BETWEEN : SIGMA CHEMICALS (1986) PTY LTD as Trustee of the SIGMA CHEMICALS TRUST

Practice and procedure - Method of calculating receiver remuneration - Procedure to be adopted

Receiver establish prima facie entitlement to remuneration

1 MASTER SANDERSON: On 23 June 2000 Anderson J appointed Geoffrey Frank Totterdell (the receiver) as receiver and manager of the ninth defendant. By summons dated 1 November 2000 the receiver applied for the following orders:

"1. Receiver and Manager's remuneration of $73,375.56 (including expenses and GST), plus legal fees of $39,348.90 in relation to the period 23 June 2000 to 30 September 2000 be approved and fixed by this Honourable Court.

2. The Receiver and Manager's remuneration expenses may be paid out from the funds held in the Receiver and Manager's bank account."

2 The matter was mentioned in Master's chambers on two occasions and eventually came before Steytler J on 29 January 2001. His Honour ordered that the question of the receivers' costs be referred to a Master. When the matter was heard counsel for the receiver and counsel representing the first, third and sixth to ninth defendants made submissions. Both counsel were of the view that I should adopt the approach taken by the Full Court in Venetian Nominees Pty Ltd & Ors v Conlon (1998) 20 WAR 96. That case involved the remuneration of provisional liquidators and administrators. However, both counsel were content to adopt the same procedure. The second and tenth defendants appeared in person. Both made limited submissions to the effect that they regarded the amount of remuneration sought by the receiver as exorbitant, even outrageous. I will deal more fully with their submissions below. However, for present purposes I simply note that neither, perhaps as was to be expected, made submissions about what approach should be adopted in determining a receivers' remuneration.

"A person appointed receiver shall be allowed such remuneration, if any, as may be fixed by the Court."

4 Before dealing further with the way in which this unfettered discretion as to a receiver's remuneration is to be exercised, there are three principles which, while uncontroversial, should be borne in mind. They provide important background and put any discussion quantification of receiver's remuneration in context.

(1) A receiver should be allowed his costs insofar as they were incurred in activities reasonably undertaken incidentally to performing the function created by his appointment: See Wayland v Nidamon Pty Ltd (1986) 11 ACLR 209 per Hodgson J at 222.

(2) A receiver is entitled to be paid out of the property taken into his possession as a consequence of his appointment. This is so even if the appointment is challenged and later found not to have been appropriate: See In Re Andrews [1999] EWCA Civ 864; (1999) 1 WLR 1236.

(3) A receiver has a lien over the property in his possession for payment of his fees. This lien continues even after termination of the receivership: See Mellor v Mellor (1992) 4 All ER 10, approved by Ward LJ in In Re Andrews (supra) at 1243.

5 The question then is how a receiver's remuneration is to be determined. The rules provide an unfettered discretion but no guide. Nor do the rules in any of the other Australian states. In Queensland, r 269.1 of their Civil Procedure (the equivalent of our Rules) is in almost identical terms to O 51 r 4. Insofar as there is any case law on the matter, it is to the effect that the Insolvency Practitioner's Association rates provide a useful guide: See Re Queensland Forests Ltd (In Liq) [1966] Qd R 180; Waldron v M G Securities (Australasia) Ltd (1979) CLC 40-541. There is nothing in the rules of the other states which offer any more guidance. In England, SC 30.3 of the Rules of Court is a little more expansive than our r 4 but still provides no basis upon which the remuneration is to be assessed. However, it would appear that in practice a receiver files what is called a "Remuneration Statement". A precedent for this document is to be found in Atkins "Court Forms" (2nd ed) vol 33 (1997 issue) at page 138. In precedent form it is a rather concise document. The receiver provides a short description of the activities he has undertaken during the course of the receivership and then specifies the rates charged for those persons involved in the receivership - the receiver himself, any assistant, secretarial services and so on. The way the form is set out makes it plain that it is not intended as a detailed expose by the receiver of all the work that he has undertaken.

6 Some guide to the way in which the English courts approach the question of a receiver's remuneration is to be found in Re Potters Oils Ltd (No 2) (1986) 1 All ER 890. The facts in the case taken from the headnote were as follows:

"A company purchased specialised equipment from the sellers. The purchase was intended to be partly financed by a loan of [sterling]200,000 from a finance company, repayment of the loan being secured by a fixed charge over the equipment. The debenture creating the charge provided that after any part of the loan became repayable the finance company could appoint a receiver on such terms as to remuneration as the finance company thought fit, subject to a stipulated maximum. The company failed to pay the sellers the [sterling]200,000 it had received from the finance company and the sellers commenced proceedings against the company claiming the balance of the purchase price. Subsequently, an order was made to wind up the company on the petition of a trade creditor and a liquidator was appointed. The finance company then appointed a receiver to protect its interests. The equipment was subsequently sold, realising more than enough to satisfy the finance company's claim. The liquidator challenged the receiver's right to be paid his remuneration out of the proceeds of sale and issued a summons under s 371 of the Company's Act 1948 seeking a declaration the remuneration of and disbursements paid by the receiver should be disallowed in full or alternatively were excessive, on the ground that his appointment was unnecessary since his functions merely duplicated those of the liquidator."

7 In approaching this decision it must be borne in mind first that Hoffmann J (as he then was) was dealing with an application which was brought under the English Companies Act. Furthermore, the receiver had not been appointed by the Court but under the provisions of a charge. Nonetheless, his Honour was faced with a position where he had a discretion as to whether or not he would interfere with the receiver's remuneration and if he decided he should do so, he had a discretion as to what amount should be allowed. The exercise of the conferred discretion necessarily involved an assessment of the reasonableness or otherwise of the remuneration charged by the receiver.

8 His Honour began by making the obvious and very important point that care must be taken in settling on a receiver's remuneration because the amount of the remuneration impacts directly upon the company's creditors. His Honour then went on (at 895):

"... the court is ill-equipped to conduct the detailed investigation of receiver's charges on an itemised basis. A judge could not do so without being expensively educated by expert evidence. Perhaps this is why neither counsel (nor for that matter myself) had any previous experience of an application under s 371. One may contrast the specialised experience available to the court in dealing with the taxation of solicitors' bills."

9 In Australia, one of the few cases to deal with the way in which receiver's remuneration is to be assessed is the decision of the Full Court of the Federal Court in Cape v Redarb Pty Ltd (1992) 6 ACSR 359. This case involved a court appointed receiver. The Court noted that there was no provision was included in the order in relation to the receiver's remuneration or directing the passing of accounts. Notwithstanding the absence of the requirement in relation to remuneration the receiver lodged in the Supreme Court of the Australian Capital Territory and served on the parties documents entitled "Account of Receipts and Payments of Receiver and Manager" on various dates in 1990 and 1991. The documents disclosed that on many specified dates, the receiver paid to himself particular amounts for fees, disbursements and other out of pocket expenses incurred in the receivership. The receiver had calculated his fees on a time spent basis for himself and his staff in accordance with the rates then prescribed by the Insolvency Practitioner's Association of Australia ("IPA"). The receiver sought directions from the Supreme Court approving his remuneration on a time spent basis and at the IPA rates. Miles CJ made orders accordingly. The appellant appealed from these orders, claiming the Chief Justice had erred in two respects. First, it was argued that it was incorrect to direct that the receiver's remuneration was to be fixed at rates prescribed by the IPA. Secondly, it was argued that Miles CJ erred in holding that under general law a court appointed receiver was empowered to deduct or withhold from the assets under his control any amounts for his remuneration without prior order of the Court.

10 The Court held that it was proper for the remuneration of the receiver to assess on the basis of the IPA rates (see page 364 - 369). As I understand the position, IPA rates are still published but only as a guide, but they offend competition principles. That being the case, Cape v Redarb Pty Ltd and other decisions mentioned in the judgment must be treated with some caution. But what can be said following that decision is this. If a receiver leads evidence of his usual charge-out rates explaining why those rates are adopted and how they measure up with industry standards, then such evidence should be accepted and used as a basis for the calculation of remuneration. If the rates are to be challenged then they must be challenged by evidence provided by parties opposing the claim for remuneration. It is not for the Court on the basis of some independent inquiry to ascertain whether or not the rates are reasonable.

11 I also note in passing, although it is not for determination on this application that the Court concluded it was not open to a receiver to draw moneys to meet his remuneration and out of pocket expenses without the approval of the Court. The Court noted, however, that in lengthy and complex receiverships it would be unreasonable to expect a receiver to be held out of his money until the receivership terminated. The Court suggested that interest might be awarded on properly incurred out of pocket expenses which are not immediately reimbursed. Further, there might be an authorisation that remuneration and out of pocket expenses be met from time to time on the basis of accounts prepared with the amount paid to the receiver brought to account at the conclusion of the receivership.

12 These and other suggestions made by the Court appear to be a practical way of dealing with the reasonable requirement of a receiver that he be remunerated from time to time throughout the receivership.

13 All of that still leaves the question of what is the proper approach to assessing the receiver's remuneration. As I said at the start of these reasons, counsel approached the matter on the basis that the remuneration was to be dealt with in the same way as the remuneration claimed by a provisional liquidator or administrator. I must say I have some doubts as to whether or not this is the proper approach. I say this because when assessing the remuneration of a provisional liquidator or administrator an enquiry is being conducted under the provisions of the Corporations Act. Nonetheless, as the parties have been content to proceed on this basis and given that there is an unfettered discretion, I think it appropriate to deal with this application in line with what was said by the Court in the Venetian case. As to the approach to be adopted, the Court said (at 102 - 104):

"As a starting point, in our view, the onus is on the provisional liquidator to establish that the remuneration claimed is fair and reasonable. 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 is to consider whether, prima facie, the provisional liquidator has made out a case for the determination of the amounts claimed. The fact that there may be no person who objects to the claim, or any part of the supporting testimony, or that objectors advance unsustainable arguments, or do not properly formulate their objections, cannot detract from the court's duty in this respect. The judicial officer conducting an inquiry under s 473(2) is required to make an independent determination of the remuneration claimed, even if there is an absence of objectors, or appropriately detailed objections, or objections advanced on arguable grounds. Of course, once the court is satisfied that the provisional liquidator has made out a prima facie case that the remuneration claimed should be allowed, the absence or inappropriateness of points taken by objectors becomes relevant.

Should the provisional 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, to commence the proceedings, the provisional 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 also reflect in appropriately itemised form the expenses incurred by the provisional liquidator, accompanied where necessary by voucher proof. Sufficient detail should be provided to enable the court to determine whether the disbursements were reasonably incurred and that the amounts claimed are reasonable.

The statement of account should be verified by affidavit. When the remuneration claimed involves work carried out by the provisional 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 provisional liquidator or his firm, or from some other appropriate source, he believes that the information contained in the statement of account is correct. When disbursements are claimed, the affidavit should verify that they were incurred and, if necessary, why they needed to be incurred.

In Re Solfire Pty Ltd (In liq) (No 2), Shepherdson J said (at 1,164):

'In my view, when a provisional liquidator seeks to have his remuneration determined by the court he should provide a document not dissimilar in form to the bill of costs in taxable form provided by a solicitor to his client ... He should identify the person or persons and the grade or grades of the person or persons engaged in the particular task concerning the provisions liquidation, he should identify that task and dates on which time was spent on it, the amount of time spent on it and he should identify the relevant rate, according to the grade of the person or persons performing the work. I also consider that he should require the person performing the work to keep reasonably detailed diary notes and time sheets which documents should be open to inspection by persons entitled to see them.'

In our opinion, however, it is, with respect, unnecessary to lay down an absolute rule, in such detailed terms, concerning the statement of account to be provided by a provisional liquidator. It may well be that in a particular case information particularised as suggested by Shepherdson J would be appropriate. In other cases less detailed information may be required. Every case depends on its own circumstances. But the overriding principle remains: sufficient information must be provided to the court to enable it to perform its function under s 473(2).

If the Master were to be satisfied that the statement of account was sufficiently detailed to enable the remuneration to be determined, but there were objections to the account, special directions should be given in regard to the mode in which the account is to be taken or vouched. The procedure set out in O 45 should as far as possible be adopted. If, for example, the objector challenges whether a particular item of work was in fact done, or whether the person alleged to have done the work spent the time alleged in doing it, it may be necessary for the provisional liquidator to call direct evidence establishing the correctness of the allegations made: see generally Gava v Grljusich (unreported, Supreme Court, WA, Full Court, Library No 970492, 19 September 1997).

Notice should be given of the points on which the provisional liquidator will be cross-examined (if cross-examination is allowed). The notice of objection should be supported by affidavit. Cross-examination of the provisional liquidator and the objecting party may then occur. But care should be taken to follow the admonition of Sir Robert Megarry V-C in Computer Machinery Co Ltd v Drescher (at 1386), namely: 'It would not be right to allow anything resembling a trial of the action to take place in the guise of an argument on costs.' "

14 This application is supported by two affidavits of the receiver, the first sworn 30 October 200 and the second sworn 24 January 2001. I have had regard to the detail of these affidavits and I have also considered the rest of the material filed in relation to this action. That material is voluminous and much of it is not directly relevant to this application. However, it has provided valuable insight into the nature of the business that is being conducted by the receiver. Having taken the evidence of the receiver into account I am satisfied that he has established a prima facie entitlement to the remuneration claimed.

15 Before dealing with his affidavit in detail I would respectfully repeat what was said by Hoffman LJ in In Re Andrews. In the absence of expert evidence it is extremely difficult to ascertain just what is necessary to maintain a business such as is being conducted by the ninth defendant. The second defendant submitted that in fact little or nothing need to be done to maintain the business and that the receiver had done nothing but waste time and money. While I appreciate that the second defendant has a detailed understanding of the nature of the business, I could not possibly conclude on the material available that the receiver has undertaken activities which are unnecessary. It may be at the second stage of this process a more detailed critique of what has been undertaken by the receiver will be possible. But what I have to determine first is whether there is sufficient to establish a prima facie entitlement to remuneration.

16 Appearing as annexure "B" to the receiver's first affidavit is a document entitled "Details of Time Charged". This document shows the name of the staff member involved, gives the date and the hours spent on a particular date. It then sets out the rate charged for that individual per hour, the consequent total cost and then provides a description of the work undertaken. Appearing as annexure "GFT1" to the receiver's second affidavit is a document from the IPA which provides a guide to rates. It would appear that the rates charged by the receiver for persons involved in the receivership is roughly in line with that guide. In his affidavit the receiver makes the point that this is a difficult receivership involving as it does dealing with a business which requires a deal of expertise and in a situation where there is a significant legal dispute affecting the relationship of parties formally managing the business. In the circumstances I am satisfied that the rates charges are prima facie reasonable.

17 There is an obvious difficulty about assessing whether or not the work undertaken by various named staff members if, in the circumstances, reasonable. I can illustrate this by referring to one of the entries in the time sheet. One of the receiver's officers assisting in the receivership is described in the charge sheet as "Gollant M T" and this individual is described as a "manager". The entry appearing for 16 August 2000 is as follows:

"A 10 site redelivery of boxes for production, case database notes re same, discussion with customer and supplier, letter accountant re debtors and creditors, further draft re fees, call to Chubb, David Brown re production, review purchase orders and corro from Sigma, 2 calls."

18 This work is said to have taken 3.5 hours. It is apparent from that description that it is very difficult to know precisely what was done and whether the time claimed was properly spent. However, without requiring a minute by minute description of the activities undertaken by the receiver and each of his officers, it is hard to know what more detail could be provided which would allow a better assessment as to whether the remuneration claimed is reasonable. But is seems to me, taken in the overall, that the receiver has established a prima facie case for the remuneration claimed. I am not satisfied that further detail need be provided.

19 Having reached that conclusion it is appropriate that I hear the parties as to further directions which should be made in relation to this remuneration. I will also hear the parties as to costs.