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One of the dark arts…..

A court appointed receiver applying to the court for determination of his remuneration was subjected to 2 days cross-examination on his evidence “in excruciating detail”, with “thousands of pages” of documents being filed.

In saying that the assessment of remuneration and costs is “one of the dark arts”, the Judge cut the remuneration substantially, but only after the receiver himself had first done so.  

The receiver was appointed by the court in 2010 to sell a share in a company owned by a deceased estate for the payment of a judgment debt.

Despite the delay, the court was ready to entertain the remuneration assessment.

A court appointed receiver is under a duty to act impartially and in accordance with the directions of the court. The property does not vest in the receiver, who is not an agent of the parties and is not subject to their control or direction. However, the receiver does owe duty of a fiduciary character to all persons with an interest in the property.

Such a receiver is subject to the inherent powers and discipline of the court and the court needs to ensure the remuneration appropriately reflects the work done.

The principles enunciated in Venetian Nominees v Conlon (1998) 20 WAR 96 apply to court appointed receivers. However, according to the Judge in this case, its detailed statement of principle

“is in fact unworkable in practice.

When an external administrator applies for remuneration the application is accompanied by an affidavit which routinely annexes timesheets completed by the administrator and his staff. But looking at the timesheets achieves nothing. The description of the work done is often cryptic and understandably so. But the real problem is to put the work done in context. There is no real way of knowing simply by looking at a timesheet whether three aliquots of six minutes spent on a telephone discussion with a particular person was time well spent. Frequently the claims for remuneration run into hundreds of thousands of dollars. There may be thousands, even tens of thousands, of time costing entries. Even random sampling of these entries does not give any real picture of whether or not the work undertaken was necessary. That means that so long as the timesheets are provided and a broad statement of what work was undertaken and why is provided in the affidavit anyone looking at the accounts must be ‘satisfied that the statement of account was sufficiently detailed to enable the remuneration to be determined’”.

The court said that a further problem arises with respect to how the assessment is to be undertaken. While ‘it would not be right to allow anything resembling a trial of the action to take place’ it was, the Judge said, hard to see an alternative and this case was an example.

As a result of the court deciding to allow cross-examination – something anticipated by the Venetian decision – the receiver filed three further affidavits, all up, over 1,000 pages. Cross-examination extended over two days.

“In the end, the whole application looked suspiciously like a trial”.

The argument was that the receiver should only be allowed his costs in so far as the activities were reasonably undertaken and incidental to performing the function created by his appointment – that is to say valuing and selling the share and reporting to the court and/or the judgment creditor from time to time.

The first claim was for remuneration of around $160,000, subsequently reduced to $124,000 with no explanation.

Detailed criticisms of the receiver’s conduct were then explored “in excruciating detail during cross-examination”.

But in the end it came down to this. While the valuation process undertaken by the receiver was both proper and appropriate, the sale process was flawed and poorly handled and the “mayhem” arising was directly attributable to this.

These two points became the focus of the court in assessing the remuneration.

“Assessing costs is one of the dark arts”. While the regime mandated by Venetian Nominees applies, a line by line assessment was not appropriate here.

The court determined remuneration at $75,000. Up until the sale of the shares the amount claimed of $48,000 was reasonable. But little of the work after that was really necessary. Computer Accounting and Tax Pty Ltd (in liq) v Professional Services of Australia [No 11] [2016] WASC 365.

Comment

This is a “WA decision”, with little acknowledgement of other precedents around the other courts, including appeal courts. 

Those other courts do not find time based reports “unworkable in practice”, and “random sampling” is applied in many cases. 

But the Court probably got it right, but at what legal costs for a two day hearing?  Hardly proportionate, but then WA is not part of the national legal scheme. 

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