ZGTEEK PTY LTD -v- MICHAEL LURIE & ASSOCIATES [2012] WASC 419 (15 November 2012)

Supreme Court of WA|2012-11-15|Before: Mr J

1 ZGTeek Pty Ltd applies for an order to review the taxation of Registrar Whitby of a solicitor/client bill of costs of the practitioner. The practitioner had lodged a bill of costs claiming $79,736.99. On the taxation of the bill of costs the Registrar allowed the sum of $37,436.84. The application for review of the taxation is allowed for reasons set out below.

2 The background to this matter is that ZGTeek entered into a loan agreement dated 2 November 2004 (the Loan Agreement) with Skyvale Nominees Pty Ltd, pursuant to which Skyvale provided a loan to ZGTeek of $500,000 (the debt). For the purpose of these proceedings, it is common ground that ZGTeek defaulted in repayment of the loan to Skyvale. Skyvale was represented by the practitioner and instructed the practitioner to take steps in relation to recovery of the debt.

[A]ll losses, liabilities, fees, costs (including legal costs on a full indemnity basis), expenses and Taxes incurred in connection with:

(a) any Event of Default or Potential Event of Default;

(b) the administration, and any actual or attempted preservation or enforcement, of any rights under any Facility Document.

4 An 'Event of Default' was defined in the Loan Agreement. The definition included nonpayment or failure to comply with other obligations under the Loan Agreement and/or security documents.

5 The practitioner rendered 11 separate invoices to Skyvale in relation to professional work allegedly undertaken in relation to recovery of the debt and other matters. For the purpose of calculating a claim relating to the debt, the invoices were redacted by the practitioner to remove items which the practitioner contended were unrelated to the debt. The total fees rendered pursuant to these redacted invoices were $70,480 plus GST and disbursements.

6 Skyvale sought an indemnity from ZGTeek in relation to the professional fees of the practitioner as per the redacted invoices. ZGTeek requested a taxation of the practitioner's fees pursuant to pt 13 of the Legal Practice Act 2003 (WA) (LPA). It is not disputed that, pursuant to pt 13 of the LPA, ZGTeek was entitled to have the costs taxed. Further, the costs were assessable under the Solicitors Costs Determination 2007 (WA) (SCD 2007) as noncontentious business. Clause 6 of the SCD 2007 relevantly provides that:

[T]he costs payable by the client to the client's practitioner shall not exceed an amount that is reasonable in the circumstances, that amount to be calculated on the basis of -

(a) ...

(b) the time reasonably taken to perform the work referred to ... , charged at an hourly rate that does not exceed the hourly rates set out in that item.

7 The professional fees claimed by the practitioner, in broad terms, relate to a variety of professional attendances which included discussions, negotiations and letters of demand.

8 There were a number of complicating circumstances surrounding the debt which need to be taken into account:

ZGTeek was one of a group of companies which was effectively under the control of the family of a Mr Kevin Pollock. This group of companies was engaged in property development and sourced finance for developments through Skyvale. The Loan Agreement provided for a facility of $500,000 which could be drawn down by ZGTeek at any time.

The loan was repayable on 30 April 2005 or any other date which Skyvale agreed to in writing. Interest was payable at the rate of 20% per annum and was payable on the last day of each month during the term.

The Loan Agreement contained guarantees by various members of the Pollock family and Soiland Pty Ltd (one of the Pollock group of companies).

As a part of the security for the loan, ZGTeek granted Skyvale a mortgage over three parcels of land situated in South Guildford (the Steel Court property, the Kalamunda Road property and the Anvil Close property). One of the guarantors, Carina LeeAnne Healey, also granted a mortgage over property situated in South Perth.

There were also provisions in the Loan Agreement limiting the level of indebtedness of ZGTeek, Soiland and Ms Healey to other sources of finance. In particular, ZGTeek owed money to a company Walthamstow Pty Ltd and ZGTeek covenanted not to increase the level of indebtedness to Walthamstow. These provisions suggest that it was a key plank to the loan arrangement between ZGTeek and Skyvale that the loan to ZGTeek was adequately secured and the level of indebtedness of ZGTeek and the guarantors remained in check.

Mr Michael Ian Lurie, a principal of the practitioner, was also a director of Skyvale.
Skyvale commenced proceedings against ZGTeek in Supreme Court action CIV 2445 of 2010, claiming the debt of $500,000. An issue in the action was whether the loan of $500,000 had been repaid. A second issue was whether further funds of $520,000 advanced by Skyvale to a company Moonspark Pty Ltd (another of the Pollock group of companies) were by agreement also covered by the security arrangements under the Loan Agreement and repayable by ZGTeek. The issues raised by the action were not decided by the Court as the action was settled with the claims by Skyvale and a counterclaim by ZGTeek being dismissed. The terms of the settlement were not disclosed.

9 The practitioner lodged a bill of costs for taxation incorporating an amended itemised account of the services covered by the 11 redacted invoices previously rendered.

10 The bill of costs consists of 91 separate time entries plus GST plus disbursements. Each time entry contained a date, the initials of the fee earner, a brief description of the work performed, the number of time units and the amount charged (see for example Annexure A).

11 Prior to the taxation, ZGTeek filed a Notice of Objection dated 30 May 2011 which listed six generic grounds of objection. These were as follows:

No legal work performed. Work completed by Michael Lurie as director.
Work does not relate to recovery of monies under the loan agreement, November 2004 Advance or July 2005 Advance. In some circumstances, the work on its face relates to other loans (i.e. to Hotspell, North Beach Investments Pty Ltd)

The amount charged is unreasonable in the circumstances

Recovered by the practitioner already - the invoice 2596
Recovered by the practitioner already - relates to sale of Anvil Close
Relates to caveat

12 The Notice of Objection then listed against each item of the bill of costs which of the six generic grounds of objection ZGTeek relied. For example, in relation to item 1 of the bill of costs (see Annexure A), ZGTeek relied upon grounds A and B.

13 The taxation hearing before the Registrar took place over two days (1 June 2011 and 17 January 2012). The first hearing date was in the nature of a directions hearing to sort out various preliminary issues. On the second hearing date the Registrar conducted the taxation of the practitioner's bill of cost .

14 When the matter came before me on 1 May 2012, counsel for the parties were unable to identify precisely what evidentiary material had been presented to the Registrar on 17 January 2012. Accordingly, the review before me was adjourned for the parties to file affidavits to identify the evidentiary material before the Registrar.

15 It is common ground that the Registrar had available to her the court file in Supreme Court action CIV 2445 of 2010. This file contains two important affidavits:

An affidavit of Michael Ian Lurie sworn 24 January 2011;
An affidavit of Monica Cooper sworn 25 January 2011.

16 The affidavit of Mr Lurie deposed to the following:

As at June 2008, Skyvale had instructed his firm to assist in the recovery of moneys owed by ZGTeek as ZGTeek had failed to repay the monies owing under the Loan Agreement.
Commencing in June 2008, Mr Lurie's firm took detailed instructions from Skyvale and engaged in a series of lengthy discussions with Kevin Pollock in an effort to encourage ZGTeek to sell the properties that secured the loan. After extended negotiations, the first mortgage property (Steel Court) was sold on 3 October 2008, but the funds received were insufficient to pay out all moneys owing.
Mr Lurie's firm subsequently performed further work in providing legal advice to Skyvale about the process of issuing a Notice of Default and proceeding to a mortgagee sale of the other properties. After engaging in further discussions with Kevin Pollock to attempt to resolve the matter, Mr Lurie's firm issued a notice of demand against ZGTeek and its guarantors dated 23 December 2008. A copy of the notice of demand was annexed to the affidavit.
A mortgagee sale was not pursued at that point of time, primarily because Mr Kevin Pollock said he would promptly arrange for sale of the remaining properties to satisfy the debt.
ZGTeek did not proceed with the sale of the remaining properties and Mr Lurie's firm was instructed to prepare a fresh notice of demand. This was prepared and sent to ZGTeek on 3 February 2009. A copy of the notice of demand was annexed to the affidavit.
From March 2009, Mr Lurie's firm had further discussions with Kevin Pollock about the outstanding monies. Mr Pollock again proposed that Skyvale be paid out the outstanding monies by the sale of mortgaged properties. Mr Lurie's firm then engaged in detailed discussions with Mr Kevin Pollock and ZGTeek's selling agents concerning, amongst other things, the timing and a proposed method of sale of one of the mortgaged properties, being 5 Anvil Close, South Guildford. On 27 May 2009, the Anvil Close property was sold by public auction. Mr Lurie's firm was instructed to supervise the sale process and attend at settlement to ensure that Skyvale would be paid out from the proceeds of the sale.
Monica Cooper (an accountant for Skyvale and the practitioner) and Ms MaryEileen Scanlan (a senior lawyer employed by the practitioner) redacted invoices rendered by the practitioner to Skyvale so as to reflect only work done to recover or attempt to recover debts covered by the Loan Agreement.
In charging Skyvale for the work done in connection with the recovery of the money owed by ZGTeek, Mr Lurie's firm relied upon timesheets that recorded details of the work each fee earner had done in relation to the matter and the time spent.

17 The affidavit of Ms Monica Cooper annexed to it the daily timesheet entries which the practitioner claims relate to the recovery procedures described by Mr Lurie in his affidavit.

18 It is common ground that the redacted invoices and the associated timesheet entries form the basis of the bill of costs filed by the practitioner for taxation.

19 Neither ZGTeek nor the practitioner presented any other affidavit material or called any witnesses relevant to the issue of whether the items claimed in the bill of costs related to the debt. Counsel for ZGTeek expressly declined the opportunity to crossexamine Mr Lurie (ts 43).

20 In relation to items 1 to 9 of the bill of costs, counsel for ZGTeek relied upon the contents of a letter from the practitioner to ZGTeek dated 27 June 2008 (which related in part to a demand for payment of $330,000) and a reamended statement of claim dated 11 March 2011 filed by Skyvale in Supreme Court action CIV 2445 of 2010 (which indicated that the sum of $330,000 which was paid by ZGTeek was not credited against the loan account). It is common ground that these two documents formed a part of the evidentiary material before the Registrar. The Registrar was also referred to a number of other documents which I need not identify for the purpose of this decision.

21 The taxation on 17 January 2012 was conducted in a largely informal manner (as is often the case). The Registrar was not referred to the affidavit of Mr Lurie and it does not appear from the transcript of the taxation hearing the Registrar placed any reliance on the content of the affidavit of Mr Lurie. A very brief mention was made by counsel for the practitioner to the affidavit of Ms Cooper (although he incorrectly referred to the affidavit as being an affidavit of 'Ms Scanlan') as establishing that items unrelated to the loan had been excised from the bill of costs (ts 71).

22 The transcript of the taxation on 17 January 2012 indicates that the Registrar relied substantially in her assessment of the bill of costs on the description of the legal services provided contained in the bill of costs itself, and oral explanations and submissions provided by counsel.

23 At the conclusion of the taxation, counsel for ZGTeek objected to the Registrar signing the allocator on the basis of an alleged error in principle.

24 On 24 January 2012, ZGTeek filed a Notice of Objections to the taxation. Order 66 r 53(1) of the Rules of the Supreme Court 1971 (WA) (RSC) entitles a party to a taxation, who contends that the taxing officer has made 'an error in principle' in allowing or disallowing an item of a bill of costs taxed, to lodge an objection and thereupon apply to the taxing officer to review the taxation in respect to those items. Where such a notice of objection is lodged, pursuant to O 66 r 54, a taxing officer must reconsider and review the taxation in relation to the objected items.

25 Pursuant to these provisions, the Registrar reviewed the taxation and dismissed the objections. No reference was made in the review decision of the Registrar as to what evidentiary material was before her or what evidentiary material she took into account.

26 This application to a Judge for review of the taxation is made pursuant to O 66 r 55 and r 56 of the RSC which provide as follows:

(1) If a party is dissatisfied with the certificate of the taxing officer as to any item or part of an item objected to under rule 53 of this Order, he may, within 14 days from the date of the certificate, or such other time as the Court, or the taxing officer at the time he signs his certificate, allows, apply to a Judge in chambers for an order to review the taxation as to that item or part of an item.

(2) The judge, if of opinion that the taxing officer has made an error in principle, may thereupon make such order to rectify the error as the Judge thinks just.

(3) The certificate of the taxing officer is final and conclusive as to all matters which have not been objected to in accordance with these rules.

No further evidence on review except with leave

An application under rule 55 to a Judge to review the taxation shall be heard and determined by the Judge upon the evidence which has been brought in before the taxing officer, and further evidence shall not be received upon the hearing of the application unless the Judge otherwise directs.

27 Before considering the application to review the taxation, it is appropriate to set out the general legal principles applicable on review of a taxation of costs. The relevant legal principles I believe can be stated as follows:

The decision of the taxing officer on all questions of fact is final (O 66 r 43 of the RSC).
A very wide discretion is left to a taxing officer: Clay v Karlson (Unreported, WASC, Library No 970424, 21 August 1997) (Heenan J). A Judge may only interfere with a decision of a taxing officer if the Judge is of the opinion the taxing officer has made an error in principle (O 66 r 55 of the RSC).
An error in principle may occur both in determining whether an item should be allowed and in determining how much should be allowed. A Judge will only interfere with the taxing officer's assessment if the discretion appears not to have been exercised at all or has been exercised in a manner that is manifestly wrong. When the question is one of amount only, the court will only interfere in an extreme case: Australian Coal and Shale Employees Federation v The Commonwealth [1953] HCA 25; (1953) 94 CLR 621, 628 629 (Kitto J). A decision as to quantum alone might be so outrageous as to speak for itself and show that the taxing officer did not exercise his discretion in a proper manner: Theocharides v Joannou [1955] 1 All ER 615, 620 (Harman J); Clay v Karlson (4) (Heenan J).
When costs are being assessed on an indemnity basis, provided they are costs of and incidental to the proceedings (or in the case of indemnity costs payable under an agreement, they are of or incidental to the subject matter of the indemnity) then the party entitled to the indemnity costs is entitled to recover the full costs claimed, subject only to the qualification that they are liable to be reduced in respect of anything that the taxing officer considers fall within the description of an 'unreasonable amount' or 'reasonably incurred'. In EMI Records v Ian Wallace Ltd [1983] 1 Ch 59, Sir Robert Megarry VC stated:

On a party and party taxation, nothing will be included unless the taxing master reaches the conclusion that it satisfies the requirement of 'necessary or proper.' Similarly, where the taxation is on the common fund basis, the taxing master will include nothing unless he considers that it satisfies the requirement of 'a reasonable amount in respect of all costs reasonably incurred.' On neither basis do the rules give the benefit of any doubt to the party in whose favour the order has been made. Nothing is included unless it satisfies the words of inclusion. The indemnity basis, as I would construe it, is the other way round. Everything is included unless it is driven out by the words of exclusion, namely, 'except in so far as they are of an unreasonable amount or have been unreasonably incurred (71 72).

A threshold issue on a claim for indemnity costs is that the costs claimed are of or incidental to the subject of the indemnity: EMI Records v Ian Wallace Ltd (71). In context of an indemnity order in an action Nicholson J in Co-operative Bulk Handling Ltd v Ballato (Unreported, WASC, Library No 9116, 25 October 1991) identified the following steps:

[T]he steps necessary to be taken before the Master are:-

(1) for the receiving party to lead such evidence as it wishes to rely upon to establish that the costs claimed were incurred of and incidental to the proceedings;

(2) for the paying party to lead evidence to persuade the Taxing Officer that the evidence led by the receiving party adduced fails to establish that the costs in whole or in part were 'incurred of and incidental to the proceedings';

(3) for the paying party to demonstrate in the appropriate evidentiary manner to the Taxing Officer that the cost or some of them were unreasonably incurred or are unreasonable.

Where the details as to reasonableness are exclusively in the possession of the practitioner and the practitioner refuses to disclose these details on the grounds of professional privilege then, in the absence of some other material available to assist in relation to the issue of reasonableness, the amount claimed should be disallowed as the taxation would be otherwise arbitrary: Clay v Karlson.

28 The chamber summons filed by ZGTeek commencing the review procedure before a Judge seeks a review of items identified in the Notice of Objections dated 24 January 2012.

29 The Notice of Objections dated 24 January 2012 divided the items objected to into five areas of challenge. The five areas of challenge and the grounds for each area of challenge can be summarised as follows:

Items: 4 9. The items claimed were unrelated to the debt.
Items: 1, 2, 3, 14, 17, 29, 55, 56, 65, 69, 70, 82, 83 and 90. The taxation officer erred in principle in finding that the amounts claimed were not unreasonable.
Items: 31, 35, 37, 61 and 68. The taxing officer erred in principle in finding that the amounts were not unreasonable.
Items: 20 23, 32, 39, 43, 46 47, 54, 76 and 68. The taxing officer erred in principle in finding that the amounts were not unreasonable.
Items: 24, 30, 45, 48 53, 57 59, 62 64, 66 67, 70 74, 78, 79, 84 86. The taxing officer erred in principle in making an allowance for these items given that:

5.1 the work involved did not require the skill of a legal Practitioner;

5.2 the services bore no apparent relation to the enforcement of the debt because Skyvale had not taken possession of the South Guilford properties and was not in a position to sell them; and

5.3 the claims are not attended by any written memoranda or correspondence.

30 Annexure A to this decision reproduces each of the items of the bill of costs which are covered by the five areas of challenge.

Review of taxation 1. Failure to comply with the threshold test

31 In written submissions filed on behalf of ZGTeek [10] it was contended that the Registrar erred in principle on all items nominated for the purposes of the review by failing to apply what was described in the submissions as 'the threshold test in EMI records (ie, to establish a proper nexus between the items claimed and the loan agreement)'.

32 This was a ground of objection raised on the review before the Registrar on the first and fifth areas of challenge, but not on the remaining areas of challenge. The ground of objection on review before the Registrar on areas of challenge 2, 3 and 4 was that the Registrar erred in principle in finding that the amounts claimed were not unreasonable. In some jurisdictions in Australia there is an express provision which prohibits a party raising new grounds of objection on a review before a Judge. In other words, the party is confined to the same grounds of objection raised on the review before the taxing officer (for example, see Supreme Court (General Civil Procedure) Rules 2005 (Vic) O 63 r 57.6; the Uniform Civil Procedure Rules 1999 (Qld) r 742(5)). However, the RSC contain no such express limitation. The only relevant limitation contained in O 66 r 55 and r 56 is that the review is confined to the same items of the bill of costs raised on review before the taxing officer and the review of the taxation by the Judge shall be heard and determined by the Judge upon the evidence which has been brought in before the taxing officer unless the Judge otherwise directs.

33 The practitioner did not object to the new grounds of objection. Given that the practitioner has not raised the issue and in the absence of express prohibition within the rules, I conclude that the amended grounds of objection should be dealt with. I believe that on review of a taxation before a Judge, a party should be allowed to raise an alleged error in principle albeit that it was not raised on the review before the Registrar. This avoids the potential of an injustice occurring.

34 It is clear from the decision in EMI Records v Ian Wallace Ltd that, before the question of reasonableness is considered on any item of a bill of costs, it must be established that the item is related to the subject matter of the obligation to give an indemnity. This the Registrar understood. In her written reasons for rejecting the Notice of Objections, dated 24 January 2012, the Registrar stated as follows:

Where costs are to be taxed on an indemnity basis, the paying party will pay all of the costs incurred by the practitioner, except so far as they are of an unreasonable amount or have been unreasonably incurred. It is not for the practitioner to establish that the costs were of a reasonable amount and reasonably incurred: EMI Records Ltd v Ian Cameron Wallace Ltd [1983] 1 Ch 59 at [71].[8]

Therefore, to the extent that the amounts claimed in the bill of costs were incurred in connection with those categories listed in the loan agreement, the practitioner is entitled to recover them (the rates provided in the Solicitors Costs Determination 2007), subject only to the exception that they will be reduced to the extent that they were unreasonably incurred or of an unreasonable amount [9]. (emphasis added)

35 Further it is evident that the Registrar understood and applied these principles that there must be a connection between the items claimed and the Loan Agreement as she disallowed some items in the bill of costs on the ground that they did not relate to the debt. For example, items 25 and 26 of the bill of costs were disallowed in total because the Registrar concluded she was not satisfied they were related to the Loan Agreement (ts 76 77). Likewise item 31 of the bill of costs (which is a part of the third area of challenge - see Annexure A) the Registrar disallowed two hours of the claimed three hours on the basis of concluding that only one hour was related to the Loan Agreement (ts 81 82).

36 However, the essence of the submission on behalf of ZGTeek is that the Registrar made an error in principle by placing an onus on ZGTeek to establish that the items were related to the debt the subject of the Loan Agreement. When dealing with item 1 of the bill of costs, the Registrar stated:

At this stage I am not satisfied by item 1 of the submissions as to what these discussions relate on the evidence that I have, and given that the onus is on the charged, then that necessarily falls in favour of the practitioner (ts 41).

37 I accept that this statement by the Registrar constitutes an error in principle on the basis that the Registrar confused the quantum principle that all costs claimed are allowed, subject to the qualification that they are liable to be reduced in respect of any thing that is unreasonable, with the threshold issue that any item claimed must be of or incidental to the subject of the right of indemnity: EMI Records v Ian Wallace Ltd.

38 Counsel appearing for the practitioner also in his submissions reinforced the error by suggesting that ZGTeek had the onus of establishing that the items claimed were not related to recovery of the debt. In relation to item 1 of the bill of costs, he submitted as follows:

FORBES, MR: Registrar, bearing in mind where the onus rests, Mr Pollock, who is - well, Mr Michael Britten was the solicitor for ZGTeek at the time. Kevin Pollock was a consultant to ZGTeek at the time. It is well within the party charge's [sic] knowledge. It isn't as if this was a meeting was held in their absence.

What does the party charge [sic] say happened there?They accept the meeting took place, and I was busy explaining how it came about when I was interrupted. But given the situation with the onus, especially with items such as this, and there are many more where there are meetings with Mr Pollock. Mr Pollock was there. Presumably he has provided some sort of instructions to his solicitors, or the party charge's [sic] solicitors, about what happened at those meetings (ts 33).

39 In my opinion, this error in principle permeates the reasoning of the Registrar on each of the items contained in the five areas of challenge. This is so even though on some items the Registrar was satisfied that a portion of the hours claimed did not relate to the Loan Agreement. For example, in relation to item 17 the Registrar was not satisfied that all of the hours of professional services claimed related to the debt, and taxed off $672.50. However, the Registrar placed an incorrect onus on ZGTeek to prove, in relation to the balance of the professional time claimed, that it was not related to the debt.

40 However, in my opinion there is a further consideration that arises from the contents of the affidavits of Mr Lurie and Ms Cooper. These affidavits provide evidentiary material that establish that each of the items included in the bill of costs relate to professional services provided by the practitioner in relation to recovery of the debt. For example, in relation to items 1 to 3 of the bill of costs (see Annexure A), the general description of the discussions that occurred can be read with the affidavit of Mr Lurie that states that a series of discussions occurred with Mr Kevin Pollock to encourage ZGTeek to sell the mortgaged property to discharge the debt, and that the invoiced items claimed only relate to work done in relation to the recovery of the debts pursuant to the Loan Agreement. As mentioned earlier in this decision, other than relying upon the content of a letter dated 28 June 2008 and a reamended statement of claim filed by Skyvale in Supreme Court action CIV 2445 of 2010, counsel for ZGTeek elected not to crossexamine or call evidence on behalf of ZGTeek in relation to the issue of whether the items claimed in the bill of costs related to the debt.

41 In my opinion, if the affidavits of Mr Lurie and Ms Cooper are taken into account, the practitioner had established a prima facie case that the items claimed were related to the recovery of the debt pursuant to the Loan Agreement. Under the threestep process identified by Nicholson J in Cooperative Bulk Handling Ltd v Ballato, an onus then fell upon ZGTeek to persuade the Registrar that the items were not related to the recovery of the Loan Agreement. It could be argued that the onus that thereby fell upon ZGTeek under this threestep process produces the same result that arises from the onus of proof placed upon ZGTeek by the Registrar. Accordingly, it could be argued that the Registrar's assessment should not be altered as the error in principle that occurred has no practical consequence.

42 However, in my opinion, a potential for injustice arises because counsel for the practitioner did not make it clear that he was relying upon the contents of Mr Lurie's affidavit to establish that the items in the bill of costs were related to the debt. The affidavit was filed in separate proceedings. Counsel for the practitioner did not at any time during the taxation refer the Registrar to the contents of Mr Lurie's affidavit. In such circumstances, counsel for ZGTeek may have been misled as to the evidence being relied upon by the practitioner and decided to rely upon the absence of evidence produced by the practitioner (and accordingly, elected not to crossexamine Mr Lurie or call other evidence).

43 For the above reasons I conclude this ground of review which applies to all items included in the review should be upheld.

44 Where an error in principle has occurred, the Judge on review of the taxation can make such an order to rectify the error as the Judge thinks fit: O 66 r 55(2). In this matter, counsel on behalf of ZGTeek submits that I should make my own assessment of whether the items relate to the subject of the right of indemnity and if so make an assessment of the amount claimed. However, based upon my reasons above, that would potentially create an injustice for ZGTeek as ZGTeek would be denied the opportunity to present evidence to challenge the affidavit of Mr Lurie.

45 In the circumstances, I conclude that I should remit the matter back to the Registrar to reconduct the taxation according to the law. Notwithstanding this conclusion, I believe it is still appropriate that I deal with the remaining grounds of review argued before me.

46 On items 4 to 9 (first area of challenge) ZGTeek submits that an error in principle is manifested by the failure of the Registrar to give adequate weight to evidence which ZGTeek contends positively establishes that items 4 to 9 were not related to the debt.

47 The essence of the submission of counsel for ZGTeek in relation to items 4 to 9 was that the Registrar did not apply the correct test as the letter dated from the practitioner to ZGTeek dated 27 June 2008 demonstrates that the work performed as claimed in items 4 to 9 (and also items 1 to 3 - in the second area of challenge in Annexure A) related to a demand of $330,000 which was not related to the debt covered by the Loan Agreement. It was contended that this was confirmed because in the reamended statement of claim filed by Skyvale in Supreme Court action CIV 2445 of 2010, no credit was recorded for the payment of $330,000 made pursuant to this demand in the particulars of the outstanding debt owed by ZGTeek to Skyvale.

48 However, the submission on behalf of ZGTeek ignores the following:

(i) Firstly, the content of the affidavits of Mr Lurie and Ms Cooper which provide evidence that in June 2008 extensive negotiations were conducted with Mr Kevin Pollock representing ZGTeek with a view to organising a reduction in debt, and that the time spent in these negotiations was recorded in the timesheets of the practitioner.

(ii) Secondly, the debt owed by ZGTeek was a part of a complex ongoing arrangement to provide financial support not only to ZGTeek but to other companies forming part of the Pollock group of companies.

(iii) Thirdly, the content of the letter dated 27 June 2008 confirms the content of the affidavit of Mr Lurie that negotiations had taken place concerning repayment of the debt. The letter expressly refers to a number of matters:

(b) that ZGTeek and Moonspark had failed to pay $330,000 on account of their debts (the debts of both companies were referred to collectively);

(c) that if Walthamstow paid on behalf of ZGTeek and Moonspark the sum of $330,000 then Skyvale would increase Walthamstow's priority over the Anvil Close and Steel Court properties (two of the properties included in the mortgage document securing the Loan Agreement) to the extent of the $330,000 paid; and

(d) that ZGTeek had undertaken to sell the South Guilford properties (the properties which were mortgaged to secure the debt) and on the sale of the property the debt owed by ZGTeek would be discharged in full. To further secure ZGTeek's indebtedness an absolute caveat would be registered over property owned by Moonspark.

49 Even if the demand payment of $330,000 was not credited against a loan account of ZGTeek, it is clear from the contents of the balance of the letter that the arrangements proposed were a part of securing the repayment of the debt owed pursuant to the Loan Agreement. Accordingly I reject the submission that it is evident from the contents of the letter dated 27 June 2008 that the attendances contained in items 4 to 9 of the bill of costs were unrelated to the Loan Agreement. On the contrary, on the basis of the evidence before the Registrar, I conclude that the Registrar was correct to treat these attendances claimed as being related to the debt.

50 For the above reason I dismiss this ground of review.

51 A further ground of review of the taxation relates to the quantum allowed on each area of challenge and/or their aggregate (which is $32,289.75). The contention of ZGTeek is that the amount allowed on each area of challenge or their aggregate was extraordinary given the scope of the work the practitioner was instructed to perform and the dual capacity of Mr Lurie as a director of Skyvale and as a principal of the practitioner.

52 In order to set aside an amount allowed on taxation on the grounds of quantum the amount allowed must be so extraordinary as to be demonstrable of an error in principle.

53 In Australian Coal & Shale Employees Federation v The Commonwealth, Kitto J stated (authorities omitted):

The court will always review a decision of a Taxing Officer where it is contended that he has proceeded upon a wrong principle, for the purpose of determining the principle which should be applied; and an error in principle may occur both in determining whether an item should be allowed and in determining how much should be allowed. Where no principle is involved, and the question is, whether the Taxing Officer has correctly exercised a discretion which he possesses and is purporting to exercise, the court is reluctant to interfere. It has undoubted jurisdiction to review the Taxing Officer's decision even where an exercise of discretion only is involved, and will do so freely on a proper case, using its own knowledge of the circumstances, but it will in general interfere only where the discretion appears not to have been exercised at all, or would have been exercised in a manner which is manifestly wrong; and where the question is one of amount only, will do so only in an extreme case (628).

54 In Mossensons (A firm) v Coastline Associates (Unreported, WASC, Library No 970661, 2 December 1997) Ipp J stated:

The point is that there must be an error in principle before a Judge will carry out a review under O 66 r 55. Although it is possible for an error in principle to be made in regard to the quantum allowed in respect of a particular item, that is generally regarded as unusual. In my opinion, an error in principle on this basis can only be established if it is shown that no taxing officer, acting reasonably, could ever have taxed the particular item in the amount in question (9).

(See also Forbes v Frigger [2009] WASC 77 [37]; Clay v Karlson.)

55 In this case counsel appearing on behalf of ZGTeek sought to characterise the overall work performed by the practitioner as being 'to effectively issue a couple of default notices' (ts 5). It was also contended there was no need to issue two default notices (or notices of demand).

56 In my opinion, the submission of counsel for ZGTeek fails to take into account the complex financial arrangement between Skyvale and ZGTeek. This financial arrangement must be viewed in the context of a multitude of loan arrangements in which Skyvale provided funding to the Pollock Group of companies.

57 The indemnity clause contained in the Loan Agreement is expressed in very wide terms. The liability arises 'in connection with any event of default or potential event of default' and is not confined to enforcement action. It also extends to legal fees in connection with 'any other amount required to be paid under any facility document not being paid on its due date'.

58 Given the complex financial arrangement between ZGTeek and Skyvale and given the wide terms of the indemnity provided, I am not satisfied that the amount awarded by the Registrar was so great as to constitute an error in principle and warranting that the award be set aside. The fact that Mr Lurie was both a director of Skyvale and acting as the principal of its solicitors may have provided a basis for crossexamining him to explore the extent to which it might be argued that the work performed by him was as a director only, but, in the absence of this issue being pursued by crossexamination, the Registrar was entitled not to take this issue into account. Further, in my view, the issue of two notices of demand was not unreasonable if the explanation provided in Mr Lurie's affidavit is taken into account, that the first notice of demand issued in December 2008 was not acted upon due to assurances from Mr Kevin Pollock that the mortgage properties were to be sold by ZGTeek to discharge the debt.

59 For the above reasons I also dismiss this third ground of review. However, I stress that my conclusion should not bind the Registrar on the taxation being reconducted as the evidence presented on the taxation may change the evidentiary foundations on the question of reasonableness.

First area of challenge Items 4 to 9 (amount allowed $4966.50)

Discussions with Michael Britten, Kevin Pollock, Eileen Newby and Jim Freemantle about payment of monies due (1 hour)

Discussions with Jim Freemantle, Steve Masel and Kevin Pollock about payment of debt (330K); review documents (2 hours)

Further discussions with Jim Freemantle about enforcement of securities and strategy for recovering funds; discussions with Steve Masel and Kevin Pollock; call Mintie Tantiprasut to arrange meeting (2 hours)

Reviewing security documents and loan schedule for Pollock Group; meeting with Jim Fremantle and Mintie Tantiprasut to discuss options and action to be taken to recover funds (2 hours 30 minutes)

Meeting with Jim Freemantle and Kevin Pollock about payment on account of outstanding amounts and proposal for Walthamstow to increase its priority on South Guildford properties; review security and title documents; discuss issues with Tarin Wilson (3 hours)

Discussions with Michael Lurie about meeting with Kevin Pollock; considering documents/correspondence needed to secure payment; reviewing title and company searches; drafting letter to Kevin Pollock; amending and settling caveat (2 hours 40 minutes)

Settle and draft changes to letter to Kevin Pollock about increased priority to Walthamstow and sale of South Guilford properties; telephone attendance on Steve Masel to discuss arrangements (1 hour 10 minutes)

Reviewing Michael Lurie's changes to letter; inserting mortgage details; discussions with Eileen Newby, Jim Freemantle and Michael Lurie about letter; settling letter (9:45 am 10:20 am; 11:00 am 11:20 am) (55 minutes)

Meeting with Steven Masel to discuss outstanding debt and priority arrangements; review Steve's statements and documentation; report to Jim Freemantle; draft note to Kevin Pollock about repayment of outstanding debt and sale or refinance of properties (6:00 am 7.30 am; 2:00 pm 3:00 pm)(2 hours 30 minutes)

Second area of challenge Items: 1, 2, 3, 14, 17, 29, 55, 56, 65, 69, 70, 82, 83 and 90 (amount allowed $10,260.25)

Discussions with Michael Britten, Kevin Pollock, Eileen Newby and Jim Freemantle about payment of monies due (1 hour)

Discussions with Jim Freemantle, Steve Masel and Kevin Pollock about payment of debt (330K); review documents (2 hours)

Meeting with Jim Freemantle and Kevin Pollock to discuss sale of South Guilford properties, amount of debt owing by group and repayment out of the proceeds of South Guildford properties; discussions with Steven Masel, Michael Britten, Jim Freemantle and Eileen Newby about payment process and discharges; review title and company searches; draft note to Kevin setting out Skyvale's position and circulate to all to review (7:45 am 9:00 am; 10:00 am 1:00 pm; 4:00 pm 5.30 pm) (5hours 45 minutes)

Meeting with Kevin Pollock and Eileen Newby to go through and discuss reconciliation of group debts (2 hours 30 minutes)

Meeting with Jim Freemantle and Kevin Pollock to discuss agenda in e-mail of 8 December 2008; draft email to Kevin about issues and follow up (4 hours)

Meeting with Kevin Pollock to 55.00 2,750.00 discuss projects and debt repayment proposal, draft to all reporting (8:00 am 12:00 pm; 2:00 pm 3:30 pm) (5 hours 30 minutes)

Long discussion with Kevin Pollock about outstanding monies and sale of Guilford properties (45 minutes)

Discussion with Kevin Pollock about auction of South Guildford properties and payment of cash, discuss with and read and reply to emails from Mary-Eileen Scanlan and Jim Freemantle about this and Walthamstow discharge of Mortgage

Discussion with Kevin Pollock about sale of South Guildford properties, discuss issues with Jim Freemantle (20 minutes)

Draft note to Kevin Pollock about Tony van den Dries' performance and issues arising from it, discussion with Ron Farris about sale of South Guildford properties (30 minutes)

Meeting with Kevin Pollock, read fax from Geoff Thomson, send to Kevin to review (2hours 30 minutes)

Telephone discussion with Kevin Pollock about offer from Geoff Thomson and reserve price considering for auction of 5 Anvil Close (20 minutes)

Meeting with Kevin Pollock to discuss settlement of Anvil Close and satisfaction of other Debts

Third area of challenge Items: 31, 35, 37, 61, 68 (amount allowed $2,618)

Discussions with Tony van den Dries about contract documents for North Beach; review documents and sign; discussions with Eileen Newby, Jim Freemantle and MaryEileen Scanlan about default notices; draft note to Kevin Pollock (9:30 am 11:00 am; 2:00 pm 3:30 pm) (3 hours)

Attendance at North Beach site, examination of contract, finalising letter to Daleside beneficiaries and forwarding to Jim Freemantle and Michael Lurie for comment and instructions, confer with Eileen Newby regarding invoicing of Skyvale work to ZGTeek, general examination of ZGTeek debt obligations, further follow up on Promenade and Davis indemnities (5hours 45 minutes)

Discussions with MaryEileen Scanlan, Jim Freemantle and Eileen Newby about outstanding debts and process and strategy for enforcement of securities (2 hours)

Discussions with Mary-Eileen Scanlan, Jim Freemantle and Eileen Newby about outstanding debts and process and strategy for enforcement of securities (2 hours)

Review searches of South Guildford properties, email advice to clients, telephone call to MLV Realty, email to Geoff Thomson, company search on Soiland Pty Ltd (2 hours 30 minutes)

Fourth area of challenge Items 20 23, 32, 39, 41, 43, 46 47, 54,76, 68 (amount allowed $5,533)

Discussion with Michael Lurie about preparing notices of demand; reviewing title and company searches; reviewing relevant provisions of loan agreements and mortgages; drafting notice of demand; discussions with Michael (10:40 am 12:10 pm; 2:00 pm 3:30 pm; 4:30 pm 4:50 pm) (3 hours 20 minutes)

Discussions with Michael Lurie about notice of default; further drafting notice of default (2 hours)

Settlement and draft changes to notice of demand (1 hour)

Reviewing security documents (assignment of NAB securities, loan agreement, guarantee and mortgage); further drafting notice of default (1 hour 30 minutes)

Finalising notice of demand ZGTeek, prepare charge for registration over Daleside Holdings Pty Ltd, confirming payout figure with Monica Cooper by email (1 hour)

General work on debt recovery, notices of demand, email to Fairweather Lemonis, review on Moonspark, ZGTeek loan, email to Monica Cooper (2 hours 42 minutes)

General work on debt recovery and notices of demand, letter to Daleside beneficiaries (1 hour)

Preparation of further Default Notices and letter to Daleside beneficiaries (2 hours 15 minutes)

Drafting and finalising letters to beneficiaries and Notices of Demand, confer with Michael Lurie and Eileen Newby (4 hours)

Formatting and issuing Default Notices, confer with Michael Lurie, confirm all current loan and fee schedule and amounts outstanding, search of caveat over South Guildford properties, confer with Michael (3 hours 30 minutes)

Review notice of default and Landgate requirements on mortgagee sale, confirm process with Michael Lurie, copies of Notice of default provided to client (2 hours 45 minutes)

Review searches of South Guildford properties, email advice to clients, telephone call to MLV Realty, email to Geoff Thomson, company search on Soiland Pty Ltd (2 hours 30 minutes)

Fifth area of challenge Items: 24, 30, 45, 48 53, 57 59, 62 64, 66 67, 70 74, 78 79, 84 86 (amount allowed $8,912)

Read, consider and reply to emails from Monica Cooper; read valuations from Burgess Rawson, advise all (1 hour)

Telephone calls to Kevin Pollock; discussion with Jim Freemantle about latest developments; discussion with David Lamb (MLV Real Estate) to discuss sale of South Guildford Properties; call Jim Freemantle to report; further discussions with Geoff Thompson about sale of properties (1 hour)

Telephone discussion with David Lamb and Geoff Thomson, discuss and instruct them on sale of South Guildford properties (1 hour)

Conference with David Lamb, Geoff Thomson, Michael Lurie and Eileen Newby regarding sale of South Guildford properties, attending to change of address for Daleside properties email to MLV Realty attaching scans of various documents and title searches (1:00 pm 2:00 pm; 2:00 pm 3:00 pm; 3:00 pm 3:40 pm) (2 hours 40 minutes)

Read and reply to email from Geoff Thomson at MLV Realty regarding Greenteak change of name, acquire ASIC search for change of name and forward to Geoff Thomson (20 minutes)

Confer with Michael Lurie and Jim Freemantle about action to be taken on recovery of Skyvale debts, telephone attendance on Geoff Thomson of MLV realty, review email correspondence from MLV Realty regarding valuation of properties of South Guildford (9:00 am 9:30 am; 2:00 pm 3:30 pm) (2 hours)

Email from Geoff Thomson with submission on South Guildford properties, reply and request for rental possibilities (20 minutes)

Email to Geoff Thomson regarding ZGTeek change of name (10 minutes)

Emails to and from Geoff Thomson regarding South Guildford properties (20 minutes)

Telephone attendance x 3 on Geoff Thomson regarding sale of South Guildford properties, review selling authority, confer with Michael Lurie and Eileen Newby (1 hour 30 minutes)

Read email and sale proposal from Geoff Thomson about South Guildford, discussion with Geoff about sale by auction rather than private treaty, send proposal to and discuss with Kevin Pollock (1 hour)

Read and reply to emails from Geoff Thomson about sale of South Guildford properties by mortgagee, discuss with Kevin Pollock, report to Jim Freemantle and Eileen Newby (30 minutes)

Meeting with Eileen Newby at 5 Anvil Close and Geoff Thompson viewing premises, meeting with Michael Lurie (3 hours)

Confer with Eileen Newby and Jim Freemantle regarding South Guildford properties, telephone attendance on MLV Realty regarding message for Geoff Thompson (15 minutes)

Telephone attendance on Geoff Thompson regarding sale of South Guildford (10 minutes)

Telephone attendance of Geoff Thompson regarding fencing and sale of 5 Anvil Close, email to and from Client (30 minutes)

Review Anvil Close and Guildford Road searches, conduct new searches of property, telephone attendance on Landgate requesting dealing information, fax to Landgate request dealing search, email to Michael Lurie (30 minutes)

Draft note to Kevin Pollock, about Tony van den Dries' performance and issues arising from it, discussion with Ron Farris about sale of South Guildford properties (30 minutes)

Read sale proposal from Ron Farris, discussion with him about realisable sale value of land, call Geoff Thomson to discuss (30 minutes)

Email from Geoff Thomson about South Guildford properties, telephone conference with Geoff, confer with Michael Lurie, telephone attendance on Geoff (50 minutes)

Telephone discussions with Ron Farris and Kevin Pollock about sale of South Guildford properties and issues arising, read email from Andrew Auret about site meeting, draft note to Tony van den Dries, discussion with Kevin Pollock about sale of both South Guildford properties (7:30 am 7:50 am; 8:15 am 8:35 am) (40 minutes)

Telephone discussion with Ron Farris about interest in and sale of South Guildford properties, call Kevin Pollock to discuss, discussions with Geoff Thomson about potential buyer preauction (50 minutes)

Read and reply to email from Geoff Thomson about offer for sale of 5 Anvil Close, discussion with Geoff about offer, discussion with Chris Farris and Kevin Pollock about sale of property before auction, further discussion with Geoff about presenting offer (1 hour 10 minutes)

Draft note to Chris Farris about sale of 2 Kalamunda Road (15 minutes)

Discussion with Chris Farris about offers for sale of South Guildford properties and view of market, report to Jim Freemantle (50 minutes)

Discussions with Geoff Thomson and Chris Farrel about sale of 5 Anvil Close and offer received from Durston, call Kevin Pollock to discuss response (1 hour)

Discussions with Chris Farris and Geoff Thomson about reserve price for sale of Anvil Close, conference all with Chris and Kevin Pollock about reserve, further discussions with Chris (9:00 am 9:40 am; 5:35 pm 6:35 pm) (1:40)

Court (General Civil Procedure) Rules 2005

At a glance

Court

Decision date

Before

Source

Judgment (167 paragraphs)

Legislation Cited (2)

Cases Cited (1)