TAXATION AND ASSESSMENT OF COSTS – APPLICATIONS AND REFERENCES
–
where the first and second applicants charged property as security for the
Source
Original judgment source is linked above.
Catchwords
PROFESSIONS AND TRADES – LAWYERS – REMUNERATION –TAXATION AND ASSESSMENT OF COSTS – APPLICATIONS AND REFERENCES–where the first and second applicants charged property as security for therepayment of a debt owed to debenture holders– where that security washeld in trust for the debenture holders by the second respondent – wherethe first and secondapplicants indemnified the second respondent for loss anddamage it incurred as trustee of the security – where the first respondentwas appointed as a receiver of the first and second applicants – where thefirst and second respondents incurred legal costsin the course of thereceiverships, including in defending proceedings brought by the third applicant– where the third applicantwas ordered to pay some of the first andsecond respondents’ costs of those proceedings – where s 335(2) ofthe Legal Profession Act 2007 (Qld) (‘LPA’) permitted a thirdparty payer to apply for an assessment of the whole or any part of legal costs
payable
by a third party payer – where s 301(1) of the LPA defined a third
party payer as a person who, in relation to a client of a law practice, is not
the client and is under
a legal obligation to pay all or any part of the legal
costs for legal services provided to the client – whether any of the
applicants were third party payers within the meaning of s 301 of the LPA
– whether the Court should direct that an itemised bill be prepared, filed
and served under r 743C of the Uniform Civil Procedure Rules 1999
(Qld)
Legal Profession Act 2007 (Qld) s 300, s 301, s 332, s
335
Uniform Civil Procedure Rules 1999 (Qld) r 743C, r
743G
Amos v Ian K Fry & Co [2010] QCA
131, considered.
Andrew Koh Nominees Pty Ltd v Receiver & Manager
of the Balneum Joint Venture [2007] WASCA 152, considered.
Boyce v
McIntyre (2009) 78 NSWLR 152
[2009] NSWCA 185, considered.
Carey v
Korda (No 2) (2011) 85 ACSR 311
[2011] WASC 220, cited.
Debney v
Semerdziev [1982] 2 NSWLR 391, considered.
Elks v Melgear Pty Ltd
[2023] QSC 150, cited.
Elks v Melgear Pty Ltd (No 2) [2023] QSC
207, cited.
Equuscorp Pty Ltd v Short Punch & Greatorix [2001] 2
Qd R 580
[2000] QCA
407, considered.
Huntingdale Village Pty Ltd v Mallesons Stephen
Jaques [2013] WASC 48, applied.
Legal Services Commissioner v Wright
[2012] 2 Qd R 360
[2010] QCA
321, considered.
Nerang Subdivision Pty Ltd v Hutson [2023] QSC
268, cited.
Nerang Subdivision Pty Ltd v Hutson [2024] QCA
174, cited.
Packer v Deputy Commissioner of Taxation [1985] 1 Qd R
275, cited.
Shillington v Harries [2013] NSWSC 1202,
considered.
Whyte v LM Investment Management Ltd (in liq) (rec & mgr
apptd) [2015] QSC 303, considered.
Judgment (84 paragraphs)
[1]
PROFESSIONS AND TRADES - LAWYERS - REMUNERATION - TAXATION AND ASSESSMENT OF COSTS - APPLICATIONS AND REFERENCES - where the first and second applicants charged property as security for the repayment of a debt owed to debenture holders - where that security was held in trust for the debenture holders by the second respondent - where the first and second applicants indemnified the second respondent for loss and damage it incurred as trustee of the security - where the first respondent was appointed as a receiver of the first and second applicants - where the first and second respondents incurred legal costs in the course of the receiverships, including in defending proceedings brought by the third applicant - where the third applicant was ordered to pay some of the first and second respondents' costs of those proceedings - where s 335(2) of the Legal Profession Act 2007 (Qld) ('LPA') permitted a third party payer to apply for an assessment of the whole or any part of legal costs payable by a third party payer - where s 301(1) of the LPA defined a third party payer as a person who, in relation to a client of a law practice, is not the client and is under a legal obligation to pay all or any part of the legal costs for legal services provided to the client - whether any of the applicants were third party payers within the meaning of s 301 of the LPA - whether the Court should direct that an itemised bill be prepared, filed and served under r 743C of the Uniform Civil Procedure Rules 1999 (Qld)
Whyte v LM Investment Management Ltd (in liq) (rec & mgr apptd)[2015] QSC 303, considered.
[19]
[1] The first applicant (MRL) and the second applicant (MRV) are in receivership. The first respondent (Receiver) has been appointed as the receiver of both MRL and MRV to recover secured debts those companies owe to various debenture holders pursuant to the terms of a deed dated 24 May 2017 (Secured Debenture Deed). The security for those debts was held in trust for the benefit of the debenture holders by a security trustee pursuant to the terms of another deed dated 24 May 2017 (Security Trust Deed). The second respondent (Melgear) is the security trustee appointed under the Security Trust Deed.
[2] In undertaking the receiverships, the Receiver has incurred legal costs, including in responding to a Supreme Court proceeding commenced by the third applicant (Mr Elks),[1] being proceeding number BS 12986/21 (Proceeding). Melgear was also a respondent to the Proceeding.
[3] By their originating application filed on 4 February 2025 (Application), the applicants seek:
[20]
(a) an order for the assessment of the legal costs incurred by:
(i) the Receiver in respect of both the receivership of MRL and the receivership of MRV;
(ii) Melgear in respect of the Proceeding and in respect of both the receivership of MRL and the receivership of MRV;
(b) directions for the issue of an itemised bill pursuant to r 743C of the Uniform Civil Procedure Rules1999 (Qld) (UCPR)in respect of the legal costs and disbursements which they seek to have assessed.
[21]
[4] On 25 March 2025, Bowskill CJ made orders by consent, pursuant to r 743G(2)(d) of the UCPR, that the following questions be tried before the costs the subject of the Application are assessed:
[22]
(a) Are the applicants (or any of them) a "third party payer" within the definition of s 301 of the Legal Profession Act2007 (Qld) (LPA)?
(b) Has the Application been made within the timeframe required by s 335(5) of the LPA?
(c) Do the answers to questions (a) or (b) above mean that the applicants (or any of them) are not permitted to apply for the assessment of some or all of the costs referred to in the Application?
(d) Should the court exercise its discretion pursuant to r 743C of the UCPR to give directions for an itemised bill to be prepared, filed and served in respect of some or all of the costs referred to in the Application?
[23]
[5] It is no longer necessary to answer question (b). In written submissions, the respondents confirmed that they do not object to the Application on the basis that it was filed out of time. Alternatively, they do not oppose the Court granting an extension of time for the filing of the Application under s 335(6) of the LPA.
[6] These reasons deal with the remaining three questions. Those questions raise the following issues:
[24]
(a) whether any of the applicants is a "third party payer" for the purposes of s 301 of the LPA in relation to any of the costs which they seek to have assessed;
(b) if so, whether the court should direct that an itemised bill be prepared in relation to those costs.
[25]
[7] For reasons which follow, the remaining preliminary questions should be answered as follows:
[26]
Question 1(a): Are the applicants (or any of them) a "third party payer" within the definition of s 301 of the LPA?
[27]
The first and second applicants are each a non-associated third party payer within the meaning of s 301(3) of the LPA in respect of all of the legal costs which they have sought to have assessed in the originating application filed on 4 February 2025.
[28]
The third applicant is a non-associated third party payer within the meaning of s 301(3) of the LPA in respect of the legal costs which are the subject of paragraph 5 of the orders made on 11 September 2023 in Supreme Court proceeding number BS 12986/21.
[29]
Question 1(c): Does the answer to question 1(a) mean that the applicants (or any of them) are not permitted to apply for the assessment of some or all of the costs referred to in the Application?
[30]
Pursuant to s 335(2) of the LPA, each of the first and second applicants are permitted to apply for an assessment of all of the legal costs which they have sought to have assessed in the originating application filed on 4 February 2025.
[31]
Pursuant to s 335(2) of the LPA, the third applicant is permitted to apply for an assessment of the legal costs which are the subject of paragraph 5 of the orders made on 11 September 2023 in Supreme Court proceeding number BS 12986/21.
[32]
Question 1(d): Should the court exercise its discretion pursuant to r 743C of the UCPR to give directions for an itemised bill to be prepared, filed and served in respect of some or all of the costs referred to in the Application?
[33]
[8] The Receiver was appointed to MRV, on 25 September 2020, by Mr Feitelson and A & J Consultancy Pty Ltd (debenture holders under the Secured Debenture Deed), acting on behalf of First Samuel (another debenture holder under the Secured Debenture Deed and, at that time, the security trustee appointed under the Security Trust Deed).
[9] On 25 May 2022, the Receiver was appointed to MRL by Melgear, which, by that time, had been appointed as security trustee under the Security Trust Deed in place of First Samuel.
[10] The Receiver engaged solicitors, Colin Biggers & Paisley (CPB), to act for him in relation to matters concerning the receivership of MRV and MRL. The work undertaken includes general advice in relation to each receivership, transactional work associated with the sale of assets and acting for the Receiver in the litigation that has occurred through the course of the receiverships, including (but not limited to) the Proceeding.
[11] Melgear also engaged CPB to act for it in relation to matters concerning its role as security trustee, the receiverships of MRV and MRL, and litigation that has occurred through the course of the receiverships, including (but not limited to) the Proceeding.
[12] Initially, the legal costs incurred by the Receiver were paid by Mr Feitelson.
[13] In 2021, the Receiver sold the secured property, which comprised mining assets of MRV, for approximately $6.5 million.
[14] After settlement of the sale of the secured property, the Receiver (as receiver of MRV) used those funds to pay his legal costs. The Receiver (as receiver of MRL) also used the funds to indemnify Melgear for the costs of funding the receivership of MRL, including the Receiver's legal costs, Melgear's legal costs incurred in acting as security trustee and other general costs of the receivership of MRL.
[15] Mr Elks commenced the Proceeding in 2021, seeking to establish the respective entitlements of the debenture holders to the proceeds of the sale of the secured property. The basis of Mr Elks' claims was that certain debts of MRL assigned to him by First Samuel were secured debts. Those claims failed and the Proceeding was dismissed.[2] The costs of the Proceeding were dealt with in later orders made on 11 September 2023 (), which dealt with payment of the costs of Melgear and the Receiver from the proceeds of sale (referred to in the orders as "the fund") as follows:
[34]
[17] The persons who may apply for an assessment of legal costs are identified in s 335 of the LPA. The applicants rely upon s 335(2) which provides that "[a] third party payer may apply for an assessment of the whole or any part of legal costs payable by the third party payer."
[18] The term "third party payer" is defined by s 301 of the LPA as follows:
[35]
(1) A person is a third party payer, in relation to a client of a law practice, if the person is not the client and -
[36]
(a) is under a legal obligation to pay all or any part of the legal costs for legal services provided to the client; or
(b) being under that obligation, has already paid all or a part of those legal costs.
[37]
(2) A third party payer is an associated third party payer if the legal obligation mentioned in subsection (1)(a) is owed to the law practice, whether or not it is also owed to the client or another person.
[38]
(3) A third party payer is a non-associated third party payer if the legal obligation mentioned in subsection (1)(a) is owed to the client or another person but not the law practice.
[39]
(4) A legal obligation mentioned in subsection (1) can arise by or under contract or legislation or otherwise.
[40]
(5) A law practice that retains another law practice on behalf of a client is not on that account a third party payer in relation to that client.
[41]
[19] The provision requires that there be a legal obligation to pay the costs in question. In Legal Services Commissioner v Wright,[4] McMurdo J (with whom White JA agreed), contrasted this statutory requirement with the broader construction given to the phrase "liable to pay" used in equivalent legislation in other jurisdictions, including in the judgment of the New South Wales Court of Appeal in Debney v Semerdziev,[5] and in as the judgment of the Western Australian Court of Appeal in Andrew Koh Nominees Pty Ltd v Receiver & Manager of the Balneum Joint Venture.[6]
[20] In Debney,[7] Hope JA stated that to find that a person was "liable to pay", and thus entitled to an order to have costs taxed, it was not necessary that the person be subject to an independent obligation to pay the costs. The person would fall within the scope of the relevant provision if, in substance, he or she was liable to pay or had paid the costs, including where payment of the costs reduces an amount that would otherwise be available for distribution to the person.
[21] Similarly, in Andrew Koh Nominees,[8] Buss JA identified three situations in which a person would be considered "liable to pay" legal costs: first, if the person is under a legally enforceable obligation to pay the legal costs to the legal practitioner who rendered the bill for those costs; secondly, if the person is under a legally enforceable personal obligation to reimburse another person for legal costs which that other person has paid to the legal practitioner who rendered the bill; and, thirdly, where the person's property may lawfully be applied in paying the legal costs to the legal practitioner who rendered the bill or to reimburse another person who paid the legal costs to the legal practitioner. His Honour stated in this third situation, the person whose property may lawfully be applied in paying the legal costs will in substance be "liable to pay" those costs.
[22] In Wright,[9] McMurdo J distinguished the reasoning in both Debney and Andrew Koh Nominees which recognised that a person might be "liable to pay" legal costs in the relevant sense whilst not being under a legal obligation to pay them. His Honour held that the clear language of did not permit such a construction of the LPA. The requirement that a third party payer be a person under a legal obligation to pay the costs means that a person will not be a third party payer where there is no such obligation. As his Honour observed, there are likely to be many cases where the burden of legal costs will fall to a substantial extent upon someone other than the client and who will therefore have an interest in having the costs assessed. However, the legislature has defined who, apart from the client, should be entitlement to an assessment in unambiguous terms by reference to the existence or otherwise of a legal obligation to pay the costs.
[42]
The Secured Debenture Deed and the Security Trust Deed
[43]
[25] The applicants submit that they are each a non-associated third party payer because they were under a legal obligation to pay the relevant legal costs to Melgear or the Receiver. The legal obligation is said to arise from the contractual arrangements concerning the secured debts owed by MRL and guaranteed by MRV. Those contractual arrangements, as set out in the Secured Debenture Deed and the Security Trust Deed, are summarised below.
[44]
The grant of a security interest in the secured property
[45]
[26] By cl 10.2 of the Secured Debenture Deed, MRL and MRV (each as a "Security Provider") charged all its present or after-acquired property in favour of Melgear as security for:
[46]
(a) payment to the debenture holders of all "Outstanding Moneys" (defined in cl 1.1 to mean all outstanding debts and monetary liabilities of MRL, as the issuer of the debentures, to a debenture holder under or in relation to the Secured Debenture Deed); and
(b) the performance of all "Guaranteed Obligations" (defined in cl 9.1(a) to mean all obligations contained in or implied under the Secured Debenture Deed required to be performed or observed by MRL as the issuer of the debentures, the performance of which MRV guaranteed to each debenture holder and Melgear as security trustee).
[47]
[27] Clause 10.6 conferred broad powers on Melgear as security trustee upon the occurrence of an event of default, including:
[48]
(a) exercising or enforcing all rights, powers and remedies of a secured party or an absolute owner relating to the secured property: cl 10.6(a);
(b) taking possession of and selling the secured property: cl 10.6(b);
(c) doing all things necessary to perform or to observe any of the obligations of the security providers (that is, MRL and MRV) under the Secured Debenture Deed: cl 10.6(d);
(d) delegating any of the powers and authorities conferred on it as security trustee to any person it approves: cl 10.6(f);
(e) appointing a receiver of the secured property (and the proceeds of that property) and pay such remuneration it considers appropriate: cl 10.6(g).
[49]
The entitlement of Melgear and the Receiver to pay legal fees from the proceeds of the secured property
[50]
[28] Payment of the legal costs of Melgear and the Receiver from the proceeds of sale of the secured property was expressly authorised by cl 8.3 of the Security Trust Deed, which provided for the following order of priority of payment:
[51]
(a) payment to Melgear (in its capacity as security trustee) in payment on a full indemnity basis of all costs, charges, expenses and disbursements incurred in the performance of its powers under the Security Trust Deed or the Secured Debenture Deed (cl 8.3(a));
(b) payment to the Receiver for its costs, charges, expenses, liabilities and remuneration in connection with exercising, enforcing or preserving rights in connection with the Secured Debenture Deed and the Security Trust Deed (cl 8.3(b);
(c) payment to any "Beneficiary" of the security trust (being the debenture holders: Mr Elks, Mr Feitelson and A & J Consultancy Pty Ltd) of the secured debts (cl 8.3(d));
(d) in the event a surplus remained after payment of the secured debts owed to the debenture holders (and any other secured debts of which the security trustee was aware), that surplus would be paid to or at the direction of MRL and MRV as the security providers (cl 8.3(f)).
[52]
[29] The express entitlement of Melgear and the Receiver to payment of their legal costs from the proceeds of sale of the secured property is consistent with broad contractual indemnities which MRL and MRV granted in favour of Melgear against costs it incurred as security trustee, including in exercising the securities.
[30] As to the Security Trust Deed, by cl 7.1 Melgear was indemnified out of the proceeds of sale of the secured property against:
[53]
... all Losses (including any monies paid or to be paid for the employment or appointment of any agent and including legal costs and expenses on a full indemnity basis) incurred by it [in the performance of its powers under the Security Trust Deed or the Secured Debenture Deed, including exercising the securities].
[54]
[31] "Loss" was defined in cl 1.1 of the Security Trust Deed to mean "a loss, claim, action, damage, liability, cost, charge, expense, penalty, compensation, fine or outgoing suffered, paid or incurred".
[32] By cl 6.3 of the Security Trust Deed, both MRL and MRV (each as a "Security Provider") indemnified Melgear against "the amount of all loss or damage suffered or incurred" in connection with it carrying out its obligations under the Security Trust Deed or the Secured Debenture Deed.
[33] If there was insufficient money available for Melgear to promptly satisfy its right to indemnity under cl 7.1, and MRL and MRV failed to pay in accordance with a demand made for the relevant "Loss" under cl 6.3, then, by cl 7.2 of the Security Trust Deed, Mr Elks (as a "Beneficiary") also indemnified Melgear against that amount.
[34] Pursuant to the Secured Debenture Deed:
[55]
(a) MRL (as issuer of the debentures) indemnified Melgear against "the amount of all loss or damage suffered or incurred" in connection with it carrying out its obligations under the Security Trust Deed or the Secured Debenture Deed (cl 11.3).
(b) MRV (as guarantor) indemnified Melgear, and was obliged to pay on demand, all loss or damage Melgear suffered in relation to (relevantly) MRL being unable to pay any amount or perform any of its "Guaranteed Obligations", or any amount MRL is required to pay in respect of such obligations not being recoverable from MRL (cl 9.1(b)). Those "Guaranteed Obligations" included MRL's obligation under cl 11.3 to indemnify Melgear.
[56]
[35] Under the terms of the Security Trust Deed and the Secured Debenture Deed, MRL and MRV did not indemnify the Receiver directly in respect of costs he incurred in connection with the receiverships. However, under the deeds of appointment for each receivership, the Receiver was entitled to recoup from Melgear, as security trustee, the amount of outlays or disbursements that he reasonably incurred in conducting each receivership. This must include the Receiver's legal costs. In those circumstances, legal costs which the Receiver was entitled to recoup from Melgear are costs which Melgear incurred in carrying out its obligations under the Security Trust Deed or the Secured Debenture Deed.
[57]
Are any of the applicants under a legal obligation to pay the relevant legal costs?
[58]
[36] The Receiver and Melgear submit that, properly construed, the indemnities provided to Melgear under the Security Trust Deed and the Secured Debenture Deed do not place any of the applicants under a legal obligation to pay the relevant legal costs within the meaning of s 301 of the LPA.
[37] The argument proceeds as follows:
[59]
(a) the indemnities are directed towards a situation where the proceeds of sale of the secured property are not sufficient to meet costs incurred by Melgear (including costs the Receivers are entitled to recoup from Melgear) in realising the secured assets;
(b) the costs incurred by Melgear in realising the secured property are comprised of numerous costs beyond its legal fees (and the Receiver's legal fees), including the Receiver's remuneration and reasonable disbursements (beyond legal fees), auctioneer's costs, transfer fees and any other costs involved in selling the secured property;
(c) the "loss and damage" for which MRL and MRV have agreed to indemnify Melgear and are obliged to pay to Melgear (under cl 6.3 of the Secured Trust Deed and cll 9.1(b) and 11.3 of the Secured Debenture Deed) is the shortfall between the proceeds received from the sale of the secured property and the aggregated expenses incurred by Melgear in effecting the sale;
(d) if there is no shortfall (which is the position on the facts of this case), then Melgear has not suffered or incurred any "loss and damage" within the terms of the indemnities, meaning that MRL and MRV are not obliged to pay any amount to Melgear and, consequently, are not under a legal obligation to pay the relevant legal costs (or any costs) to Melgear;
(e) if there is a shortfall, then Melgear will have suffered "loss and damage" and both MRL and MRV will be under a legal obligation to indemnify Melgear by paying the amount of the shortfall, but that legal obligation to pay the shortfall is not the same as a legal obligation to pay the relevant legal costs to Melgear.
[60]
[38] In support of that submission, Melgear and the Receiver relied upon authorities in which it has been held that, where a trustee pays legal costs out of trust assets, the beneficiaries of the trust are not third party payers because those beneficiaries are not themselves under a legal obligation to pay those legal costs.
[39] Equuscorp Pty Ltd v Short Punch & Greatorix,[15] was decided under statutory provisions in force prior to the enactment of the LPA. Under the relevant provision, an assessment of legal costs could be sought by a "client", which was defined to include "a person who has paid, or is liable to pay, the account of a client". In that case, the legal costs were paid from a fund raised by levying the holders of units in a unit trust. That fund was used not only for meeting the legal costs but also for other expenses of the unit trust. The Court of Appeal held that a unit holder was not liable to pay the legal costs within the meaning of the statutory definition. The Chief Justice reached that conclusion by reasoning that the obligation to pay the legal costs could not have been enforced against the unit holder; that is, the unit holder could not have been sued by the law practice or the actual client of that law practice to recover the legal costs. McPherson JA held that a person who has contributed or is bound to contribute to a fund out of which legal costs are to be paid is not, by that circumstance, a person liable to pay those legal costs. It could not be said that the unit holder was liable to pay the legal costs, as distinct from being liable to pay the amount of the levy to the trustee (who was the person liable to pay the costs in the required sense).
[40] Amos v Ian K Fry & Co[16] concerned legal costs charged to the executor/trustee of a deceased estate. The executor/trustee was the deceased's son and one of three beneficiaries of the estate. The other beneficiaries of the estate were the other son and the daughter of the deceased. The executor/trustee incurred legal costs in proceedings relating to the administration of the estate. An order was made which required the other son to pay the unnecessary costs of administering the estate caused by that other son's conduct. The order also provided for the sale of the main asset of the estate, with the executor/trustee to then deduct the legal costs in issue from the other son's share of the proceeds of sale. The other son submitted that, by reason of these orders, he became a third party payer of the legal costs of the executor/trustee. White JA rejected that submission, concluding that the other son was not legally liable to pay the legal costs where the solicitor could not recover those costs from a beneficiary. Importantly, White JA subsequently referred to this conclusion in , and stated that the analysis which preceded the conclusion did not sufficiently take into account the essentially remedial nature of the legislation.
[61]
(a) they would charge their property to secure the performance of their obligations under the Secured Debenture Deed and the Security Trust Deed, which included their obligation to indemnify Melgear;
(b) Melgear or a receiver could sell that secured property and apply the proceeds of sale to discharge those obligations, including Melgear's indemnity under cl 7.1 of the Security Trust Deed, in accordance with the priority of distributions provided for in cl 8.3 of the Security Trust Deed;
(c) legal costs charged to Melgear or a receiver would, along with other costs incurred in realising the secured property, be paid from the proceeds of the sale in accordance with that order of distributions; and
(d) if the proceeds of sale proved to be insufficient to satisfy those obligations, MRL and MRV would be required to indemnify Melgear for any loss it suffers as a consequence.
[62]
[45] I am satisfied that, by reason of those contractual arrangements, MRL and MRV were under a legal obligation to pay the legal costs charged to Melgear in connection with the exercise of its powers as security trustee, as well as the legal costs charged to the Receiver (which are, for the reasons given at [35] above, are costs incurred by Melgear in connection with the exercise of its powers as security trustee). Payment of the legal costs charged to Melgear and the Receiver from the proceeds of sale of the secured property discharged the legal obligation of MRL and MRV to indemnify Melgear for those costs, but that does not deny the existence of the legal obligation until those costs were paid.
[46] At the hearing, I raised the issue whether the entitlement of one party to a contract to be paid an amount out of funds under its control necessarily meant that the other party to the contract was under an obligation to pay that amount. That was an issue which I considered in a different context in Nerang Subdivision Pty Ltd v Hutson,[24] and which was subsequently addressed in the appeal from that decision.[25] Both parties provided further written submissions on that issue.[26] The Receiver and Melgear submit that the reasoning in Nerang Subdivision applies with equal force to the indemnity in cl 7.1 of the Security Trust Deed and the distribution of the proceeds of sale provided for in cl 8.3 of the Security Trust Deed. That is, although those clauses confer an entitlement on the Receiver and Melgear to be paid certain amounts, they do not impose any concomitant obligation on MRL or MRV to pay those amounts. Put another way, although the legal costs have been paid from the proceeds of sale of the secured property, those payments should not be characterised as discharging a legal obligation on MRL and MRV to pay the legal costs.
[47] Having considered those further submissions, I have concluded that the reasoning applied in Nerang Subdivision should not be followed in the present case. To adopt that reasoning in determining whether MRL and MRV were under a legal obligation to pay the legal costs as required by s 301 of the LPA would not be consistent with the protective character of the third party payer provisions (see above). In light of that protective purpose, I am satisfied that payment of the relevant legal costs from the proceeds of sale of the secured property charged by MRL and MRV constituted payment of those costs by MRL and MRV for the purposes of of the LPA. The obligation to pay the legal costs to Melgear was enforceable against each of MRL and MRV pursuant to the indemnities they had given. If the proceeds of sale of the secured property had not been sufficient to pay those costs, Melgear would have been entitled to recover them from either MRL or MRV by enforcing the obligation that each of them owed, under cl 6.3 of the Security Trust Deed and under cll 9.1(b) or 11.3 of the Secured Debenture Deed, to indemnify Melgear against "all loss or damage" it incurred in carrying out its obligations as security trustee.
[63]
Should directions be given for itemised bills of costs to be served?
[64]
[56] When an application is made for a costs assessment under the provisions of the LPA, the court may direct that an itemised bill of the costs to be assessed be prepared, filed and served pursuant to r 743C of the UCPR, but this discretion is only engaged "if there is no itemised bill for all of the costs to be assessed".
[57] The term "itemised bill" is defined in s 300 of the LPA to mean "a bill stating, in detail, how the legal costs are made up in a way that would allow the legal costs to be assessed".
[58] The affidavit evidence read by the Receiver and Melgear on the hearing of the preliminary questions establishes that each time CBP invoiced the Receiver or Melgear for legal costs, the firm provided an itemised bill setting out:
[65]
(a) the lawyer that performed the work;
(b) the lawyer's hourly rate;
(c) the amount of time spent on each task;
(d) a description of each task; and
(e) the date on which each task was performed.
[66]
[59] I am satisfied that such bills fell within the definition of "itemised bill" in s 300 of the LPA. On that basis, I accept that CBP provided itemised bills to the Receiver and Melgear for the costs which the applicants have applied to have assessed. That conclusion is sufficient to answer question (d), which is directed towards the exercise of the discretion under r 743C of the UCPR. The short answer to that question is that the discretion is not engaged in the circumstances of the present case because itemised bills have been prepared. This is not a case where "there is no itemised bill for all of the costs to be assessed".
[60] I also accept that narrations in an itemised bill, which describe the work performed by a law firm for its client, will ordinarily attract legal professional privilege.[28] Such privilege is held by the client. In this case, the Receiver and Melgear have not waived any legal professional privilege which attaches to the itemised bills issued by CBP. On that basis, even if the discretion under r 743C was engaged, I would not be prepared to exercise that discretion in favour of directing that itemised bills be prepared.
[61] For completeness, I do not accept the applicants' submission that they are entitled to request that CBP give them an itemised bill pursuant to s 332(1) of the LPA. The entitlement to make a request under that section only arises "if a bill is given by a law practice in the form of a lump sum bill". The term "lump sum bill" is defined in s 300 of the LPA to mean "a bill that describes the legal services to which it relates and specifies the total amount of the legal costs". For the reasons just given, I am satisfied that CBP did not give bills to either the Receiver or Melgear in the form of a lump sum bill. CBP gave itemised bills to the Receiver and Melgear.
[62] Although CPB has provided documents to the applicants' solicitors which contain information about the legal costs billed to the Receiver and Melgear, those documents are not bills in the form of a lump sum bill. In short, those documents do not constitute a bill for legal costs. A bill is a document that requires the recipient to pay the legal costs to the law practice. In this case, CBP issued bills (in the form of itemised bills) to the Receiver and Melgear and those bills were ultimately paid from the proceeds of sale of the secured property. The documents which CBP provided to the applicants' solicitors did not require that the applicants pay any of the legal costs referred to in those documents to CBP.
[67]
[64] The separate questions should be answered in the terms set out at [7] above.
[65] I will hear the parties as to costs.
[68]
[1] Mr Elks is a director of MRL, the chief executive officer of both MRL and MRV, one of the secured creditors of MRL and MRV, and the ultimate owner of the majority of shares in MRV.
[23] Melgear and the Receiver submit that, like the statutory trustees, their role is to sell assets (here the secured property) for the benefit of a group of beneficiaries (here the debenture holders who are the beneficiaries of the trust created by the Security Trust Deed). Their right to be indemnified out of the sale proceeds for costs reasonably incurred in recovering the secured monies, including legal costs, is relevantly the same as that of the statutory trustees in Shillington.
[26] Melgear and the Receiver objected to parts of the applicants' further written submissions on the basis that they went beyond the issue about which I had invited further submissions and instead raised new matters not previously addressed in the applicants' written submissions or in oral submissions at the hearing. I do not agree with that objection. The applicants' further written submissions address the way I construed the contractual provisions considered in Nerang Subdivision before setting out their arguments as to why I should interpret the relevant contractual provisions of the Security Trust Deed differently; that is, why the contractual arrangements place MRL and MRV under a legal obligation to pay costs incurred by Melgear and the Receiver, including the legal costs in issue.
Subject to paragraph 5 of these orders, [Melgear's] and [the Receiver's] costs of the proceeding are to be paid on an indemnity basis out of the fund.
[Melgear's] and [the Receiver's] costs payable in accordance with paragraph 4 of these orders are to be borne first by the share of the fund to which [Mr Elks] is entitled and, secondly, if that share is exhausted, by [Mr Elks].
[16] In March 2024, Mr Elks applied to the Federal Court of Australia to stay the operation of examination summonses and orders for production issued to him on the application of the Receiver. On 1 May 2024, Derrington J dismissed Mr Elks' application and made the following costs orders (May 2024 Costs Orders):
The plaintiffs [which included the Receiver] are to be indemnified for their costs of the Application out of the fund held by the receivers of MRV Metals Pty Ltd (Receivers Appointed).
The plaintiffs' costs payable in accordance with Order 2 are to be borne by the share of the fund to which Mr Elks is entitled.
[23] Consequently, each of the applicants must establish that they are under a legal obligation to pay the legal costs which they seek to have assessed.
[24] In determining whether a legal obligation to pay the legal costs exists, however, it is important not to lose sight of the protective character of the statutory provisions relating to third party payers. The provisions permit a non-associated third party payer to require an assessment of the costs in issue even though that person is not obliged to pay the law practice that rendered the services giving rise to those costs. The protective character of the New South Wales equivalent of the relevant LPA provisions was referred to by the New South Wales Court of Appeal in Boyce v McIntyre,[11] where a sublessee had agreed to pay the sublessor's reasonable legal costs of or incidental to the sublease. In those circumstances, Ipp JA stated that the provisions were introduced for the purpose of consumer protection; they "afford protection to persons who agree, in effect, to indemnify other parties (such as lessors and mortgagees) in respect of legal costs for services rendered to those other parties".[12] His Honour observed that the liability of a non-associated third party payer to pay legal costs to a party other than the law practice which charged the costs will ordinarily arise out of a contract entered into between the non-associated third party payer and the client of the law practice and, in many cases, such a contract will be a lease or mortgage.[13] However, the protective purpose of the provisions is not confined to such situations.[14]
[41] Shillington v Harries[19] concerned legal costs charged to statutory trustees for sale of a rural property. The beneficiaries of the statutory trust submitted they were non-associated third party payers under the New South Wales equivalent of the LPA because the trustees' legal costs were to be paid from the proceeds of sale held on trust for them. That is, in circumstances where the beneficiaries were required to indemnify the trustees against the expenditure of costs legitimately incurred in the administration of the trust, they submitted they were under a legal obligation to pay those costs. In particular, the beneficiaries submitted that the trustees' equitable right of indemnity created a legal obligation which arose not by contract or legislation but "otherwise" within the words of the equivalent s 301(4) of the LPA. Latham J rejected that submission, observing that there was a relevant distinction between a legal obligation, as that term is used in the statute, and an equitable obligation arising out of the indemnification by the beneficiaries of a trust with respect to the reasonably incurred expenses of the trustees. His Honour was not persuaded that the term "otherwise" is capable of comprehending other than legal obligations.[20]
[42] Finally, Whyte v LM Investment Management Ltd (in liq) (rcvrs & mgrs apptd)[21] concerned legal costs charged to the liquidators of a company that was the responsible entity and trustee of a registered managed investment scheme. The applicant seeking assessment of those legal costs was the person appointed under s 601NF(1) of the Corporations Act2001 (Cth) to take responsibility for ensuring that the scheme was wound up in accordance with its constitution, and was appointed under s 601NF(2) as a receiver of the property of that scheme. The applicant submitted that he was a non-associated third party payer because some of the legal costs were payable from the property of the scheme pursuant to the responsible entity's right of indemnity, whether under the constitution of the scheme, the equitable right of a trustee to indemnity for expenses incurred properly, or the statutory right of a trustee to an indemnity for expenses reasonably incurred in or about the execution of trust powers. The case was argued on the basis that the applicant's position was analogous to a beneficiary of a trust.[22] After referring to Equuscorp, Boyce, Wright, Huntingdale Village and Shillington, Jackson J dismissed the application, concluding that neither the members of the scheme nor the applicant (in a position analogous to those members as beneficiaries of the trust) was a non-associated third party payer.
[43] These authorities are distinguishable from the present case, at least with respect to the position of MRL and MRV. Although Melgear and the Receiver seek to support their argument by contending that their position is analogous to that of the statutory trustees in Shillington, that submission addresses the wrong question.[23] The relevant comparison for the purpose of determining whether one or more of the applicants is a non-associated third party payer is not between the entities to whom the legal costs were charged (the statutory trustees in Shillington, and Melgear and the Receiver in the present case) but between the entities who claim to be under a legal obligation to pay those costs (the beneficiaries of the trust in Shillington, and the applicants in the present case). The authorities relied on by Melgear and the Receiver establish that a beneficiary of a trust will not, by reason of the trustee's right of indemnity for costs reasonably incurred in the administration of the trust, be a third party payer of legal costs charged to the trustee. In the circumstances of the present case, those authorities support a conclusion that a debenture holder, being a beneficiary of the trust created by the Security Trust Deed, is not a non-associated third party payer of legal costs charged to Melgear as security trustee (or legal costs charged to the Receiver and recoupable from Melgear as security trustee). That conclusion is relevant to the application by Mr Elks, who is a debenture holder. I will return to address Mr Elks' position shortly. However, these authorities do not support the same conclusion on the application by MRL and MRV. Those companies are not beneficiaries of the trust. They are security providers subject to the terms of the contractual arrangements set out at [26] to [35] above.
[44] Pursuant to those arrangements, MRL and MRV agreed as follows:
[48] In that regard, the Receiver and Melgear submit that the Security Trust Deed draws a distinction between "Loss", the word used in cl 7.1 in describing Melgear's entitlement to be indemnified out of the proceeds of sale of the secured property, and "loss or damage", the phrase used in cl 6.3 to describe the indemnity given by each of MRL and MRV. As noted at [31] above, the definition of "Loss" includes the terms "loss", "damage", "cost", "charge", "expense" and "outgoing". The Receiver and Melgear submit that because "Loss" includes, but is broader than, "loss" or "damage" the parties to the Security Trust Deed intended that Melgear's right to be indemnified for legal costs only arose against the fund created by the realisation of the secured property under cl 7.1. By contrast, the indemnity in cl 6.3 of the Security Trust Deed (and cll 9.1(b) and 11.3 of the Secured Debenture Deed) do not cover "Loss" in the broadly defined sense, including any "costs" such as legal costs.
[49] I do not accept that submission. It is true that, if the proceeds of sale of the secured property were less than Melgear's costs of realising the secured property, a claim by Melgear to be indemnified pursuant to cl 6.3 for the shortfall might comprise a wide variety of costs and outgoings. It is equally true, however, that if the legal costs charged to Melgear and the Receiver were not paid out of the proceeds of sale and formed part of a shortfall, they would properly be characterised as a component of "loss or damage" which MRL and MRV would be required to indemnify Melgear for under cl 6.3. Accordingly, I cannot accept the submission by Melgear and the Receiver that the obligation on MRL and MRV to indemnify Melgear for "loss or damage" does not amount to, or at least include, an obligation to indemnify Melgear for legal costs.
[50] In Huntingdale Village,[27] Le Miere J rejected a submission that to be a third party payer a person must be under a legal obligation to pay the specific legal costs in question, and not under a general obligation which included payment of the costs in question. His Honour concluded that there was no basis in the text of the Western Australian equivalent of s 301 of the LPA to confine the legal obligation in that way. That decision involved a consideration, in the context of a summary judgment application, of whether a company was a non-associated third party payer in respect of legal costs charged to a receiver of the company appointed by a secured creditor. The company argued that because it had promised the secured creditor that it would indemnify a receiver against any liability, loss, cost or expense, it was a non-associated third party payer. In dismissing the summary judgment application, Le Miere J held that the question was a real question to be tried. The fact that the issue was determined in that way means that the ultimate conclusion is of limited assistance, despite the similar factual context. That does not, however, weaken the force of His Honour's statement concerning the construction of the relevant statutory provision. I agree with that observation. It is consistent with the protective character of the third party payer provisions discussed at [24] above.
[51] For these reasons, I am satisfied that each of MRL and MRV is a non-associated third party payer within the meaning of s 301(3) of the LPA in respect of all of the legal costs which they have sought to have assessed. Accordingly, pursuant to s 335(2) of the LPA, each of MRL and MRV, are permitted to apply for an assessment of those costs.
[52] As already mentioned, Mr Elks is in a different position. None of his property formed part of the security that was realised. Consequently, it cannot be said that payment of the legal costs in issue from the proceeds of sale of the secured property constituted payment of those costs by Mr Elks. That is important because, as set out at [33] above, the indemnity given by the debenture holders (including Mr Elks) under cl 7.2 of the Security Trust Deed was conditional. It only took effect if: (i) there was insufficient money available from the proceeds of sale of the secured property for Melgear to satisfy its right of indemnity under cl 7.1; and (ii) MRL and MRV failed to pay in accordance with a demand made under cl 6.3. In circumstances where the legal costs in issue were paid out of the proceeds of sale of the secured property, Mr Elks was never under a legal obligation to pay any of those costs by reason of the indemnity in cl 7.2.
[53] The Receiver and Melgear accept, however, that Mr Elks is under a legal obligation to pay the costs which are the subject of the September 2023 Costs Orders. That is consistent with the conclusion in Wright, that a party can become subject to a legal obligation to pay legal costs by reason of a court order.
[54] Consequently, I am satisfied that Mr Elks is a non-associated third party payer within the meaning of s 301(3) of the LPA in respect of the legal costs the subject of paragraph 5 of the September 2023 Costs Orders and, pursuant to s 335(2) of the LPA, is permitted to apply for an assessment of those costs.
[55] Mr Elks is not a non-associated third party payer within the meaning of s 301(3) of the LPA in respect of any of the other legal costs which he has sought to have assessed. In particular, I note there is an important difference between the September 2023 Costs Orders and the May 2024 Costs Orders made by Derrington J in the Federal Court. The September 2023 Costs Orders provide that if the fund held by the Receiver is insufficient to pay the costs the subject of those orders then Mr Elks will be personally liable to pay those costs. That is the source of the legal obligation. Although the May 2024 Costs Orders provide for payment of the plaintiffs' costs out of the share of the sale proceeds which Mr Elks would otherwise be entitled to receive, they do not make Mr Elks personally liable to pay the costs if his share of the sale proceeds is insufficient. Accordingly, based on the authorities discussed at [19] to [24] above, I am not satisfied that Mr Elks is under a legal obligation to pay the legal costs which are the subject of the May 2024 Costs Orders.
[63] Instead, it appears that CBP provided information about the legal costs to the applicants' solicitors pursuant to the requirement in s 335(7) of the LPA that, on the written request of a third party payer, the law practice must provide that third party payer with sufficient information to allow the third party payer to consider making an application for an assessment of the relevant legal costs. There is a dispute between the parties as to whether the information which CBP has provided is sufficient to discharge its obligation under s 335(7). The resolution of that dispute falls outside the scope of the preliminary questions I must determine. It has no bearing upon my consideration of question (d). If the applicants wish to seek further information pursuant to s 335(7), then they will have to do so by a separate application.