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Australian Securities and Investments Commission v Atlantic 3 Financial (Aust) Pty Ltd[2004] QSC 133

Australian Securities and Investments Commission v Atlantic 3 Financial (Aust) Pty Ltd[2004] QSC 133

 

SUPREME COURT OF QUEENSLAND

 

PARTIES:

FILE NO/S:

Trial Division

PROCEEDING:

Application

DELIVERED ON:

7 May 2004

DELIVERED AT:

Brisbane

HEARING DATE:

2- 4 February 2004

JUDGE:

Mullins J

ORDER:

1.  That the costs and remuneration of Gregory Michael Moloney and Peter Ivan Felix Geroff as investigative accountants appointed pursuant to the order of McMurdo J made on 27 May 2003 (“the order”) in preparing the report referred to in para 13 of the order and of the supervision referred to in para 6 of the order be determined in the amount of $183,451.40 inclusive of GST.

2.  That the costs for reimbursement of expenses and disbursements incurred by Gregory Michael Moloney and Peter Ivan Felix Geroff as investigative accountants in the due course of preparation of the report referred to in para 13 of the order and of the supervision referred to in para 6 of the order be determined in the amount of $17,742.21 inclusive of GST.

CATCHWORDS:

CORPORATIONS LAW – MANAGED INVESTMENT SCHEME – WINDING UP BY COURT – accountants sought approval of their remuneration and disbursements for acting pursuant to a court order as investigative accountants and supervisors for unregistered managed investment schemes – objections by directors of the company conducting the schemes to remuneration and disbursements claimed by the accountants – accountants entitled to be remunerated for time occupied in undertaking the work required by the court order – whether time recording which allows for rounding down and rounding up of time worked by the accountants is a measure of the time occupied – whether remuneration claimed was fair and reasonable

Alkina Pty Ltd v Bendeich (unreported, D Ct (Q), 18 December 1998)

Anderson Group [2002] NSWSC 764; (2002) 20 ACLC 1,607

Re Conlan [2001] WASC 230

Lancet Pty Ltd v Olholm Developments Pty Ltd [2002] 1 QdR 22

Re Solfire Pty Ltd (in liq) (No 2) [1999] 2 QdR 182

Venetian Nominees Pty Ltd v Conlan (1998) 20 WAR 96

COUNSEL:

T P Sullivan for Messrs GM Moloney & PIF Geroff
P G Lynch (sol) for the second and third respondents

SOLICITORS:

Gadens Lawyers for Messrs GM Moloney & PIF Geroff
Lynch & Company for the second and third respondents

[1] MULLINS J:  This is an application by Gregory Michael Moloney and Peter Ivan Felix Geroff (“the accountants”) for approval of their remuneration and disbursements for acting pursuant to the order of this Court made on 27 May 2003 as investigative accountants and supervisors of certain managed investment schemes conducted by the first respondent.

Terms of order made on 27 May 2003

[2] The order that was made on 27 May 2003 was made by the consent of the parties, namely the applicant Australian Securities and Investments Commission (“ASIC”) and the first, second and third respondents. Paragraph 13 of the order was in the following terms:

“the Investigative Accountants, prepare and file a report to the Court and serve on the parties within 28 days in relation to the matters set out as follows:

(a)The nature of the assets and property of the Schemes;

(b)The potential claims available to third parties in relation to the assets and property of the Schemes;

(c)The extent of the assets and liabilities of the Schemes;

(d)The solvency of the Schemes;

(e)The value of the Scheme’s real property;

(f)Whether the Respondents have kept proper books and records in relation to the Schemes;

(g)Whether there are grounds to suspect the first respondent or its officers have contravened the Act.”

[3] The consent orders were prefaced by a number of undertakings given by the respondents including the second and third respondents.  Relevantly paras 6 and 9 of the undertakings were in the following terms:

“6.only do anything in relation to any asset or liability of the Schemes under and subject to the supervision of the Investigative Accountants and in doing so permit the Investigative Accountants to:

(a)review actions taken, and proposed to be taken, by the Respondents in relation to any asset or liability of the Schemes;

(b)provide the Respondents with advice on how to regularise or wind up the Schemes in an efficient and timely manner and;

(c)forthwith report to the Applicant on any other matter of concern to the Investigative Accountants in relation to the Scheme;

(d)direct the Second Respondent to cause the First Respondent and Atlantic 3 Funds Management Limited A.C.N. 092 110 097 (“A3FM”) (if they reasonably consider it necessary) to obtain independent valuations of real property in the Schemes.  The Investigative Accountants will nominate the valuer to be retained, who is prepared to enter into an external service providers agreement with A3FM.  The Investigative Accountants will have input into the instructions and methodology with respect to the engagement of the valuer;

And the Respondents;

(e)provide to the Investigative Accountants such information and give such access to and facilities for inspecting and taking copies of the books and records of the Schemes or of the Respondents which relate to the Schemes;

(f)answer in writing or orally any questions asked by the Applicant concerning:

(i)the report referred in paragraph 13 below;

(ii)the supervision referred to in this paragraph;

(iii)the Schemes;

(iv)the conduct or affairs of the respondents in relation to the Schemes.

9. pay the Investigative Accountants costs and remuneration of preparing the report referred to in paragraph 13 and of the supervision referred to in paragraph 6 hereof as agreed or determined by the Court making this order, such costs and remuneration being calculated by the Court on the basis of the time occupied respectively by the Investigative Accountants, their partners and employees and such costs being for reimbursement of such expenses and disbursements as shall be incurred or made in the due course of the preparation of the report and supervision and including the costs of any valuation required by the Investigative Accountants in relation to the preparation their report on the value of the Schemes’ real property or in their supervision of the Schemes.”

[4] For the purpose of the order the term “Schemes” was defined to mean the mortgage business operated by the respondents as described in para 36 of the affidavit of EC Givanakis dated 20 May 2003.  That paragraph of the affidavit did not identify any of the schemes by name or property, but described the general manner in which ASIC believed the managed investment schemes were being operated by the first respondent.

Nature of the application

[5] The accountants undertook the tasks entrusted to them by paras 6 and 13 of the order.  The report was filed in the court on 25 June 2003.  A supplementary report was filed on 30 June 2003.

[6] Corrs Chambers Westgarth, the solicitors then acting for the respondents, by letter dated 7 July 2003 (“the CCW letter”) addressed to ASIC, but which was copied to the accountants, set out a response on behalf of the respondents to the report and the supplementary report.  Mr Geroff prepared a response to the CCW letter which was Ex PIFG-4 to Mr Geroff’s affidavit filed on 16 July 2003.  After having considered the comments in the CCW letter and providing the response of 9 pages plus annexures, the accountants confirmed their recommendations contained in the report.    

[7] The report comprised 65 pages and contained extensive annexures which were 8cms in width.  One of the consequences of the report was that the respondents did not oppose the winding up of the 15 schemes identified in section 3 of the report and a winding up order was made by Fryberg J on 17 July 2003.  Until the appointment of a person to wind up the schemes was made, the accountants were appointed by Fryberg J to be the receivers of the property of the schemes.  The question of the identity of the person to carry out the winding up of the schemes was heard before me.  Some idea of the contents and use made of the report can be gleaned from my decision in Australian Securities and Investments Commission v Atlantic 3 Financial (Aust) Pty Ltd [2003] QSC 265; (2003) 47 ACSR 52.

[8] On 25 July 2003 the solicitors for the accountants forwarded tax invoices supported by schedules to the solicitors for the respondents. 

[9] The first invoice was for the period to 25 June 2003 and was for total fees and outlays including GST of $152,145.53.  The second invoice was for the period between 26 June and 17 July 2003 and was for total fees and outlays including GST of $52,142.38.

[10] As the invoices had not been paid by the respondents, the accountants filed the application on 11 September 2003 seeking that their remuneration as investigative accountants in preparing the report referred to in para 13 of the order and in the supervision referred to in para 6 of the order be determined in the amount of $186,545.70 inclusive of GST and that their costs for reimbursement of expenses and disbursements for the same activities be determined in the amount of $17,742.21 inclusive of GST.  That application was supported by the affidavit of Mr Moloney filed on 11 September 2003.

[11] Directions were given by the court for the conduct of the application which required the respondents to file and serve a notice of objection setting out the grounds and reasons of the respondents’ objections to any items of work claimed for in the tax invoices and for the accountants to file and serve their response to the notice of objection.  The notice of objection which was delivered on 30 December 2003 comprised 696 separate objections.  There was an element of speculation in the objections in that all possible objections were taken.  On 27 January 2004 the accountants filed a response to the notice of objection which provided a narrative response to each objection and incorporated 5 volumes of annexures from the files of the accountants to support the responses to the objections.  A further extensive affidavit of Mr Moloney was filed on 28 January and 2 further short affidavits of Mr Moloney were filed on 2 February 2004.  In one of the affidavits filed on 2 February 2004 Mr Moloney conceded that adjustments totalling $1,186.50 (of which $630 applied to the first invoice and $556.50 to the second invoice and which was exclusive of GST) should be deducted from the amount claimed as remuneration, as a result of errors in charging which had been identified in the bills. 

[12] By the time the application for approval of the accountants’ remuneration was heard, the first respondent was in liquidation.  It was therefore only the second and the third respondents who appeared to oppose the approval. 

[13] During the hearing of the application on 2 and 3 February 2004, the solicitor for the second and third respondents, Mr Lynch, cross-examined each of the accountants and some of the staff employed by them who had worked on the report.  They were Mr Matthew Jesse, Mr Kenneth Fung, Mr Andrew Fitton and Mr Dean Johns.  The purpose of the cross-examination was primarily to enable the respondents to obtain further details about the accountants’ charging practices and work systems in an endeavour to find support for some of the objections.  There was no attack on the credit of any of the witnesses or the quality or timeliness of the report. 

[14] Addresses took place on 4 February 2004.  At that time Mr Lynch expressly abandoned some categories of objections.  Mr Lynch indicated that the respondents did not object to any of the claims for remuneration for work done personally by Mr Moloney or Mr Geroff, except in respect of attending a meeting with officers of ASIC on 25 June 2003, the preparation of the supplementary report and the response to the CCW letter.  The only groups of objections that the second and third respondents wished to agitate, after the hearing of the further evidence, were those that fell within 8 areas that were identified in the respondents’ submissions (Ex 9): 

(a) work outside the scope of the appointment;

(b) unnecessary work;

(c) work done in error;

(d) work concerned with fee preparation;

(e) staff mix;

(f) 6 minute claims;

(g) preparation, drawing and engrossing of the report;

(h) disbursements.

[15] As the remuneration of the accountants must be determined by the court (in the absence of agreement by the respondents) pursuant to para 13 of the order, the position of the accountants is not dissimilar to that of court appointed receivers where the remuneration is ordered to be determined by the court or provisional liquidators where remuneration is determined by the court under s 473(2) of the Corporations Act 2001 (Cth).  It was common ground that one of the leading authorities on the nature of the hearing for fixing remuneration of provisional liquidators is Venetian Nominees Pty Ltd v Conlan (1998) 20 WAR 96 (“Venetian”).  The joint judgment of Kennedy and Ipp JJ (with whom Wallwork J agreed) identified (at 99) that the remuneration as determined must be fair and reasonable and described (at 102) the procedure for the determination as summary.  The following propositions were set out at 102-103:

“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 …

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.”

The joint judgment emphasised that the overriding principle was that sufficient information must be provided to the court to enable it to perform its function under s 473(2). 

[16] Venetian was followed by Shepherdson J in Lancet Pty Ltd v Olholm Developments Pty Ltd [2002] 1 QdR 22, 41-43 in determining whether remuneration claimed by court appointed receivers was fair and reasonable.  The process of determining whether the claimed remuneration is fair and reasonable does not require the item by item analysis that would be necessary on a taxation of solicitor’s costs:  Re Conlan [2001] WASC 230 at para [27].

Circumstances in which the tasks were undertaken

[17] The order of the court required the accountants to prepare and file the report within 28 days of 27 May 2003.  This involved a consideration of some 15 borrower groups making up loans comprising a total of $12,069,250 in outstanding investor funds spread across 372 investors.  Some of the loans were granted from as early as August 1992 and as late as December 2002 and some investors were still being placed into loans as late as May 2003.  The accountants found that there was an absence of written correspondence to investors regularly updating them regarding the status and the conduct of the loans and that the audit trail of documentation both in relation to the advancing of funds by investors and the making of loans by the first respondent was significantly deficient.  The accountants did not receive from the respondents any accounting for the source and application of funds for any scheme loan. 

[18] Another difficulty encountered by the accountants was the conduct of the directors in relation to the manner in which they responded to the information requests from the accountants.  Mr Moloney stated in his affidavit filed on 28 January 2004 that responses to the accountants’ inquiries were made by the respondents in the narrowest possible terms and that repeated requests had to be made to the first respondent for provision of information, some of which was never received or only received in part. 

[19] Mr Moloney also stated in that affidavit (and this was not controverted) that in some instances he believed the second and third respondents deliberately withheld information which was clearly relevant to the accountants’ investigations and that  some of the information that was provided by the first respondent was imprecise and poorly labelled.  Mr Lynch conceded that the second and third respondents did not advance their cause by their “reluctance to be fulsome on earlier occasions”.

[20] Because of the number of investors, the amounts invested and the allegations made by ASIC against the first respondent in respect of the conduct of the managed investment schemes, there was a real public interest in the court and the parties being provided with a timely and comprehensive report on the matters set out in para 13 of the order made on 27 May 2003.  It was an intensive exercise which required the accountants to allocate significant staff resources for the purpose, in order to meet the time prescribed for the report of 28 days.

[21] Upon being appointed, the accountants sent to the respondents by facsimile dated 29 May 2003 a copy of their firm’s fee schedule current as at 1 March 2003.  That schedule provided for staff classifications which reflected those which had been recommended by the Insolvency Practitioners Association of Australia (“IPAA”) in providing scales of fees for insolvency practitioners.  The last scale published by the IPAA took effect from 1 July 1999.  It was envisaged by the IPAA that with effect from 1 July 2000 practitioners would charge hourly rates in accordance with their own internal cost structures, having regard to the complexity and demands of each appointment.  The IPAA issued a document entitled “Statement of Best Practice – Remuneration:  1 July 2000”.  Mr Moloney stated that in calculating the claim for remuneration in this matter, the accountants applied the principles recommended by the IPAA.  Mr Moloney also undertook a comparison between his firm’s rates and those of a number of other Brisbane insolvency practitioner firms which showed that the accountants’ firm rates were competitive with those of the other firms.    No challenge was maintained by the respondents to the quantum of the rates used by the accountants.

Construction of para 9 of order made on 27 May 2003

[22] Some of the objections are directly related to the construction of para 9 of the order made on 27 May 2003.  Under para 9 there are 2 categories of activity for which the accountants are entitled to costs and remuneration.  The first is preparing the report referred to in para 13 of the order.  As para 13 of the order stipulates what matters are to be covered by the report, it follows that the accountants’ entitlement to costs and remuneration of preparing that report is limited to that part of the report that conforms with para 13 of the order.  The second activity for which the accountants are entitled to their costs and remuneration is the supervision referred to in para 6 of the order.  Under para 6 of the order, the respondents undertook only to do anything in relation to any asset or liability subject to the supervision of the accountants.  Then followed the stipulation in para 6 of what activities the respondents were obliged to permit the accountants to do in connection with the supervision.  The entitlement to costs and remuneration for supervision encompasses those specified activities, but also extends to additional activities performed by the accountants in connection with any act undertaken or proposed to be undertaken in relation to any asset or liability of the schemes.

[23] The method of calculation of the costs and remuneration of the accountants is specified in para 9 of the order as being “on the basis of the time occupied” by the accountants, their partners and employees. 

[24] It is submitted by the respondents that the applicants are entitled only to be paid for work properly undertaken by them calculated by reference to the time occupied by them in undertaking that work and that “occupied” must mean time actually spent by the accountants in doing the work.

[25] As a matter of construction of para 9 of the order the reference to “time occupied” as the basis for calculating the remuneration of the accountants is a reference to time spent on the tasks for which the accountants were entitled to be remunerated.

Work outside the scope of the appointment

[26] After the report was completed the accountants prepared for and attended a meeting with ASIC to explain the report.  It is submitted by the respondents that all work associated with the post-report conference with ASIC could not fairly be classified as an activity falling within either paras 6 or 13 of the order.  Although the accountants were appointed by the court on the application brought by ASIC, the obligation of the accountants was to report to the court.  Any conference with ASIC in order to explain the contents of the report was a matter for ASIC and cannot be characterised as part of the supervision required to be undertaken by the accountants or as part of the work in preparing the report.  The respondents are therefore successful with objections 656 and 657.  This results in the first invoice being reduced by fees of $1,560, before GST.

[27] The respondents claim that all work associated with the production of the supplementary report was outside the scope of the appointment, on the basis that it was done because it was convenient to the accountants.  The supplementary report disclosed that the accountants had previously acted or were then acting as liquidators of two companies which had dealt with the first respondent and gave details of the involvement of the accountants and one of their partners.  The supplementary report also provided an explanation for why the accountants had not reported on the value of the schemes’ real property as required by para 13(e) of the order made on 27 May 2003. 

[28] As a result of Mr Geroff and Mr Moloney reviewing the contents of the report on 24 June 2003, they decided that the information which became the subject of the supplementary report should also be disclosed.  The accountants decided that the incorporation of these additional matters in the report that had been prepared on 24 June 2003 could not be achieved without delaying the provision of the report to the court and parties.  The decision therefore was made to provide the information by way of supplementary report. 

[29] The information that was disclosed in the supplementary report would have been quite properly included in the report itself.  The costs claimed for the supplementary report by the accountants are $1,658 (exclusive of GST).  In view of the time frame within which the court required the report, it was an unexceptional decision on the accountants’ part to furnish the information by way of a supplementary report, rather than delaying the provision of the report.  The supplementary report cannot be characterised as work outside the scope of the appointment. 

[30] The respondents also submit that all work undertaken by the accountants in preparing the response to the CCW letter was outside the scope of the appointment.  The amount claimed by the accountants for that response is $17,059.50 (exclusive of GST). 

[31] Mr Moloney explained that, as the CCW letter related directly to the content of the report and the supplementary report and alleged various inaccuracies in those reports, the accountants provided a response, so that any errors that had been made in the reports were acknowledged and corrected and the allegations of error which the accountants considered were baseless were also advised.  Mr Moloney stated that the accountants sought to fully inform the court and the parties in respect of the issues relevant to the matters on which the accountants had reported on, in order to ensure that full and accurate information was provided to the court. 

[32] It was apparent from what the accountants were required to report on pursuant to para 13 of the order that the report was critical to how the court would deal with ASIC’s pursuit of an order winding up the schemes.  No doubt this was what prompted the respondents to instruct their solicitors to write the CCW letter which responded in general terms to both the report and the supplementary report and specifically to what were described as “Factual Errors Relating to the Schemes Contained in Ferrier Hodgson’s Reports”.  A perusal of the accountants’ response confirms that it is responsive to the CCW letter and, as a result, can be characterised as being ancillary to the report.  By forwarding the CCW letter to the accountants, the solicitors for the respondents invited the response which was generated.  The accountants’ response to the CCW letter falls within the scope of the appointment to report to the court.      

[33] The respondents also objected to remuneration to the extent it was attributable to work undertaken by the accountants in their capacity as interim receivers from 17 July 2003.  Apart from the sum of $556.50 which was one of the adjustments made by Mr Moloney in his affidavit filed on 2 February 2004, there is no remuneration claimed by the accountants in the subject invoices for work done as the interim receivers.  

Unnecessary work

[34] The respondents submit that no remuneration should be recovered by the accountants for work undertaken on the Baynes and Citronella loan schemes from the time when the accountants knew, or ought to have known, that these schemes had already been wound up by the date of their appointment. 

[35] During the hearing Mr Moloney was cross examined on the accountants’ files in respect of each of the Baynes and Citronella schemes.  It was apparent that most of the documents on each of these files had been obtained by the accountants from ASIC.  It was common ground that the schemes had been wound up by the date of their appointment, although that was not known by the accountants at the time of their appointment.  Mr Moloney stated that when it turned out that a loan was no longer current, they did not continue with their investigations, except to the extent that the accountants may have received correspondence relating to those matters.   Mr Moloney gave the example that on the Baynes file correspondence had been received from Darvall & Darvall, the former solicitors for the first respondent, in respect of a claim for outstanding legal fees.  Mr Jesse confirmed that no further work was done in relation to those files, when the accountants became aware that the loans had been discharged. 

[36] The respondents seek a further examination of the Baynes and Citronella files in order to work out exactly what the date was when the accountants knew or ought to have known that the schemes were not operative.  That is unnecessary. I am satisfied on the basis of the evidence of Mr Moloney and Mr Jesse that the accountants did not undertake further investigations, after becoming aware that these loan schemes were no longer operative. 

Work done in error

[37] The respondents submit that no remuneration should be recovered by the accountants for the re-drafting, editing, reviewing or rewriting of letters and documents including the report, in circumstances in which the necessity for the re-drafting, reviewing, editing or rewriting of letters and documents did not arise directly from an act or omission of the respondents. 

[38] The respondents submit that the present state of the evidence does not permit the court to determine the cause of the re-drafting, editing, reviewing or rewriting of letters and documents, as evidence would need to be adduced of the earlier draft versions of the letters and documents, in order to determine the reason why the document required further work. 

[39] The respondents therefore seek an order referring this aspect of the claim for remuneration to a registrar to enable an inquiry to be undertaken as to the reasons for the various drafts of documents and letters, so that the matter could be returned to court for rulings on the remuneration, having regard to the findings of the registrar.

[40] Mr Moloney undertook the primary responsibility for the supervision and the preparation of the report required of the accountants.  Mr Moloney had Mr Jesse, who is classified as a manager 2, as his primary support person in doing so.  The size, complexity and time frame of and general constraints applying to the task to which the accountants were appointed required a high level of involvement by Mr Moloney to ensure that the accountants adequately discharged their duty to the court.  Mr Jesse was required to have equal knowledge and involvement in the engagement, in order to effectively provide direction and supervision of the subordinate staff.  Individual schemes were allocated to professional staff members under the supervision of Mr Moloney and Mr Jesse.

[41] Those staff members who were allocated the schemes to work on were in Mr Jesse’s team.  The team had prior recent experience in the winding up of an unrelated managed investment scheme.  The hierarchical structure used by the accountants meant that the professional staff members who were working on individual schemes would take instructions from and have their work reviewed by Mr Jesse and/or Mr Moloney.  It would not have been feasible for the accountants to undertake the tasks required of them by the order made on 27 May 2003, unless the work was able to be divided up amongst staff members under appropriate supervision and coordination. 

[42] Because there were many instances that could be gleaned from the invoices of reviewing or redrafting a letter or part of the report, the respondents proposed that unless the amendment, review or editing arose directly from an act or omission of the respondents, the accountants were not entitled to be remunerated for that amendment, review or editing.  There is no authority whatsoever for this proposition.  It is clearly the wrong test.  It is para 9 of the order made on 27 May 2003 which provides for the remuneration of the accountants for the tasks given to them by that order.  The test is not whether a particular item of work was required, as a result of an act or omission of the respondents, but whether the remuneration that is sought by the accountants is fair and reasonable for the tasks required to be undertaken on the basis of the time occupied by them in doing those tasks.  The requirement that the remuneration be fair and reasonable gives scope to inquiring into the actual work that was undertaken.  The focus of the inquiry, however, starts from the remuneration that is sought for the tasks undertaken, rather than starting from each individual piece of work that went into carrying out those tasks.

[43] Mr Moloney conceded that there would have been errors in letters requiring a redraft which would have been grammatical or spelling errors.  He stated, however, that there was an expectation amongst staff that when they recorded their time, they would take into account any “straight” errors in what they then recorded as the time spent on the work. 

[44] Mr Moloney explained that the nature of the report that was being produced was such as to necessitate many drafts and reviews, as information became available, particularly having regard to the piecemeal and incomplete manner in which information was provided by the first respondent.  Mr Moloney explained that a letter drafted by a staff member may have been amended by Mr Jesse or him, because of additional material which they may have required to be included, because of their greater involvement in the work. 

[45] Before the invoices were prepared by the accountants, Mr Moloney and Mr Jesse reviewed what was to be charged, with a view to ensuring that the amount claimed was fair and reasonable and took into account any inefficiencies which may have occurred.  Mr Moloney instructed Mr Jesse to write off remuneration of $13,197.25 (inclusive of GST) and write off disbursements of $2,242.52 (inclusive of GST).  The write off of professional time was done by reducing the number of hours of certain entries of the professional staff members.

[46] It was submitted by the respondents that as these fees were written off and were not the subject of the claim for remuneration, evidence of that was “strictly inadmissible” on the basis that work for which no claim is made is not evidence of the reasonableness or fairness of work which is the subject of the claim.  Apart from the fact that the fixing of remuneration is part of the supervisory function of the court and that the rules of evidence are not strictly observed (Venetian at 102), the very reason for the write off was to take account of possible inefficiencies which is the gist of the respondents’ complaint in this category of objection.  It is relevant and admissible that the accountants reviewed the charges, according to the time recording, and made a decision to reduce what was claimed, as part of the process of being able to justify the remuneration claimed as being fair and reasonable. 

[47] The respondents relied on the approach taken by Barrett J in Anderson Group [2002] NSWSC 764; (2002) 20 ACLC 1,607 to propose the referral of the remuneration to a registrar to make findings on the reasons for the various drafts of documents and letters, before the question of this aspect of the claim for remuneration could be resolved by the court.  In Anderson Group a liquidator who resigned obtained an order from the court directing the new liquidator to pay to him his proper fees, costs and expenses incurred as liquidator.  A contributory of the company objected to the remuneration claimed by the former liquidator and alleged misconduct, such as failing to conduct a proper investigation of the affairs of the company, not conducting the winding up with due dispatch and not acting impartially.  Barrett J refused to strike out the objections to the remuneration on the basis that the propriety of a liquidator’s conduct was a factor relevant to the court’s exercise of power to fix remuneration.  In the circumstances of that case Barrett J considered that the matter should go to a registrar to determine the amount of reasonable remuneration for the liquidator in the usual way, ignoring the merits of the objections, but separating out the areas of work or the time periods to which the objections related, so that the court would then be in a position on determining the merits of the objections to fix the remuneration by reference to the allocation of the remuneration made by the registrar to the various items of work. 

[48] Such a process is completely unnecessary in this matter.  There are no allegations of misconduct against the accountants.  The inquiry which the court is undertaking is the fixing of fair and reasonable remuneration for the tasks required to be undertaken.  I am satisfied from the evidence adduced on behalf of the accountants that the systems which they had in place for the undertaking of the work and the review of the charges were such that what is claimed for remuneration has taken into account inefficiencies for which it would not be fair or reasonable for the accountants to seek remuneration.           

Work concerned with fee preparation 

[49] It was common ground between the accountants and the respondents that the accountants were not entitled to remuneration for work concerned with the production of timesheets to support the claim for remuneration.  During the cross examination of the witnesses, it was not apparent that any fees had been charged for work concerned with fee preparation or production of timesheets.  After the hearing, the solicitors for the respondents conveyed that the respondents were no longer pressing this category of objection. 

Staff mix

[50] The respondents had undertaken an analysis of the schedule of professional fees claimed by the accountants for the periods 27 May 2003 to 25 June 2003.  The accountants’ schedule of fees comprises Ex GMM-13 to the affidavit of Mr Moloney filed on 11 September 2003.  The respondents’ analysis of those fees is Ex 7.  Mr Moloney accepted the accuracy of the analysis undertaken in Ex 7.  That analysis shows that on the basis of time claimed, 87.94% of the time charged was attributable to professional staff with the balance to non-professional staff.  Of the charges, 93.7% was attributable to professional staff and the balance to non-professional staff. Mr Moloney accepted that the analysis disclosed a high utilisation of staff on the higher classifications for the purpose of the tasks. 

[51] Many objections were made by the respondents on the basis that numerous tasks done by professional staff could have been done by juniors and clerks. 

[52] In relation to filing, Mr Moloney explained that the files for the schemes were kept in the area in which the team was working, rather than in the firm’s general compactus area.  Because of the speed with which information was being gathered and dealt with, it was imperative that the filing was kept up to date.  Mr Moloney stated that it was more appropriate and efficient for the staff member who had the day to day control of the file to do the filing, as the material was being received or generated. 

[53] In relation to spreadsheeting, much of the information about the loans and investors was entered on Excel spreadsheets.  The respondents objected to the fact that the entry of the data onto the spreadsheets was done by professional staff and not WP operators.  Mr Moloney explained that the spreadsheeting skills of the WP operators were generally not as strong as those of the professional staff and that because the professional staff were working on the assignment and obtaining the information and given their skills in spreadsheeting, it was faster and more efficient for the professional staff to incorporate the information into the spreadsheets.   

[54] The respondents submit that the current state of the evidence is not sufficient to make a finding as to whether in each circumstance, the utilisation of professional staff was more or less expensive than using junior staff.  This submission misses the point that the report was required within 28 days of the appointment of the accountants.  It may have been cheaper to wait for a junior staff member to undertake filing or enter data onto spreadsheets, but that would have sacrificed the timeliness of the work required of the professional staff member.  I am satisfied from the explanations of Mr Moloney that it was reasonable in the circumstances to use the staff mix that was used in the tasks undertaken by the accountants.  The exercise now proposed by the respondents is unnecessary and futile. 

[55] Mr Lynch placed much reliance on statements found in the judgment of Boyce DCJ in Alkina Pty Ltd v Bendeich (unreported, D Ct (Q), 18 December 1998).  That was a decision on what remuneration a receiver appointed by a mortgagee under a mortgage debenture to the business of the mortgagors was entitled to recover.  The primary issue was whether the remuneration claimed was excessive and unreasonable.  There were express findings of over-servicing and over-charging.  In the context of that case, Boyce DCJ made the following statement at p31:

“… I consider that it is necessary that charges be made appropriate to the type of employee who could have employed the task.  If the work is in fact done by another person who is on a higher classification, it is not appropriate for the more highly qualified employee to make a charge appropriate to his particular classification.”

That statement is not one of general principle.  It cannot be transposed to the circumstances in which the tasks were undertaken by the accountants, as a result of the imposition by the court of a significant time constraint on undertaking those tasks. 

6 minute claims

[56] The respective hourly rates charged by the accountants and the staff members were charged on the basis of time recorded by staff members in 6 minute units.  The firm used Solution 6 software which allowed each staff member to record a contemporaneous diary note of the item of work when making an entry on the electronic time sheet.  Mr Moloney explained that the firm had an “unders and overs” policy.  Staff were instructed that where tasks were undertaken for less than 3 minutes, no charge was made, but where tasks took in excess of 3 minutes, but less than or equal to 6 minutes, 1 unit of 6 minutes was charged.  The same approach was used where a task took in excess of 1 unit, the time was rounded up or down to the nearest whole unit.

[57] Mr Moloney also explained that the impact of charging in 6 minute units was lessened in this matter, because large blocks of time were being worked by the professional staff members, in contrast to the situation where an employee would work on one file, then another file and then another file.  There were therefore less instances of rounding to the nearest unit.  The natural consequence of having an unders and overs policy was that the unders to some extent were compensated for by the overs.  The other means by which control was exercised over the amount recorded was the review that was undertaken by Mr Moloney and Mr Jesse at the time of preparing the bills, when there was a write off of some of the time to account for inefficiencies. 

[58] Provided the result of the time recording is an accurate reflection of the time actually spent in working on the matter, charging by reference to time recording equates with charging for the time spent in doing the work.  Again, it is not a matter of looking at each item in which the time taken for undertaking the work was rounded up to the nearest 6 minute unit (as the respondents seek to have done), but looking at the overall effect of the systems employed by the accountants for recording and charging of time.  I am satisfied that the systems and practices of the accountants in relation to this matter resulted in the time recording which was reflected in the charges for remuneration actually made by the accountants equating to time spent in doing the work for which the accountants were entitled to charge under the order. 

[59] The accountants conceded that Mr Johns did not adopt the rounding up, rounding down policy at all times throughout the period to which the first invoice relates.  There were seven instances on which Mr Moloney was cross-examined when Mr Johns claimed for time by rounding up, when, in accordance with the firm’s policy, he should have rounded down.  The accountants conceded that Mr Johns’ time should be reduced by 0.7 hour.  As his charge out rate was $95, this makes a reduction of $66.50, before GST.      

Preparation, drawing and engrossing of the report

[60] The respondents submit that on its proper construction para 13 of the order does not permit the accountants to recover remuneration for specified sections of the report under the headings “History of Loans”, “Criticisms and Deficiencies” and “Recommendations”. 

[61] With respect to ascertaining and reporting of the history of each of the loans, Mr Moloney set out in para 72 of his affidavit filed on 28 January 2004 the reasons why he considered that the history of each of the loans was a matter which fell within the scope of the order.  In summary, he stated that the nature of the assets and the property of the schemes could not properly be determined without tracing the history of the loan.  This also applied to the extent of the assets and liabilities of the schemes.  Mr Moloney also pointed out that to evaluate claims received from dissatisfied investors in the context of determining claims against the schemes’ real property required an examination of the first respondent’s conduct of the schemes.  Mr Moloney also referred to the need to consider the past conduct of the loans, in order to establish that proper records existed in relation to the schemes and whether or not there were grounds to suspect the first respondent or its officers had contravened the Corporations Act 2001.  I accept that in order to report on the matter on which the accountants were required to report under para 13 of the order, it was necessary for the accountants to report on the history of each of the loans. 

[62] There is no doubt that what the accountants set forth under the heading “Criticisms and Deficiencies” in respect of each scheme in the report went directly to the matters on which the accountants were required to report under para 13 of the order. 

[63] In respect of each scheme the report included under the heading “Recommendations” an opinion expressed by the accountants on whether the first respondent with a supervisor or an independent person should be appointed to wind up that scheme.  The recommendation was the culmination of the accountants’ report on that particular loan.  Although para 13 of the order did not expressly require the accountants to make a recommendation in respect of who should wind up each of the schemes, the recommendation was a reflection of whether it was inappropriate for the first respondent to be involved in the conduct of the winding up, because of the nature of the property and assets of the particular scheme or the existence of grounds to suspect the first respondent or its officers had contravened the Corporations Act 2001. 

[64] I do not consider that the sections of the report which are the subject of this attack by the respondents can be described as not being work required by the express terms of para 13 of the order.   

Disbursements

[65] The only disbursements which remains in question are the legal fees of $7,917.80 (inclusive of GST) charged to the accountants by their solicitors in connection with an application before Fryberg J on 10 July 2003 and counsel’s fees of $4,500 for the same application. 

[66] The respondents concede that it was proper for the accountants to obtain legal representation for the purpose of the appearance on that day, but submit that the quantum of the fees appears excessive, when no material was read on that occasion and the application was withdrawn by the respondents, before it was heard.  The respondents seek that the bill be referred to assessment and the respondents be given an opportunity to be heard in accordance with the approach found in Re Solfire Pty Ltd (in liq) (No 2) [1999] 2 QdR 182, 197-200 (“Solfire”).

[67] During the relevant period when the accountants were exercising their supervisory role, the respondents had sought the consent of the accountants from time to time to the payment by the first respondent of interest to investors in the various schemes.  The accountants consented to some of those payments, but after further investigations and review, declined consent to further payments.  As a result the respondents arranged for the listing of an application before Fryberg J on 10 July 2003 to seek an order permitting the first respondent to pay the investors, despite the accountants’ failure to authorise the payments.  Senior counsel was briefed to appear on behalf of the accountants, because of the complexity and seriousness of the issues involved.  Senior counsel was also briefed to appear for the respondents.  There was much correspondence exchanged between the respective solicitors for the respondents and the accountants prior to the expected hearing of the application.  Affidavits of Mr Geroff and the accountants’ solicitor Mr Pennicott (Exs 2 and 3) were prepared by the solicitors for the accountants for the purpose of explaining the accountants’ position in respect of the order sought by the first respondent.  Before the hearing was embarked upon, counsel for the accountants and counsel for the respondents resolved the application which included agreement that the accountants’ costs of and incidental to the application would be included as part of the accountants’ entitlement to costs under para 9 of the order made on 27 May 2003.

[68] The fee note from senior counsel engaged to appear on behalf of the accountants is unexceptional.  The invoice from the accountants’ solicitors which encompasses work undertaken between 1 July 2003 and 17 July 2003 contains a description for each item of work undertaken by the solicitors and claims a lump sum for this work of $7,917.80.  It is apparent from the description of the work that the invoice also covers some items of work undertaken by the solicitors for the accountants in relation to the reports and supervision, apart from the application to the court on 10 July 2003. 

[69] The question that needs to be considered on this application is whether the accountants were justified in accepting these legal fees, without requiring an assessment.  The solicitors’ bills that were under consideration in Solfire were one line bills and “extremely large”.  It was concluded that the liquidators should have sought a proper bill of costs.  In Venetian disbursements were claimed by the provisional liquidator for legal fees of $32,000, when the estimate had been $23,000.  The vice which precluded approval of the disbursements without taxation in the circumstances of that case was that there was no explanation for the discrepancy between the estimate and the actual fees.

[70] Having regard to the detail provided by the accountants’ solicitors in their invoice for the fees of $7,917.80 and the quantum of the solicitors’ fees and counsel’s fees, the accountants were justified in the circumstances in accepting those amounts, without requiring them to be independently assessed. 

Conclusion

[71] In accordance with the findings which I have made, the remuneration claimed by the accountants should be reduced by the following amounts (before GST):

DescriptionAmount
Adjustments conceded by Mr Moloney on 02.02.04$1,186.50
Fees for post-report conference with ASIC1,560.00
Adjustments to Mr Johns’ time66.50
Total$2,813.00

[72] I am therefore satisfied that fair and reasonable remuneration for the work undertaken by the accountants as investigative accountants pursuant to the order made on 27 May 2003 for preparing the report and undertaking the supervision is $183,451.40 and that the disbursements should be determined in the amount of $17,742.21.  Each of these amounts is inclusive of GST. 

[73] The orders which I make are:

1.That the costs and remuneration of Gregory Michael Moloney and Peter Ivan Felix Geroff as investigative accountants appointed pursuant to the order of McMurdo J made on 27 May 2003 (“the order”) in preparing the report referred to in para 13 of the order and of the supervision referred to in para 6 of the order be determined in the amount of $183,451.40 inclusive of GST.

  1. That the costs for reimbursement of expenses and disbursements incurred by Gregory Michael Moloney and Peter Ivan Felix Geroff as investigative accountants in the due course of preparation of the report referred to in para 13 of the order and of the supervision referred to in para 6 of the order be determined in the amount of $17,742.21 inclusive of GST.

[74] I will hear submissions on the question of the costs of the application.  

Close

Editorial Notes

  • Published Case Name:

    ASIC v Atlantic 3 Financial (Aust) Pty Ltd

  • Shortened Case Name:

    Australian Securities and Investments Commission v Atlantic 3 Financial (Aust) Pty Ltd

  • MNC:

    [2004] QSC 133

  • Court:

    QSC

  • Judge(s):

    Mullins J

  • Date:

    07 May 2004

  • White Star Case:

    Yes

Litigation History

EventCitation or FileDateNotes
Primary Judgment[2003] QSC 26519 Aug 2003Appointment of liquidators to wind up unregistered managed investment schemes: Mullins J.
Primary Judgment[2003] QSC 36631 Oct 2003Application for directions by court appointed liquidators as to justification of entering deed of relinquishment: Mullins J.
Primary Judgment[2003] QSC 386 [2004] 1 Qd R 59114 Nov 2003Application by court appointed accountants for an injunction restraining winding up of unregistered managed investment scheme ordered pursuant to s 601EE(2) Corporations Act pending the payment of fees; role as investigative accountants and supervising accountant are analogous, in the circumstances, to the role of court appointed receiver and that they should have the same protection; grant the injunctive relief sought in support of an equitable lien for fees and expenses claimed: Mullins J.
Primary Judgment[2003] QSC 398 (2003) 48 ACSR 33527 Nov 2003Application for directions by court appointed liquidators as to being justified in refusing to sign deed providing for the transfer of assets in the unregistered managed investment scheme to investors; support of the investors for the proposed deed does not outweigh the considerations which fall under the umbrella of public interest which would not justify the liquidators entering into the proposed deed for this scheme: Mullins J.
Primary Judgment[2004] QSC 13307 May 2004Application for approval of remuneration and disbursements by court appointed investigative accountants for unregistered managed investment scheme; satisfied that fair and reasonable remuneration for the work undertaken by the accountants as investigative accountants pursuant to the order made on 27 May 2003 for preparing the report and undertaking the supervision is $183,451.40 and that the disbursements should be determined in the amount of $17,742.21: Mullins J.
Primary Judgment[2004] QSC 28407 Sep 2004Costs following judgment in [2004] QSC 133; costs following successful application for approval of remuneration of court appointed investigative accountants over unregistered managed investment scheme; notice of objection was so oppressive and speculative, that it warrants a departure from the usual order for costs, as from the service of the notice of objection on the accountants; accountants awarded costs on indemnity basis after service of notice of objection: Mullins J.
Primary Judgment[2004] QSC 42211 Nov 2004Application for an order determining the remuneration and disbursements of court appointed investigative accountants for work performed in relation to an application; orders made per draft: Douglas J.
Primary Judgment[2006] QSC 13205 Jun 2006Application by ASIC for declarations regarding the operation of unregistered managed investment schemes, not holding a dealer's licence or AFSL, and the offering of securities without disclosure documents in contravention of the Corporations Act; seeking disqualification orders arising from the alleged contraventions; declarations made and disqualifications ordered: Atkinson J.
Primary Judgment[2006] QSC 15223 Jun 2006Application for directions to the Registrar for the assessment of costs; seeking to overturn decision of Registrar to find client agreement was void under s 48F QLS Act, on the basis that the cost agreement did not comply with s 48 QLS Act; declared sufficient to amount to cost agreement for r 704(3)(b) UCPR: Mullins J.
Primary Judgment[2008] QSC 9 [2008] 2 Qd R 29808 Feb 2008Application following [2004] QSC 284 to fix costs; costs fixed in the amount of $84,000: Mullins J
Primary Judgment[2008] QSC 5320 Mar 2008Costs following judgment in [2008] QSC 9; respondents pay costs to be assessed: Mullins J.
Appeal Determined (QCA)[2004] QCA 23002 Jul 2004Appeal following [2004] QSC 133 dismissed with costs; no reasons for judgment: Davies JA.
Appeal Determined (QCA)[2006] QCA 540 [2007] 2 Qd R 39915 Dec 2006Appeal against [2006] QSC 152 dismissed with costs; appeal against decision declaring client agreement complied with s 48 QLS Act: Williams and Jerrard JJA and McMurdo J (Jerrard JA dissenting).

Appeal Status

Appeal Determined (QCA)

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