Flexible Manufacturing Systems v Alter

LOWER COURT Costs Assessor JURISDICTION : LOWER COURT 91051/2002 FILE NUMBER(S) : LOWER COURT Mr Gordon A Salier JUDICIAL OFFICER :

IN THE SUPREME COURT OF NEW SOUTH WALES COMMON LAW DIVISION

11949/2003 - FLEXIBLE MANUFACTURING SYSTEMS PTY LTD (SUBJECT TO DEED OF COMPANY ARRANGEMENT) v MORGAN LEWIS ALTER

JUDGMENT (Appeal decision of Costs Assessor - whether s 444E Corporations Act applies - whether parties can be amended) 1 MASTER: By summons filed 1 August 2003, the plaintiff seeks, firstly, an order that the decision of Costs Assessor Mr Gordon A Salier made on 7 July 2003 in costs assessment proceeding 91051 of 2002 be set aside and, secondly, a declaration that costs assessment proceeding 91051 of 2002 is stayed by reason of s 444E of the Corporations Act 2001 (Cth). This matter is referred to a Master for hearing. 2 By way of background, the plaintiffs had engaged the services of Mr Paul Mervyn Fordyce a solicitor to act on their behalf. On 25 June 1992 a fee agreement was entered into between the firm of P.A. Somerset & Co, of which Mr Fordyce was a partner and Katingal Pty Ltd, Paul Boyce Pty Ltd and Mr Royce Ritchie. That retainer agreement was in respect of proceedings that had been brought by Katingal, Paul Boyce and Flexible Manufacturing Systems Pty Ltd (FMS) against Mr and Mrs Amor, Mr John Nelson, Parkard Computers Pty Ltd, Australasian Memory Pty Ltd, Lappaq Computer (Australia) Pty Ltd and Shiprace Pty Ltd in the Federal Court. The retainer agreement also covered the winding up proceedings brought by Mr Amor and Australasian Memory against FMS. 3 In June 1994, a further fee agreement was entered into by P.A. Somerset & Co with Katingal Pty Ltd in respect of proceedings against Messrs Nygh and Hopper, the auditors of FMS. At this time Mr Ritchie requested that Mr Fordyce to act on behalf of Katingal Pty Ltd, Paul Boyce Pty Ltd and himself. Mr Ritchie informed Mr Fordyce that Messrs Harrison and Fernandez of Harrison, Garner & Dunner were the receivers. Mr Ritchie and his related companies, Royce Ritchie & Associates Pty Ltd and WRS Investments Pty Ltd had appointed receivers to FMS and that Mr Fordyce would receive instructions from them to act for FMS. 4 In about September 2000, Mr Fordyce moved to the firm Morgan Lewis and Alter and continued to act for the plaintiff in the proceedings against the auditors Nygh and Hopper and in other proceedings. 5 Proceedings were commenced by FMS, Katingal Pty Ltd, Paul Boyce Ltd, Royce Ritchie, Access-Sria Pty Ltd, Davunda Pty Ltd, WRS investments and Royce Ritchie Associates Pty Ltd on 4 September 2002 against Morgan Lewis and Alter in proceedings 4387 of 2002 in the Equity Division of this court. In those proceedings orders were sought that the defendants deliver to the plaintiffs documents relating to proceedings between the plaintiffs and Parkard Computers Pty Ltd and another and all documents in the defendants' possession in respect of legal services provided by the defendants to the plaintiffs in respect of the proceedings. 6 On 10 October 2002, Acting Master Berecry gave judgment in those proceedings ordering that Morgan Lewis and Alter deliver up to the plaintiffs the documents in accordance with the orders sought. This was conditional, however, upon the plaintiffs paying to the defendants the sum of $20,243.03 on account of costs and providing security to the court by way of cash or bank guarantee in the sum of $111,338.29. This sum was to be paid out pursuant to an agreement between the parties or pursuant to a further order of the court. Alternatively, to the previous order, the plaintiffs were to pay the sum of the security to their solicitors and Mr Peter Kemp at the time of receipt of the money giving an undertaking to the court in accordance with a draft undertaking prepared by counsel for Morgan Lewis and Alter. On 11 November 2002, the plaintiff appointed a voluntary administrator. 7 On 7 July 2003 the costs assessor declined to grant a stay of the costs assessment proceedings and allowed the applicant to amend the bills in order to address them to the parties for whom the work was carried out. The costs assessor intended to proceed to assess both applications. 8 The plaintiff submitted there are two errors of law, firstly, that a stay of proceedings should be granted because a costs assessment is a proceeding in court. The plaintiff submitted (Ex EF-18) that because it is subject to a deed of company arrangement, s 444E of the Corporations Act applies. The second purported error was whether the costs assessor had the power to join additional parties. I shall deal with these two issues sequentially.

(1) Whether s 444E of the Corporations Act applies 9 Section 444E(1) provides that until a deed of company arrangement terminates, this section applies to a person bound by the deed. Section 444E(3) states: "(3) The person cannot:

(a) begin or proceed with a proceeding against the company or in relation to any of its property; or (b) begin or proceed with enforcement process in relation to property of the company;

(c) with the leave of the Court; and (d) in accordance with such terms (if any) as the Court imposes." 10 In his decision dated 7 July 2003 (Ex EF-19) the Costs Assessor on the issue of whether s 444E(3) applied, stated: "Stay of Proceedings

I remain of the view that an application for assessment of costs is not a proceeding in a Court. With respect, your submissions in this regard exhibit a lack of understanding of the costs assessment system that applies in this state. The Supreme Court of New South Wales simply administers the costs assessment system. It is not correct to say the Court is simply referring out to an expert the assessment process. The Proper Officer, Costs Assessment, at the Supreme Court does what he or she is obliged to do in accordance with the Legal Profession Act and the Regulations thereunder. The Supreme Court, with respect, simply administers the scheme similar to that which would happen if a specific independent department had been established to administer the scheme. It is true upon registration in a Court of competent jurisdiction of a Certificate of Determination the certificate will operate as a judgment. That said, of course, the Certificate of Determination I issue does not have to be registered in the Supreme Court. If I issue a Certificate of Determination for under $40,000.00 it can be registered in a Local Court in New South Wales. If I issue a certificate between $40,000.00 and $750,000.00 it can be registered in the District Court of New South Wales. If I issue a certificate beyond $750,000.00 then, indeed, it would need to be registered in the Supreme Court. Truly remarkable as it may be, again your submissions in this regard do not convince me that the assessment process I carry out is a proceeding in a Court.

Again, with respect, I invite your attention to s.208S of the Legal Profession Act 1987 and in particular subparagraphs (2) and (4) thereof.

You then suggest your submissions have greater force because the company is subject to a deed of company arrangement. You have invited my attention to s.444E of the Corporations Act 2001. In my opinion the effect of that section is basically that whilst a deed of company arrangement remains in full force and effect, creditors and other persons bound by it are prevented from making or proceeding with an application for the winding up of the company, bringing or proceeding with an action against the company or in relation to its property or enforcing a Court order against the company or its property.

Whilst the prohibitions are subject to the leave of the Court it seems to me that that leave would need to be sought if, for example, the solicitors sought to register any Certificate of Determination of mine in a Court of competent jurisdiction and thereafter proceeded to enforce that Certificate of Determination against Flexible Manufacturing Systems Pty Ltd." 11 The parties do not dispute that a costs assessor is not an officer of the court when acting as a costs assessor. The plaintiff submitted that the costs assessment is "a proceeding" or alternatively "enforcement process". 12 The best starting point is the Explanatory Note to the Legal Profession Reform Bill 1993. One of the objects of the bill was to reform the system of setting and reviewing legal fees and other costs so as to promote competition, better inform users of legal services and to improve the system of review. Relevantly under the heading "Schedule 3 - Reforms Relating to Legal Fees and Other Costs" and under the sub-heading "Assessment" it states: · "Clients of barristers and solicitors who have been given bills or who must pay, or be paid, costs because of a court order may apply to have the costs assessed by costs assessors. Barristers and solicitors may also apply to have a bill assessed. · The costs assessors will be lawyers appointed by the Chief Justice of the Supreme Court. · Costs will generally be assessed on the basis of what is a fair and reasonable amount, thus eliminating any distinction between the assessment of solicitor/client costs and party/party costs. … · A costs assessor's determination may be enforced in the same way as a judgment of a court." 13 On 9 November 1993 in the Second Reading Speech for the Legal Profession Reform Bill 1993 Mr Fahey briefly referred to the costs assessment scheme where he stated: "Where there is a dispute, fee agreements may be reviewed by costs assessors appointed by the Supreme Court, who will determine whether the fee agreement was entered fairly and without duress." 14 Both parties consulted dictionaries to provide guidance with the definition of the word "proceedings". "Proceedings" is defined in the Butterworth's Legal Dictionary as: "An action commenced in a court. A proceeding is a proceeding in a court whether between parties or not, including an incidental proceeding in the course of, or in connection with a proceeding, and includes an appeal: for example (CTH) Federal Court of Australia Act 1976 s 4. Historically, the term 'proceeding' was given a narrow interpretation to mean the 'invocation of jurisdiction of the court by process other than a writ' ( Herbert Berry Associates Ltd v Inland Revenue Cmrs [1978] 1 All ER 161; [1977] 1 WLR 1437 at 1446), or 'an application by a suitor to a court in its civil jurisdiction for its intervention or action' ( Cheney v Spooner (1929) 41 CLR 532 at 538; [1929] ALR 173). This traditional legal meaning has been extended (for example under (CTH) Extradition Act 1988 s 19(1)) to mean the steps and procedures that take place before an investigating magistrate, even though the task of the magistrate in issuing an extradition warrant is administrative as distinct from legal or judicial: Forrest v Kelly (1991) 32 FCR 558; 105 ALR 397 at 408." 15 The plaintiff referred to Blake v Norris (1990) 20 NSWLR 300 at 306 where Smart J referred to numerous dictionaries in considering the meaning of the word "proceeding" as contained in s 5 of the Jurisdiction of Court (Cross-Vesting) Act 1987 (NSW). This included the Shorter Oxford English Dictionary On Historical Principles, 3rd ed (1993) at 1677 which defined "proceedings": "3. spec. The instituting or carrying on of an action at law; a legal action or process; any act done by authority of a court of law; any step taken in a cause by either party." 16 Smart J continued: "…it is apparent from the meaning given in the Oxford Dictionary that 'proceedings' can mean either the action itself or a step taken in such action. In Stroud's Judicial Dictionary , 5th ed, vol 4 at 2029-2035, some fifty-five instances are given of the use of the words 'proceeding' or 'proceedings' in legislation, rules of court or documents having legal significance. The meaning depends on the context in which the word is used. In some cases it is equivalent to 'an action' whereas in others it may mean a step in an action. Sometimes it may include a counter claim. The Oxford Companion To Law (1980) by Professor Walker states (at 1002-1003) that 'proceedings' is sometimes used as including, or meaning, an action or prosecution and sometimes as meaning a step in an action. The word 'proceeding' is capable of such a variety of meaning that dictionary definitions as to its ordinary or natural meaning are not of much use. They tend to highlight the number of meanings which the word can bear." 17 Smart J concluded that any assistance as to its meaning has to be derived from the statutory context and the objects of the legislation in question. I have already referred to the objects of the legislation earlier in this judgment. 18 The plaintiff referred to Nabatu Pty Ltd v Crawley t/as Aubrey F Crawley & Company (NSWSC, 9 April 1998 unreported). In Nabatu I examined whether a costs assessor had the power to amend his certificate. I decided that he could not. In Nabatu I referred to the relevant statutory provisions of the LPA. I reproduce the relevant paragraphs of that judgment. "The relevant statutory provisions are to be found in Part 11, Division 6, of the LPA . Pursuant to sub division 1, where a client is given a bill of costs or an order for costs is made, application may be made to the Supreme Court for an assessment. The court refers such an application to a costs assessor. The assessor may require the production of documents and require further particulars. The assessor must give the persons interested a reasonable opportunity to make written submissions and must give due consideration to any such submissions. The assessor is not bound by rules of evidence. Costs assessors are solicitors or barristers of at least five years standing appointed by the Chief Justice of the court.

Subdivision 2 relates to assessments of bills of costs generally. By s 208A, the assessor must consider whether or not it was reasonable to carry out the work to which the costs relate, whether or not the work was carried out in a reasonable manner, and the fairness and reasonableness of the amount of the costs in relation to that work. The assessor is to determine the application by confirming the bill of costs or by substituting an amount that, in his or her opinion, is a fair and reasonable amount.

Section 208B specifies additional matters to be considered including the skill, labour and responsibility displayed, the complexity, novelty or difficulty of the matter, the quality of the work done, and the time within which the work was required to be done.

By s 208C a costs assessor is to decline to assess a bill of costs if the disputed costs are subject to a costs agreement complying with the statute and the costs agreement specifies the amount of the costs or the dispute relates only to the rate specified in the agreement. The section does not apply if the assessor determines that the costs agreement is unjust. S 208D makes provision for such a determination and regulates the approach to such a determination.

Subdivision 3 relates specifically to the assessment of party/party costs. Section 208F provides that the costs assessor must consider whether or not it was reasonable to carry out the work to which the costs relate, and what is a fair and reasonable amount of costs for the work concerned. Section 208G prescribes additional matters which may be considered in relation to the assessment of party and party costs. These include the skill, labour and responsibility displayed, the complexity, novelty or difficulty of the matters, the quality of the work done, whether the level of expertise was appropriate to the nature of the work, the time within which the work was required to be done and the outcome of the matter.

Section 208H provides that an assessor is not to take into account any costs agreement in assessing costs payable as a result of a court order.

Subdivision 4 deals with the enforcement of assessments and appeals. Section 208J provides that, on making a determination, the costs assessor is to issue to each party a certificate that sets out the determination. The amount certified may be recovered as a debt in a court of competent jurisdiction.

Section 208K reads: "Determination to be final

A costs assessor's determination of an application is binding on all parties to the application and no appeal lies in respect of the determination, except as provided by this division."

Section 208L provides that a party who is dissatisfied with a decision of a costs assessor as to a matter of law may appeal to the Supreme Court. The court may affirm the decision or may make such determination in relation to the application as, in its opinion, should have been made by the assessor, or may remit its decision on the question to the costs assessor and order the assessor to re-determine the application. On a re-determination by the assessor, fresh evidence, or evidence in addition to or in substitution for the evidence received at the original proceedings, may be given (In effect, the hearing on a re-determination is a hearing de novo.)

Section 208M provides for a general appeal, but only by leave. A party to an application may seek leave of the Supreme Court to appeal to the court against an application. Such a general appeal is specified as an appeal by way of a new hearing; fresh evidence, or evidence in addition to or in substitution for the evidence received at the original proceedings, may be given. (Thus, the hearing of such an appeal is also, in effect, a hearing de novo.)

By s 208N, the assessor or the appellate court may suspend the operation of the determination or decision until the appeal is determined.

Section 208NA provides that the assessor may be made a party to an appeal only by the court." 19 More importantly s208S(4) provides that a costs assessor is not an officer of the court when acting as a costs assessor. 20 The plaintiff also referred to Re Gualtieri: Exparte Martin & Savage Pty Ltd 130 ALR 523 where Tamberlin J considered the meaning of "process for the enforcement of a judgment". A bankruptcy notice is a document of a Registrar but it is not "process" for enforcement of a judgment within the meaning of Part 27 r 3(3) of the Local Court Rules. Tamberlin J held that "the words process for the enforcement of the judgment" do not, in my view, refer to a bankruptcy notice, but rather refer to the steps required to enforce a Local Court judgment". 21 After reviewing the statutory context of the words and the object of the LPA, it is my view that the costs assessor is not an officer of the court. The costs assessor can only exercise the function conferred on them by the LPA. 22 A costs assessment is not a "proceeding". It is also my view that the costs assessment cannot be considered "process for enforcement of a judgment". It may be that once a certificate is issued and is sought to be registered as a judgment in the court it may be process for enforcement of a judgment. As the costs assessor stated for enforcement action to be taken, the certificate of assessment must be registered as a judgment of a court. Hence the costs assessor's decision on s 444E of the Corporations Act is correct. There is no error of law.

Joining additional parties 23 In relation to joining additional parties the costs assessor stated (Ex EF-19): " Amendment of Tax Invoices I note that you accept there cannot be any doubt as to the entities for whom the work was carried out by the Costs Applicant. As I follow the submissions of the Costs Applicant, that is precisely what they were putting to me. Further they produced the tax invoices as they did on the instructions of Mr Ritchie. In my opinion, given those basic assertions, the fact that Mr Ritchie is a common director is most relevant. I have already adverted to the decision of Acting Master Berecry in FNS PIL and seven ors -v- Lewis and two ors in proceedings 4387 of 2002 in the Supreme Court of New South Wales. As I have already indicated, I have no doubt that Acting Master Berecry had access to much more material than I have had access to in the applications for assessment before me. Acting Master Berecry noted in his Judgment (paragraph 10) that it did not seem to be in issue that the original costs agreement between the Plaintiffs and the Defendants was entered into on 29 June 1994. Throughout the Judgment Acting Master Berecry refers to the Plaintiffs (plural) as opposed to any particular Plaintiff (singular). At paragraph 5 of his Judgment Acting Master Berecry referred to a Judgment of Hodgson J (as he then was) and in particular to the fact that Courts should not take an overly technical approach to a certain question Hodgson J was then considering. In allowing the Applicant Solicitors to amend the bills by addressing them to the parties for whom the work was carried out I consider that is not adopting an overly technical approach in performing the administrative function I perform and further, the solicitors should not be deprived of the fruits of their labour to the extent as assessed by me simply because Mr Ritchie, a common director of the companies, instructed the solicitors as to how the bills should be submitted. Further, I am of the view that I would be adopting an overly technical approach to require the Costs Applicant to proceed as addressed by you in the third and fourth paragraphs of the third page of your facsimile transmission to me. It follows that I propose to proceed with both applications for assessment." 24 The application for costs assessment specifies only one costs respondent which is named as Flexible Manufacturing Systems Pty Limited. The defendant submitted (Ex EF-18) that a costs assessor cannot add parties because Regulation 54(3) of the Legal Profession Regulation 2002 requires that the new party be served with the application. The new party would be given an opportunity to file objections and make submissions. Even though there is a common director, who directed to whom the invoices should be addressed, the costs assessor does not have any express power to amend an application for costs. My reasoning in Nabatu applies here. It is also my view that there is no inherent power to amend an application for costs which would add additional parties. 25 Permitting the amendment to add additional parties is in my view an error in law and this part of the costs assessor's decision should be set aside. The costs assessment is remitted to the costs assessor for determination. 26 Costs are discretionary. Costs usually follow the event. The defendant is to pay the plaintiff's costs as agreed or assessed.

(2) The decision of Mr Salier made on 7 July 2003 insofar as it relates to amending the bills of costs to the parties for whom the work was carried out is set aside.

(3) The matter is remitted to the costs assessor for determination according to law.

(4) The defendant is to pay the plaintiff's costs as agreed or assessed. **********

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