

1.4 In addition to conventional estoppel, the Court will not permit its officer to engage in unconscionable conduct under the principle in Re Condon; Ex parte James (1874) LR 9 Ch App 609 ...

2.1 The alternative to the learned Master adopting a 'broadbrush' approach was for the learned Master to make 'no order' (other than as to costs) on the application given there was a significant (but unidentifiable) proportion of remuneration claimed which was to be disallowed (paras 25 and 37 and 3 - 21, 24, 26, 29 - 30, 35, 36, 42, 43, 45, 57 and 60 of the First [respondents'] submissions are repeated). It was an appropriate exercise of discretion in the circumstances to adopt a 'broadbrush' approach.

24 The notice of contention does not comply with the Supreme Court (Court of Appeal) Rules 2005 (WA) which require that a respondent state succinctly each ground, not relied on by the primary court, on which the respondent relies to uphold the primary court's decision (r 33(7)(a)). As explained in oral submissions at the hearing of the appeal, the claim in ground of contention 2 is to the effect that:

2.1 the appellant had not discharged his onus of establishing a prima facie case as required in Venetian Nominees Pty Ltd v Conlan (1998) 20 WAR 96 and the master so found at [37]- [38];

2.2 remuneration for the following items of work should have been disallowed:

(a) work done prior to the appellant's termination as supervisor on the grounds that (1) the work done in that period was beyond the power of a liquidator; (2) if the appellant did have power to so act, he did not in fact act as liquidator; (3) in the further alternative, the appellant ought to have obtained or sought to obtain funding from the GWA in respect of work he was required to do under the contract, both in respect of work done prior to his termination as supervisor and supervisory work that required completion after the termination;

(b) the conduct of the four actions, which was unnecessary work;

(c) some work the subject of items specifically objected to, in particular, the costs of negotiating funding from and payment of fees by the GWA.

(3) there was a significant but unidentifiable proportion of the remuneration claim that should be disallowed;

(4) in the above circumstances it was open to take a broad brush approach.

25 The respondents do not challenge the correctness of the master's finding in [39] that the work undertaken by the appellant after the termination of his position as supervisor was within the power of a liquidator. The first respondents contended to the contrary below. Further, the claim in the appeal that the appellant should have obtained or sought funding from GWA for that work was not squarely raised below. It cannot be raised in this court without leave. Leave was not sought nor given. Moreover, such a claim has striking similarities to that rejected by Pullin J in Australian Securities and Investments Commission v Rowena Nominees Pty Ltd [2003] WASC 112; (2003) 45 ACSR 424 [40] - [45] (ASIC v Rowena).

26 The second respondent supported the first respondents' submission that the master correctly found there was no prima facie case in which event the master was justified in taking a broad brush approach. The second respondent accepts that if this submission is wrong the appeal must succeed.

27 Section 473(3) of the Corporations Act 2001 (Cth) provides:

A liquidator is entitled to receive such remuneration by way of percentage or otherwise as is determined:

(a) ... ; or

(b) if there is no committee of inspection or the liquidator and the committee of inspection fail to agree:

(i) by resolution of the creditors; or

(ii) if no such resolution is passed - by the Court.

28 The court in Venetian Nominees considered the remuneration provision in s 473(2) of the Corporations Law which, although it related to a provisional liquidator, is in materially the same terms as s 473(3) of the Corporations Act. The court identified the relevant principles and procedures as follows. A liquidator is entitled to remuneration that is fair and reasonable and the liquidator carries the onus of establishing that entitlement. The court also said that in determining the remuneration to which a liquidator is entitled:

- a summary procedure is involved, not unlike that applicable to the taxation of solicitors' costs, which is not necessarily subject to all the rules that would apply in an action;

- it is the function of the court to determine the remuneration by considering the material proffered and bringing an independent mind to bear on the relevant issues, the initial task being to consider whether, prima facie, the liquidator has made out a case for the determination of the amounts claimed. The court must make an independent assessment even in the absence of objectors, appropriately detailed objections or arguable objections;

- if the liquidator has made out a prima facie case for determination and there are objections, special directions should be given as to the mode in which the account is to be taken and the procedure set out in O 45 of the Rules of the Supreme Court 1971 (WA) (Rules) should as far as possible be adopted;

- an objector should specify the grounds of objection well in advance of the hearing.

- if cross-examination of the liquidator is allowed, notice should be given of the points on which the liquidator will be cross-examined.

29 The court in Venetian Nominees held that the provisional liquidator had not made out a prima facie case that the claim to remuneration was fair and reasonable. The court said:

Should the ... liquidator fail to provide adequate evidentiary material to enable the court to determine whether the amounts claimed are fair and reasonable, no order should be made: see Re Solfire Pty Ltd (In liq) (No 2). Thus, for example, the mere listing of the persons who performed the work, the hours worked by each, and the amounts claimed, may well be insufficient material for the court to come to a proper decision: see Re Reiter Bros Exploratory Drilling Pty Ltd.

Ordinarily ... the ... liquidator will provide the court with a statement of account reflecting in appropriate itemised form, details of the work done, the identity of the persons who did the work, the time taken for doing the work, and the remuneration claimed accordingly.

...

The statement of account should be verified by affidavit. When the remuneration claimed involves work carried out by the ... liquidator and his staff, the verifying affidavit need state merely that the work described in the statement of account was done by the provisional liquidator or under his personal supervision, and that from personal knowledge or from the records kept by the ... liquidator or his firm, or from some other appropriate source, he believes that the information contained in the statement of account is correct (103).

30 In taking an account, the claimant bears the onus of establishing that a claimed item was not wrongly charged (a falsification in the old terminology): Ide v Ide (2004) NSWSC 751; (2004) 184 FLR 44 [23] - [25]. By analogy, the liquidator bears the onus of establishing a prima facie case for determination.

31 The expression 'prima facie' is used in Venetian Nominees to mean that the claimant's evidence is sufficient to enable the court to determine whether the claimed remuneration is fair and reasonable. So, for example, there must be evidence relating to the work done by particular persons, how long it took to do the work, their hourly rate and the reasonableness of the rate.

32 However, it cannot be intended that the reasonableness of each item of work undertaken should positively emerge solely from the description of the item in the schedule. If in doubt as to the reasonableness of an item, reference can and should be made to relevant documents in the liquidator's possession relating to the work the subject of the claim: Re Solfire Pty Ltd (in liq) (No 2) [1999] 2 Qd R 182, 191; Re Medforce Healthcare Services Ltd (in liq) [2001] 3 NZLR 145 [33] - [36]. That is consistent with the procedure for taking accounts which permits summarised accounts in accountants form with access to the relevant parties to all source documents (Atkin's Court Forms 2nd ed Vol 1 (1992 issue) at 612). Moreover, if the evidence is sufficient and there are objectors to the claim, then as with taking an account, the outcome of the application will ordinarily depend on the decision-maker determining the issues in contention between the parties particularly if it is apparent that the issues identified by the parties reflect a proper understanding of the guiding principles.

33 I agree with Owen J's observations in Conlan (as Liquidator of Oakleigh Acquisitions Pty Ltd) & Ors [2001] WASC 230 [25] that in determining whether the information supplied by the liquidators meets the requirements in Venetian Nominees regard should be had to the purpose of an account which is, among other things, to enable a person interested in the fund from which fees will be drawn to ascertain whether there are matters to which objection should be taken.

34 The respondents rely on Re Reiter Brothers Exploratory Drilling Pty Ltd; [1994] TASSC 42; (1994) 12 ACLC 430 for their contention that, in the event the liquidator fails to establish a prima facie case, the court is entitled to take a broad brush approach to the assessment of remuneration. Re Reiter concerned a claim for remuneration by a provisional liquidator of a small Tasmanian company with only one work contract. The provisional liquidator, Mr Lee, lived in Sydney. The liquidation work was done by a Tasmanian firm of accountants who directed liquidation work to Mr Lee for which he received one tenth of the remuneration. The provisional liquidator claimed $56,871. He was awarded $27,500. The trial judge made positive findings on all objections raised to the claim. The objections were appropriately specific. The trial judge found, in summary, that the applicant did a substantial amount of work which he ought not to have done including preparing directors' reports, working on a winding up application that was not justified in the circumstances and work done after the cessation of his appointment. In considering each objection, the trial judge identified the amount claimed for the work and determined whether it should be disallowed in full or in part.

35 Remuneration was claimed on a time cost basis in accordance with the scale recommended by the Insolvency Practitioners Association of Australia. The trial judge discounted the hourly rate because the company was small, there was an increase in the cost of doing the work by virtue of the provisional liquidator being in Sydney and because he had reservations about the reasonableness of the amount of time spent by the applicant on work properly done. The trial judge fixed the remuneration in a lump sum taking as his starting point the amount claimed by the applicant and making deductions therefrom in respect of the specific matters on which he had made findings. He described that as having taken a 'somewhat broad brush approach'.

36 Two points should be noted about Re Reiter. There is nothing in the reasons for judgment to suggest there was insufficient material upon which to make a determination as to whether the claim for remuneration was fair and reasonable. Further, the trial judge made findings on the specific objections, identifying what if any amount was reasonable for the work the subject of the objection. The approach taken by the master in this case bears little similarity to that taken by the primary judge in Re Reiter.

37 It was accepted by all parties in this case that a time cost basis for determining remuneration was appropriate. That concession accords with Venetian Nominees [105] - [106]. However, it is accepted that time-based costing has potential drawbacks and can be abused. Lawrence J in In Re Carton Ltd (1923) 39 TLR 194, after referring to the usual English practice of adopting a scale based on a percentage of realisations and distributions, said:

Experience has shown that the time occupied by a liquidator and his clerks affords a most unreliable test by which to measure the remuneration. Even the best accountant may spend hours over unproductive work, let alone his more or less efficient staff or clerks. Moreover, it is quite impossible to check charges based on such a system and to gauge the value of odd hours said to have been spent on the affairs of the company (197).

38 An hourly fee is said to create an incentive to run up hours and to do too much work in relation to the stakes of the case: Karchoff v Flynn [1986] USCA7 190; 786 F (2d) 320 (1986) (7th Cir 1986), 324 (Easterbrook J).

39 Mindful of the disadvantages associated with time-based costing, courts in England and Australia have identified the object to be achieved and criterion to be applied in determining what is reasonable remuneration when faced with a time cost remuneration claim: Mirror Group Newspapers plc v Maxwell [1998] BCC 324; Re Korda; in the Matter of Stockford Ltd [2004] FCA 1682; (2004) 140 FCR 424. Ferris J said in Maxwell:

In my judgment it is vital to recognise three things in this field. First, time spent represents a measure not of the value of the service rendered but of the cost of rendering it. Remuneration should be fixed so as to reward value, not so as to indemnify against cost. Secondly, time spent is only one of a number of relevant factors ... The giving of proper weight to these factors is an essential part of the process of assessing the value, as distinct from the cost, of what has been done (336 - 337).

40 The other relevant factors identified by Ferris J were the complexity of the case, the extra responsibilities on the liquidator, the effectiveness of the liquidation and the value and nature of the property involved in the liquidation.

41 The word 'value' in this context does not mean the net financial benefit to the creditors. Rather, it means the value of the services rendered by or on behalf of the liquidator which in turn is addressed by the question whether the time was reasonably expended in the circumstances of the particular liquidation.

42 After a comprehensive review of the relevant issues, Finkelstein J concluded in Re Korda:

It seems to me that the proper approach is first to establish what ... is called the 'lodestar' amount. This amount is reached by the number of hours reasonably spent by the insolvency practitioner multiplied by a reasonable hourly rate ... This step will require the tribunal to decide whether the work performed was necessary to the [liquidation], whether it was performed within a reasonable time and whether the rate is reasonable having regard to what the practitioner, and other practitioners, usually charge their clients. The 'lodestar' amount should then be adjusted (up or down) to reflect other factors including the quality of the work performed, the complexity in the administration over and above the normal complexity of such work, the novelty and difficulty of the issues that confronted the [liquidator] as well as the ultimate result obtained by him [47].

43 In fact, some of the lodestar factors identified by Finkelstein J would be taken into account when determining whether the number of hours spent and the hourly rate were reasonable.

44 For practical purposes, it may be of assistance to identify categories of conduct that would not represent time reasonably expended at a reasonable rate. They include, without intending to be exhaustive:

(a) work that is beyond the power of the liquidator;

(b) conduct that is negligent (whether that be in undertaking, or in the performance, of the work);

(d) work undertaken by persons of inappropriate seniority (having regard to level of training and experience);

45 The expression 'unnecessary work' is unhelpfully vague. The first two categories of conduct (that is ultra vires or negligent) may be classified as unnecessary work, but its meaning in (c) is wider. It relates to both decisions to embark on a course of action and the work undertaken in performance thereof and is captured by the concept of 'over-servicing'.

46 As to entering upon a course of action, I agree with Ferris J in Maxwell that it is not sufficient that office holders have acted within the scope of the duties or powers conferred upon them. They are required to exercise commercial judgment in determining whether or not to act. A relevant exercise in that context would ordinarily be a cost-benefit analysis. In appropriate circumstances, other factors may displace that consideration such as, for example, the need or desirability to protect the liquidator's position by obtaining directions from the court.

47 As to the performance of a task reasonably embarked upon, the work done must be proportionate to the difficulty or importance of the task in the context in which it needs to be performed. This is what is encompassed in assessing the value of the services rendered. Using an example from the law, the time spent by an appropriately qualified and experienced practitioner in drafting a statement of claim should be proportionate to the amount in issue.

48 The presentation of the appellant's written case did not facilitate a timely or efficient assessment of his claim. Further, the respondents relied on generalised objections to the claim and were permitted by the master, with the agreement of senior counsel who appeared for the appellant below, to cross-examine the liquidator without him receiving adequate notice of the matters and issues in contention. Having regard to the four-year period for which remuneration was claimed, the level of detail provided of the work undertaken and the number of personnel involved, the appellant was effectively ambushed. Moreover, these failures substantially increased the time and effort required to identify and understand the issues in contention. That may explain but does not justify the time between the hearing and the delivery of, and approach taken by the master in, the reasons for judgment.

49 The preliminary issue in the appeal is whether the master found that the appellant had established a prima facie case for remuneration.

50 The respondents' case must fail at the first hurdle. Even if the master had found that the appellant had not established a prima facie case to any portion of his claim, the only available course of action, based on the unchallenged authority of Venetian Nominees, would be to dismiss the application (or adjourn it to allow the applicant to supplement the evidence). Re Reiter is not authority to the contrary. Neither respondent filed a cross-appeal seeking the dismissal of the application. Moreover, it is not open to the respondents to seek to uphold the master's broad brush approach on the basis that in fact the appellant was entitled to nothing because he had not established a prima facie case in relation to any part of his claim.

51 In any event, I am satisfied the master made an inferential finding of a prima facie case. He was aware of and expressly referred to the requirement in Venetian Nominees that the appellant adduce sufficient evidence to give rise to a prima facie case for determination. He expressly dealt with and rejected the second respondent's submission that the evidence did not satisfy the threshold requirement. He said:

It was the submission of counsel for the objectors, particularly counsel for the liquidators Karri Oak, that the claim by Conlan was unsatisfactory because the liquidator had not established that his claim for remuneration was fair and reasonable. Counsel submitted that Conlan should be sent back to further explain what he had done and why, with particular reference to time-cost entries and particular staff who had undertaken particular activities. With respect, that position seems to me to be unrealistic. There must be a limit to the amount of detail Conlan can be expected to provide. The costs of Conlan analysing his time records and the like in the manner suggested by counsel would be prohibitive. In any event, the same problem would arise. Conlan may be called upon to justify each particular time-cost record for him and each particular employee and place that in the context of the liquidation - all of that against the background of GWA funding. It seems to me far preferable that the remuneration be fixed now [37].

52 The respondents rely on the last two sentences of that paragraph and the second sentence of [38] in support of their claim that the master found there was no prima facie case. The master relevantly stated in [38] 'I acknowledge that, in settling on that figure [$200,000], I am making an assessment of what seems to me to be reasonable in all the circumstances'.

53 The fact that, after hearing the objections and the evidence, the master reduced the amount awarded to less than one-third of the amount claimed does not support the respondents' claim that the master found that the appellant's evidence was insufficient to determine the application. In any event, it cannot sensibly be contended that the appellant failed to establish a prima facie case in relation to the entirety of his remuneration claim. The evidence filed by the appellant by and large satisfied the purpose of an account which is to enable the respondents to ascertain whether there were matters to which objection should be taken. Where there are relevant gaps in the evidence in relation to specific items of work, no remuneration should be allowed for that item.

54 However, notwithstanding the procedural irregularities I propose to determine the first respondents' individual grounds of objection as I have identified them above to determine whether they provide a basis for supporting the award. Before going to the grounds of appeal and the contentions it is necessary to refer to the evidence in support of the application.

55 The appellant swore six affidavits (12 December 2002, 4 December 2003, 9 January 2004, 2 April 2004, 7 May 2004 and 31 August 2004) and produced extensive time-costing records for himself and the members of his staff who worked on the liquidation. At the hearing the appellant sought leave to adduce a further affidavit sworn on 14 June 2006 explaining aspects of the material before the master. As the affidavit is of some assistance to the court and of no prejudice to the respondent, I would grant leave.

56 The time recording system was as follows. The partners and staff of the appellant's firm each maintained an electronic daily time sheet with respect to time spent on particular activities relating to Rowena. Time was recorded on the basis of 6-minute units. Every month the electronic daily time sheets were posted to the computer records of the appellant's firm. The time details of the liquidation were extracted from the computerised records which were based on the electronic daily time sheets. These computerised records identify the subject matter of the work either by reference to individual investors or task, the particular work undertaken by each member of the firm, the time spent on that work and the workers' hourly rate. Generally speaking, the type and level of detail of information provided conforms with the requirements in Venetian Nominees.

57 Based on the computerised records, a summary of fees by employee and task was prepared, being revised Annexure N. The tasks (1 to 83) identify the categories of work undertaken by or at the direction of the appellant.

58 The appellant's firm used charge codes to capture the time costs in relation to specific tasks. All work billed to GWA was the subject of a single charge code until 30 September 2001. Thereafter, the firm established separate charge codes to capture time costs for each task that was to be funded by GWA. Work that fell outside the funding arrangements with GWA was charged to other codes.

59 The contract between the appellant and GWA (services contract) itemised the functions to be performed by the appellant in his capacity as supervisor of Rowena which it defined collectively as 'the Services'. Clause 2 of the services contract provided:

The Services shall not include any work that is solely referable to or reasonably incidental to any of the duties of the liquidator of

Rowena ...

60 The services contract is based on the subsequently falsified assumption that a supervisor appointed under the Finance Brokers Control Act had the power to provide all the Services. Until 1 August 2002 GWA in effect funded the appellant for the enumerated Services on the basis of the terms of the services contract without regard to whether the Services (or part of them) were ultra vires the appellant's capacity as supervisor provided they were regarded as within his power as liquidator.

Period 2 (ground of appeal 9/ contentions 2.1 and 2.2(a))

61 The appellant's remuneration claim for period 2 comprises $122,000 and $31,261.58 (the remainder). The $122,000 comprises most of the work of task 75 (statutory reports/liaison), task 76 (creditor enquiry/protection/reporting), task 77 (cash book matters), task 78 (asset protection/recovery); and task 79 (general administration) as identified in revised annexure N. Detailed time sheets for the work the subject of the five tasks are in evidence.

62 The appellant's evidence was that the work the subject of the claim for $122,000 was outside the funding arrangement with GWA that is, it fell within cl 2 of the contract. The appellant expressed confidence that there had been no double dipping in the sense of having sought or obtained payment from GWA in relation to that work the subject of that claim. The basis for the confidence was that matters which fell outside the funding arrangement were assigned to a separate billing code. The appellant's evidence is that GWA was never billed for the work the subject of this claim.

63 A number of objections to individual entries in the timesheets relating to tasks 75 to 79 of revised Annexure N were in the respondents' schedule of objections. Not all the work was objected to. For example, in relation to task 77 there are objections to seven entries which total approximately $1,606 out of a total claim of $16,398.

64 The remainder was sought to be recovered from GWA but it was claimed by GWA and ultimately accepted by the appellant that the work the subject of the claim was not work for which he was entitled to payment under the services contract. The work the subject of the remainder comprises seven categories and is described in the detailed time costing sheets (supplementary green appeal book).

65 The master did not allow any remuneration for the work the subject of the claim in period 2. He was not satisfied that the costs incurred in preparing accounts for and dealing with the probity auditor were costs properly payable by the creditors. Nor was he satisfied that there was 'sufficient extra work' undertaken by the appellant over and above his work as supervisor which should be charged to the creditors.

66 As is apparent from the first respondents' written submissions in the appeal, their objections below included, but were not confined to, the costs incurred in preparing accounts for and dealing with the probity auditor. They also objected to the costs incurred in negotiating funding arrangements with GWA, not only in relation to the provision of the Services but also in connection with proposed litigation by the liquidator in that capacity, which included actions against St George Bank and Rowena's auditors. GWA agreed to fund the St George Bank and auditor's actions and other sundry litigation. Thus, there are four categories of work for which the appellant claims costs, being (1) negotiating the funding arrangements for the provision of Services as supervisor; (2) seeking and obtaining payment for the provision of those Services from time to time; (3) seeking funding arrangements with GWA for proposed litigation which fell outside the definition of Services; and (4) seeking and obtaining payment for the litigation that GWA agreed to fund.

67 I would not allow any remuneration for the work done in negotiating funding, and securing payment for the Services provided by the appellant under the services contract. That contract expressly provides the basis for the appellant's remuneration in connection with the Services which does not in terms entitle him to payment in respect of the claimed matters. Service providers, such as insolvency practitioners and lawyers, who in effect sell their time, ordinarily expect to incur upfront costs (time and expenses) in securing work that generates a source of income and in obtaining payment for that work from time to time. Ordinarily, costs of this nature (together with a profit margin) would be taken into account and reflected in the hourly rates charged by the appellant. There is no evidence in this case that the time spent securing a source of income from a third party and obtaining payment from that third party are not adequately covered in the agreed hourly rate. I would therefore disallow the remuneration claim for the first two categories of work relating to the Services.

68 The same reasoning applies to time spent in seeking and obtaining agreement from a third party to fund litigation and obtaining payment under that agreement. However, it has no application where the liquidator has made unsuccessful attempts to obtain third party funding in which event I would allow remuneration.

69 In summary, I would make no allowance for remuneration for work done by the appellant in seeking and successfully obtaining a funding agreement with a third party and in seeking and obtaining payment from time to time under that funding agreement. There remains the issue of quantifying the amount that should be disallowed. A number of objections in the respondents' Schedules of Objections to tasks 75 to 79 relate to these categories of costs. There may be similar objections in relation to the claim for period 3. The respondents should be confined to the objections to work in these disallowed categories which were included in their Schedules of Objections (of which the appellant was given proper notice).

70 I would order that (1) the respondents identify which of the objections in their Schedules of Objections relate to the categories of work that have been disallowed; (2) if the appellant agrees that an objection relates to work within the disallowed categories, the remuneration is to be disallowed; (3) if the appellant disputes that the objection relates to work within the categories, the dispute is to be referred to the taxing master.

71 The second basis for disallowing the appellant's claim for period 2 was that the master was not satisfied there was sufficient extra work undertaken by the appellant over and above his work as supervisor which should be charged to creditors. The master's reasons are oblique. He does not disclose what he means by 'sufficient extra work' or the factual basis for his concern. Moreover, he does not address the issue in question. The evidence established that the work the subject of the claims in period 2 was not compensable under the services contract. The appellant's evidence was that the work fell within what the parties intended to be covered by cl 2 of that contract on the assumption the Services were within the power of a supervisor.

72 The first respondents sought to uphold the master's decision in relation to period 2 on the ground that the work the subject of the claim was beyond the power of a liquidator or, if it was within power, the appellant was in fact acting as supervisor. These objections seem to be premised on the assumption that the work the subject of the claim for period 2 was within the definition of Services in the services contract which were intended by the contractual parties to be performed by the appellant in his capacity as supervisor. That is contrary to the evidence of the appellant. His evidence was that the work the subject of the claim for $122,000 was not, and was never claimed as, compensable Services under the services contract and that although the remainder was initially claimed by the appellant to be compensable Services, that claim was rejected by GWA. However, even if the assumption is correct, I do not accept that the work the subject of the claim in period 2 was beyond the power of the liquidator or that he should not be remunerated for that work.

73 The unchallenged decision of the court in ASIC v Rowena was that the liquidator of Rowena had the power to identify or attempt to identify trust assets, recover or attempt to recover trust assets, realise or attempt to realise trust assets, protect or attempt to protect trust assets, and distribute trust assets to the persons beneficially entitled to them. The court in ASIC v Rowena also accepted the appellant's evidence that such work was necessary. That decision is consistent with what Owen J decided in Conlan No 1 at [331] to the effect that, although the appellant as supervisor did not have the power to wind up a finance broking business or sort out the trust account and assess competing claims on that trust account, the appellant had that power as liquidator. The powers of the liquidator are materially the same both before and after the appellant's appointment as supervisor came to an end in July 2002.

74 Whether or not the appellant (mistakenly) purported to undertake work in his capacity as supervisor is of no moment. The question whether conduct is ultra vires is objectively determined. It does not depend upon the capacity in which the official purports or intends to act. It is sufficient if the official has power to act albeit in another capacity.

75 In summary, the evidence establishes that the appellant has not been paid by GWA for the work the subject of the claim for period 2. There is no merit in the first respondents' claim that all work undertaken by the appellant prior to the termination of his position as supervisor was beyond the power of the appellant in his capacity as liquidator of Rowena. Moreover, the fact that the appellant may have mistakenly purported to act in another capacity does not disentitle him to remuneration in the capacity that renders the conduct within power.

76 I am satisfied the master erred in dismissing the non-costs component of the claim for period 2. There being no challenge to the master's failure to deal with the Schedules of Objections, I would uphold ground of appeal 9 in part and dismiss grounds 2.1 and 2.2(a) of the notice of contention.

Period 3 (grounds of appeal 1 - 8, 10/ contention 2.2(b))

77 The balance of the grounds of appeal and the first respondents' contentions relate to the work done in period 3. I propose to start with the grounds that relate to the four actions (grounds of appeal 1, 6, 7 and 8 and contention 2.2 (b)).

78 The Karri Oak litigation has already been described. The master did not find that the commencement of the appeal was unnecessary. That is understandable in circumstances where Rowena's corporate records were seriously deficient and the Karri Oak liquidator relied on evidence of Mr Grubb, who was charged and convicted in connection with his conduct of Rowena's affairs. The master refused remuneration because he was not satisfied that the appellant conducted the appeal in a cost effective way.

79 The evidence established that the appellant incurred costs as a result of his failure to comply with court orders and in bringing unsuccessful interlocutory procedures. The conduct of the litigation on its face called for an explanation which was not forthcoming. The liquidator failed to provide any reasonable explanation for this conduct. The master found in effect that the appellant had not discharged his onus of demonstrating a prima facie case that the remuneration was fair and reasonable. This conclusion in relation to the Karri Oak litigation was open on the evidence. I would dismiss ground 8.

80 However, the master failed to adequately identify the nature or basis for his 'concern' in relation to the Oakleigh Acquisitions, Lane and Patroni litigation. Whether or not the appellant correctly described the actions as 'test cases' falls well short of providing an acceptable basis for disallowing the remuneration claim. The appellant's evidence was that the actions were necessary in order to obtain directions as to the conduct of the liquidation. The respondents contend the actions were unnecessary in the sense that, as a matter of commercial judgment, they should not have been commenced. The respondents did not adduce evidence, expert or otherwise, in support of the claim that the actions were unnecessary. Moreover, the master did not make a finding that the actions were unnecessary. It is necessary to attempt to piece together the master's reasons for disallowing the remuneration claimed in respect of the Oakleigh Acquisitions litigation. It seems to be connected with the alleged requirement that a liquidator 'add value' and act to the financial 'benefit' of the creditors.

81 The master said that '[f]or a liquidator to proceed without having any regard whatever as to what benefits are likely to be obtained as a result of the costs incurred is patently unfair to the creditors. It is incumbent upon a liquidator to exercise his professional judgment and to take only those actions which are necessary and are beneficial in the interests of creditors [33]'. The master said ([32], [39]) he could not see why the Oakleigh Acquisitions litigation was brought because it was not apparent what it was likely to achieve in the context of the liquidation and he was not satisfied that it was to the benefit of the creditors. He contrasted that with the litigation against St George Bank and the auditors which he saw as satisfying the 'adding value' and 'benefit to the creditors' criteria.

82 In the Oakleigh Acquisitions litigation, the appellant sought directions in CIV 2076 of 1999 (being the action in which Owen J gave directions in Conlan No 1) as to who was entitled to the sum of $655,000 held by the appellant in a bank account. The second respondent (HEK) sought an order that the money be paid to it. The background was that HEK supplied funds to Rowena for the purpose of advancing the money to a borrower (HPL) for the purpose of assisting in the purchase the Whitfords Tavern. The money received by Rowena from HEK was paid into Rowena's overdrawn trust account. Prior to settlement of the loan, other investment funds were deposited into Rowena's trust account to be advanced to other borrowers on the security of a registered mortgage which was never provided.

83 Money was subsequently advanced to HPL on the security of an unregistered company charge. HPL defaulted on its obligations under the HEK charge and in September 2000 paid to the appellant the sum of $655,000 from the settlement and discharge of the HEK charge. The appellant refused to release the funds to HEK because of the possibility that three named investors who had deposited funds into the Rowena trust account may, by virtue of the doctrine of tracing, have an equitable interest in the property secured by the HEK charge.

84 In Conlan No 1, Owen J had determined issues arising in a contest between the holder of a registered Transfer of Land Act (TLA) mortgage and other investors who by reason of the doctrine of tracing claimed an equitable interest in the property the subject of the TLA mortgage. Owen J was, until appointed to conduct a Royal Commission, handling all litigation associated with the collapse of Graeme Grubb Finance Broker. By orders made on 15 June 2000 in CIV 2076 of 1999 Owen J ordered that the question of who was beneficially entitled to the proceeds of the HEK charge be dealt with as a preliminary issue.

85 The orders made by Owen J in relation to the HEK charge case were consistent with the general approach adopted in Conlan No 1. The intention was to decide issues in a concrete factual context in which the directions given would provide guidance to the appellant in dealing with other claims of the same or a similar nature. The Oakleigh Acquisitions litigation was intended to provide guidance in situations where there was competition between persons having an equitable interest in the same property.

86 In his reasons in the Oakleigh Acquisitions litigation Pullin J noted that the appellant had referred to it as one of four 'test cases' to be heard by Justice Owen. Pullin J said 'I do not know what the reference to "test cases" means' [24]. In the broader context of the Grubb litigation as a whole, it reflects the management approach of Owen J to identify preliminary issues and choose a factual vehicle to which the preliminary issues could be related, the resolution of which would provide guidance to the appellant in dealing with claims giving rise to the same or similar issue. Pullin J made no criticism of the appellant in commencing and conducting the Oakleigh Acquisitions litigation. Indeed, he noted that the appellant 'felt constrained by the fact that Owen J ordered that the question before me be answered as the preliminary issue' [36].

87 From the commencement of his appointments, the appellant undertook the responsibility of identifying, protecting and recovering trust assets and distributing those assets to the persons entitled to them. That course was appropriate in circumstances where Rowena created the problems, it having acted in breach of trust and had what the master described as 'hopeless or non-existent financial recording'. Pullin J in ASIC v Rowena held this to be necessary work. There was no challenge to that decision. The Oakleigh Acquisitions litigation was part of this exercise. Although it cannot be said that work of the type approved in ASIC v Rowena adds value or is to the financial benefit of the trust creditors in the sense in which those expressions were used by the master, the work is, and was held to be, necessary in a general sense. Further, it is reasonable to incur costs in obtaining directions from the court where there is legal uncertainty as to who is entitled to the security property (or the proceeds of sale thereof).

88 The appellant brought the Oakleigh Acquisitions litigation pursuant to directions made by Owen J for the purpose of resolving issues that would provide general guidance in the liquidation. I am satisfied that the appellant acted reasonably in bringing this litigation. The master erred in requiring that the work be, or have the potential to be, of financial value or benefit to the creditors. The master erred in disallowing the appellant's claim for remuneration in relation to this case.

89 In the Lane litigation the appellant unsuccessfully defended a summary judgment application brought by unregistered TLA mortgagee investors who claimed an entitlement to money repaid to the appellant as trustee by the borrower who provided the security. The amount paid into trust was from the settlement and discharge of the unregistered security. There were third parties who had, or may have had, an equitable interest in the security property by virtue of tracing rights. It appears the appellant had already commenced directions proceedings in relation to the Lane (and Patroni) proceeds before the summary judgment applications. This was a test case in the sense discussed above. The fact that the appellant was unsuccessful in his defence does not itself justify a refusal to remunerate him for work done in connection with the litigation. In this instance there was no guidance from the directions previously given by the court, including Conlan No 1. On my reading of the reasons in the summary judgement application, the legal position was not so clear as to render the appellant's defence of the claim unreasonable. I am unable to discern any reasonable basis for the concern expressed by the master who erred in disallowing remuneration for this case.

90 In the Patroni litigation the appellant unsuccessfully defended a summary judgment application brought by an unregistered equitable mortgagee seeking possession of relevant documents that would place him in the position to become a registered mortgagee. Third parties had arguable equitable interests in the property the subject of the equitable mortgage. This is another factual scenario in which there was no direct guidance from directions given in the decided cases. On my reading of the reasons in the summary judgment application the legal issues were such that the appellant acted reasonably in defending the claim and was entitled to remuneration.

91 I would uphold grounds of appeal 5(i) and (iii), 6 and 7, save in relation to the Karri Oak litigation, and dismiss contention 2.2(b).

92 Even if it was open to the master to disallow the claim for remuneration relating to the four actions, such a course provided no proper basis for reducing the remuneration beyond that related to the litigation in question which together totalled $47,523.05. The master wrongly concluded ([32]) that it would be an impossible task to sort through 'the tens of thousands of pages of time costing records to tease out all the costs associated with one particular court action'. He said that necessitated the adoption of a broad brush approach. The significant delay between the hearing and judgment may have led the master to overlook the existence of revised Annexure N which identifies the claimed costs of the relevant litigation. Moreover, the evidence established that the master grossly overestimated the extent of the relevant time costing records. I would uphold ground of appeal 1(ii) and (iv).

93 However, I would dismiss ground 1(i) which is to the effect that the master could not reduce the remuneration without making a positive finding that the four actions were unnecessary or involved a breach of duty. That claim is wrong. Remuneration can be disallowed if the claimant fails to discharge his onus by failing to adduce evidence of a prima facie case for determination. However, an omission to establish a prima facie case in relation to a discrete part of the claim does not support an inference of a systemic problem that justifies disallowing or reducing other parts of the claim.

Period 3 - Irrelevant considerations (grounds of appeal 2, 3 and 4)

94 In reducing the remuneration for period 3 from $440,000 to $200,000 the master took into account that:

(a) the creditors had refused to approve the remuneration; and

(b) GWA had already paid the appellant a significant amount under the services contract.

95 The creditors' refusal to approve the remuneration claim is a jurisdictional fact that enlivens the court's power to determine a liquidator's remuneration. Once enlivened, the court's power to determine remuneration is in the nature of a discretionary decision to which special appellate principles apply. If the master took into account an irrelevant consideration, that is an appellable error that entitles this court to intervene. The issue raised by the appellant is whether the creditors' attitude to the claim is relevant once the court's power to determine remuneration has been enlivened.

96 The court's obligation is to independently assess whether the remuneration is fair and reasonable having regard to the views of the relevant stakeholders, being the appellant and the trade creditors. I am not satisfied that the attitude of the creditors is an irrelevant consideration. However, the mere fact of rejection of the claim by the creditors would be of little weight in the absence of evidence as to their grounds for rejecting the claim which is necessary to facilitate an independent assessment of the reasonableness of the rejection. I would dismiss ground of appeal 4.

97 The fact that the appellant had been paid by GWA for work that was not the subject of the remuneration claim is irrelevant unless it is for the purpose of establishing that (a) the work the subject of the claim was relevantly connected with the work for which the appellant had already been paid and (b) the amount already received was adequate for the task as a whole in the context of this liquidation. The master made no reasoned or appropriately focussed assessment of the matters in (a) and (b). To take that approach is to act in an arbitrary and unreasonable manner. There was no evidentiary foundation in this case for a claim or a concern that the performance of the work was unnecessary in that sense and thus no basis for disallowing remuneration on this basis. I would uphold grounds of appeal 2 and 3.

98 In the course of oral submissions, counsel for the first respondents referred to evidence he elicited in cross-examination of the appellant which was relied on to support his submission that the evidence, in combination with the other matters they relied on, disclosed systemic deficiencies from which it should be concluded that the appellant failed to discharge his onus of establishing a prima facie case. It is not always possible to discern with confidence from the cross-examination the precise basis of the objections. Doing the best I can, I understand them to be as follows.

99 First, the appellant should not be remunerated for an activity commenced in his capacity as supervisor and continued in his capacity as liquidator. As already mentioned, the evidence was that GWA paid for the Services provided to 31 July 2002 regardless of the capacity in which they were performed unless they fell within the intended scope of cl 2 of the services contract. An example of the work falling within the objection was the preparation of distribution statements after 31 July 2002 in relation to funds received by the appellant as a result of the injunctions obtained and the subsequent court ordered arrangements made in Conlan No 1. The appellant commenced Conlan No 1 in his capacity as supervisor but was subsequently joined as a party in his capacity as a liquidator of Rowena. The work in question falls within those categories of work identified by Pullin J in ASIC v Rowena as necessary and for which the appellant could be remunerated from the trust assets. I see no reason in fact or in principle for disallowing remuneration for work that was commenced as supervisor but continued as liquidator provided there is no double recovery.

100 Secondly, it was put to the appellant that he was now claiming remuneration for work already paid for by GWA. I am not satisfied that the evidence supports that conclusion. There is obvious confusion in the cross-examination (ts 1376 - 1380) between Services provided but billed to GWA as liquidator because of the power issues following Conlan No 1 and what was intended to be covered by cl 2.

101 Thirdly, there was an objection to time spent justifying to GWA costs incurred which were not covered by approved budgets. This would fall within the costs category for which remuneration should be disallowed as discussed previously.

102 Fourthly, it was put to the appellant that there was over servicing in having two senior people, the appellant and Mr Edmonson, attending on the appellant's legal advisers in relation to the HEK matter. The appellant provided an acceptable explanation (ts 1456 - 1459) as to why it was appropriate for both to attend.

103 Finally, the cross-examination established that the appellant had not made an assessment as to whether the time spent by his staff engaged in the liquidation was fair and reasonable. The court in Venetian Nominees made no express reference to a requirement for evidence that the liquidator (or another senior member of the team with detailed knowledge of the liquidation) had reviewed the time spent by staff members on the activities on which they were engaged and assessed whether the time was reasonably expended in the circumstances of the litigation. Ordinarily, there should be evidence to that effect. In my experience such supervision, conscientiously performed, will almost invariably result in writing off a portion of the time spent. However, this is no ordinary case having regard to the very long delay between the performance of the work by the staff and when it was billed. That delay was justified because initially there was no money to pay remuneration and thereafter it was necessary to obtain directions from the court as to whether the trust proceeds could be used for that purpose. The long delay would make any such an assessment of little, if any, value. In such circumstances it may be appropriate to make a general reduction in the remuneration to reflect the omission (as in Re Reiter). However, I would not do so in this case. Any financial advantage to the appellant is more than off-set by the very significant financial detriment to the appellant (and corresponding financial benefit to the respondents) from the very long delay in the determination of his remuneration application.

104 None of the matters relied on by the first respondents, individually or collectively, justify a conclusion that there are systemic deficiencies in the materials relied on by the appellant such as to prevent the finding of a prima facie case for determination.

105 We were not addressed by either party as to the source of the power, if any, to award interest. My preliminary view is there is no such power. However, it is unnecessary to decide that question because I have already taken into account the fact that the appellant has been significantly financially prejudiced as a result in the very lengthy delay since the hearing of the application.

106 The first respondents rely on an alleged representation by the appellant that trust moneys 'would not be used to pay fees for his work as Supervisor'. I understand that to be a representation to the effect that trust moneys would not be used to pay fees for the Services as contemplated in the services contract even if the Services or any part of them were ultra vires the power of the Supervisor.

107 The statement complained of was made in a circular entitled Supervisor's Report to Mortgagors ('Borrowers') and Mortgagees ('Investors') dated 11 October 1999. After reporting that as independent accountant he had set up a trust account in which all funds received by Rowena were deposited, the appellant stated in par 6.3:

No funds deposited to the trust account, nor any interest income earned by the funds invested, have been applied towards my costs as Supervisor.

108 The statement in par 6.3 does not sustain an inference that the supervisor would not at any future time apply funds deposited in that account towards his costs. The estoppel claim must fail on that ground alone. Further, there is no evidence which supports an inference of reliance by the trust creditors on the statement. That is, there is no evidence from which it can be inferred that the trust creditors acted or refrained from acting on the basis of the statement. Moreover, in a circular to Investors and Borrowers dated 31 July 2002 the appellant advised of the cessation of government funding and that he would be asking the court to approve payment of his costs from funds held in trust. The trust creditors were given an opportunity, which some took, to oppose that application. The estoppel claim must fail.

109 The first respondents also relied on what was described as the rule in Re Condon; Ex parte James (1874) LR 9 Ch App 609. That principle was considered in Hartogen Energy Ltd (in liq) v The Australian Gas Light Co (1992) 36 FCR 557, 573 - 575 and Hypec Electronics Pty Ltd (in liq) v Mead [2003] NSWSC 934; (2003) 179 FLR 295. The scope of the principle in Re Condon is uncertain. That case concerned a restitutionary claim for payment made under a mistake of law. However, it is said to have an arguably wider application but one which depends on establishing that there has been unjust enrichment of the company in liquidation as a result of the conduct of the person resisting the liquidator's claim. Whatever its

precise scope, it can have no application to the appellant's conduct in this case, there being no relevant unjust enrichment of Rowena and no unconscionable or unjust conduct by the appellant in the circumstances to which I have referred. I would dismiss contention 1.

110 I would uphold those objections in the respondents' Schedule of Objections that relate to costs for (1) negotiating the funding arrangement for the provision of Services as supervisor; (2) seeking and obtaining payment for the provision of those services from time to time; (3) seeking funding arrangements from GWA for proposed litigation which fell outside the definition of Services; and (4) seeking and obtaining payment for the litigation that GWA agreed to fund.

(1) the respondents identify which of the objections in the Schedules of Objections relate to the categories of work that have been disallowed;

(2) if the appellant agrees that an objection relates to work within the disallowed categories, the remuneration is to be disallowed;

(3) if the appellant disputes that the objection relates to work within the categories, the dispute is to be referred to the taxing master for determination.

112 Otherwise, I would uphold the appeal, dismiss the notice of contention and set aside the orders made by the master. The amount awarded by the master ($200,000 + GST) has been paid in reduction of the remuneration claim. Accordingly, I would order that the appellant is entitled to further remuneration in the sum of $397,970 plus GST less the amount claimed for the Karri Oak litigation and any amount disallowed in relation to costs.

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA

CITATION : CONLAN v ADAMS [2008] WASCA 61 (S)

BETWEEN : MARK ANTHONY CONLAN as Liquidator of ROWENA NOMINEES PTY LTD (Receiver and Manager Appointed) (In Liquidation) (ACN 008 818 273)

Jurisdiction : SUPREME COURT OF WESTERN AUSTRALIA

Citation : AUSTRALIAN SECURITIES AND INVESTMENT COMMISSION -v- ROWENA NOMINEES PTY LTD (IN LIQ) (RECEIVER AND MANAGER APPOINTED) (SUPERVISOR APPOINTED) [2006] WASC 36

Orders - Application to backdate - Costs - Turns on own facts

1 JUDGMENT OF THE COURT: The court handed down its reasons for judgment in this matter on 17 March 2008 (Conlan v Adam [2008] WASCA 61). The respondents objected to a number of the orders sought by the appellant in his Minute of Proposed Orders.

2 First, the respondents objected to proposed order 4 which provided that the total remuneration be allowed with effect from 30 March 2006, being the date of the orders the subject of the appeal. The respondents' objection was based on the fact that interest would be payable from that date. Counsel for the appellant informed the court that the purpose of backdating the order was to explain and justify the $200,000 plus GST already received pursuant to the order made by the Master and the intent was not 'to seek interest through the backdoor'. Both parties agree that the relevant order made by the Master should be set aside.

3 Unless otherwise ordered, a judgment or order of this court takes effect from the day on which it is pronounced: O 42 r 2 of the Rules of the Supreme 1971 (WA); Smolarek v Liwszyc [2006] WASCA 50 (S). Interest is payable on the judgment sum from the date of the judgment: Civil Judgments Enforcement Act 2004 (WA) s 8. It is appropriate to preserve the status quo in relation to the allowance of $200,000 plus GST made by the Master but not otherwise backdate the order. Accordingly, order 4 should read:

In accordance with the interlocutory process dated 12 January 2004 in proceedings COR 131 of 1999, the remuneration of Mark Anthony Conlan as liquidator of Rowena Nominees Pty Ltd (Receiver and Manager Appointed) (In Liquidation) (ACN 008 818 273) ('appellant') for the period 21 July 1999 to 31 August 2003 be allowed in the sum of:

(a) $200,000 and GST thereon with effect from 30 March 2006; plus

(b) $397,971.18 less

(i) the amount of $487.70 claimed for the Karri Oak litigation; and

(ii) the total of the amounts disallowed pursuant to Orders 5 - 8 hereof ('Amounts Disallowed'); plus

4 Secondly, the respondents object to the appellant's claim for indemnity costs. This court was critical of the presentation and conduct by the parties of their cases below which also impeded the efficient disposal of the appeal. We would decline the appellant's application for indemnity costs.

5 Thirdly, the respondents object to the appellant's claim for a further interim payment pending the determination of the final amount. A further interim payment is justified by the very significant delays to date.

6 Fourthly, the respondents object to the request for a certificate for the cost of the transcript. The opposition was put on the basis that it was the cost of the appeal transcript. The application relates to the cost of the transcript of the proceedings before the Master which in the circumstances was appropriately incurred.

7 Finally, the respondents seek an order that their costs of the appeal be taxed and paid out of the trust fund. A similar order was made in relation to the proceedings before the Master. There is no challenge to that order notwithstanding the appellant's success in the appeal. The creditors having rejected the appellant's claim for remuneration, it is appropriate that there be no challenge to that order. There being no suggestion the respondents acted unreasonably in defending the appeal, we would order that the respondents' taxed costs of the appeal be paid from the trust funds.

The appeal be allowed.
The Notice of Contention be dismissed.
Paragraph 1 of the order made by Master Sanderson on 30 March 2006 in proceeding COR 131 of 1999 be set aside.
In accordance with the interlocutory process dated 12 January 2004 in proceedings COR 131 of 1999, the remuneration of Mark Anthony Conlan as liquidator of Rowena Nominees Pty Ltd (Receiver and Manager appointed) (In Liquidation) (ACN 008 818 273) ('appellant') for the period 21 July 1999 to 31 August 2003 be allowed in the sum of:

(a) $200,000 and GST thereon with effect from 30 March 2006; plus

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