FEDERAL COURT OF AUSTRALIA

Maxwell-Smith v Donnelly [2010] FCA 474

THE COURT ORDERS THAT:

1.                  Paragraphs 1 and 2 of the applicants’ amended notice of motion be struck out.

2.                  The proceeding be remitted to the Registrar to allow her to review the bills of costs the subject of the taxation and prepare a short report which indicates what further amounts should be disallowed in accordance with the reasons for judgment delivered today. 

3.                  The applicants’ amended notice of motion be otherwise dismissed.

4.                  The first respondent’s notice of motion be stood over to a date to be fixed for the making of further orders.

5.                  The applicants pay the second respondent’s costs of the notice of motion in an amount to be fixed.

6.                  The second respondent file and serve any affidavit it wishes to rely upon in support of any application to fix the amount of costs payable pursuant to order 5 within 7 days.

7.                  Any party who wishes to make further submissions to the Registrar in relation to any matter arising out of order 2 should give written notice to my Associate (copied to the other parties) of his or her desire to do so within 7 days. 

8.                  All other questions of costs be reserved. 

9.                  Each party have liberty to apply on 7 days notice.

Note:Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
The text of entered orders can be located using Federal Law Search on the Court’s website.

REASONS FOR JUDGMENT

Introduction

1                                             This is the latest instalment in a long running dispute involving Mr Eugene and Mrs Inge Maxwell-Smith, their former bankruptcy trustee, Mr Max Donnelly, and S & E Hall Pty Ltd (S & E Hall). I will come to the detail of the applications before me shortly. Briefly stated, Mr Donnelly seeks to enforce his claim for taxed costs and expenses associated with his administration of the estates of Mr and Mrs Maxwell-Smith. This is opposed by Mr and Mrs Maxwell-Smith who also seek damages from S & E Hall.

2                                             Sequestration orders were made against Mr and Mrs Maxwell-Smith on 15 September 2003 following their non-compliance with bankruptcy notices issued at the request of S & E Hall. The bankruptcy notices were based upon a judgment for $11,288.12 plus costs and interest. That judgment represented the amount of costs Mr and Mrs Maxwell-Smith were ordered to pay to S & E Hall after they applied to quash a determination of the Consumer Claims Tribunal (the Tribunal) requiring them to pay an amount of $6,745.55 to S & E Hall for building work which it carried out at Mr and Mrs Maxwell-Smith’s home at Tura Beach in New South Wales during 1995 and 1996. Mr and Mrs Maxwell-Smith were unhappy with the Tribunal’s determination. Their attempts to have it set aside took them to the Supreme Court, the Court of Appeal and finally the High Court where, in November 1999, their application for special leave was refused.

3                                             On 2 July 2004 Moore J ordered that the bankruptcies resulting from the sequestration orders made against Mr and Mrs Maxwell-Smith be annulled: Maxwell-Smith v S & E Hall, in the matter of Maxwell-Smith [2004] FCA 840.  It is unnecessary to explore his Honour’s reasons for doing so except to say that his Honour found that Mr and Mrs Maxwell-Smith were denied procedural fairness and that the sequestration orders should not have been made. 

4                                             Thereafter, Mr and Mrs Maxwell-Smith made various complaints about the conduct of their former trustee, Mr Donnelly. Between 2005 and 2009, Mr and Mrs Maxwell-Smith initiated various applications, inquiries and appeals relating to the conduct of Mr Donnelly.  It will be necessary for me to consider a number of the judgments delivered during that period which are directly relevant to many of the complaints that Mr and Mrs Maxwell-Smith have raised before me.

5                                             On 8 June 2007 Moore J made the following consent order:

The costs, charges and expenses of the administration of the former bankrupt estate of Eugene and Inge Maxwell-Smith, including the remuneration and expenses of the trustee, be taxed by a Registrar of the Court in accordance with Part 8 Division 4 of the Bankruptcy Regulations.

6                                             Mr Donnelly filed 7 separate bills of costs which were taxed by a Registrar.  The total amount claimed in these bills came to $435,254.16.  On 6 April 2009 the Registrar delivered a decision allowing an amount of $392,482.72 and on the same date the Registrar signed 3 separate certificates of taxation. Each of these was expressed to be made pursuant to the orders made by Moore J and related to “…the costs, charges and expenses of the administration of the former bankrupt estate of Eugene and Inge Maxwell-Smith, including the remuneration and expenses of the trustee…” for a specified period. The total amount of each certificate was made up of 2 smaller amounts, the first being “[t]rustee’s remuneration and disbursements” and second being “[s]olicitor’s charges and disbursements”. The following table identifies the amounts involved and the periods to which they relate:

7                                             The picture painted by these numbers is alarming. The building dispute which culminated in Mr and Mrs Maxwell-Smiths’ bankruptcies concerned a sum that was but a tiny fraction of the amount now claimed by the trustee. Moreover, most of the amount claimed by the trustee relates to remuneration earned and disbursements incurred after Mr and Mrs Maxwell-Smiths’ bankruptcies were annulled. Mrs Maxwell-Smith contends, among other things, that these costs are the consequence of waste and recklessness by the trustee. Mr Donnelly, on the other hand, contends that his costs are the consequence of the querulous and uncooperative behaviour of Mr and Mrs Maxwell-Smith.

8                                             Mr Donnelly’s notice of motion seeks the following orders:

1.         Order that the remuneration of the applicant trustee for the costs, charges and expenses of the administration of the former bankrupt estates of Eugene and Inge Maxwell-Smith be fixed in accordance with certificate of taxation prepared by Registrar Hedge and dated 13 May 2009.

2.         Judgment be entered for the applicant trustee in accordance with certificate of taxation dated 13 May 2009 in the sum of $358,028.98 [sic].

3.         Order that Eugene and Inge Maxwell-Smith pay the applicant trustee’s costs of the taxation before Registrar Hedge.

4.         Declare that applicant trustee may apply the property of the former bankrupts Eugene and Inge Maxwell-Smith still vested in him in payment of the judgment entered herein.

5.         Order that Eugene and Inge Maxwell-Smith give vacant possession of the property known as 8B Surf Circle, Tura Beach, New South Wales to the applicant trustee, his servants and agents within 42 days from the date of this order.

6.         In default of compliance with order 5 herein, a writ for possession issue forthwith.

7.         An order that Notice of Motion filed by the respondents on 5 May 2009 be dismissed with costs.

8.         An order the respondents pay the costs of and incidental to the Notice of Motion filed by the applicant trustee.

9.         An order that the respondents file no further applications in the proceedings without leave of the Court.

Counsel for Mr Donnelly did not press for order 9.

9                                             Mrs Maxwell-Smith appeared on behalf of herself and her husband.  Their amended notice of motion seeks the following orders:

1.         Declare that S & E Hall Pty Ltd, the one and only creditor to the estate of the Applicants Eugene & Inge Maxwell-Smith, was aware that the Tribunal’s Order in 1997 was flawed, and that he abused the legal process by issuing Bankruptcy Notices knowing that the estate was well and truly solvent and that he collaborated with the Trustee and informed him about the solvency.

2.         Order that the Creditor pay compensation to the Applicants for the harm caused through his abuse of the legal process.

3.         Order that the taxation was dealt with unsatisfactorily and that the Certificates of taxation numbered 1 to 3 in NSD 198/2004 filed on 6 April ‘09 will be dismissed, as the Taxation Officer ignored important evidence.

4.         Order that the Trustee’s costs, charges and expenses be waived due to the misleading, alleged fraudulent and unprofessional conduct of the Trustee and that the titles of the Jindabyne and Tura Beach properties are transferred back to the owners.

5.         Order that compensation be paid by the Trustee, due of his misconduct and that a written apology to the Maxwell-Smith’s family is published in the Merimbula News.

6.         If the Court is unable to deal with the alleged denial of justice in the Federal Court and the abuse of the legal process by the creditor and the trustee, the Applicants move the Court to grant leave for the Federal Senate to conduct the Inquiry.

S & E Hall Pty Ltd

10                                          I was told by Mrs Maxwell-Smith that her amended notice of motion was filed with the permission of Foster J. While I accept that is so, I do not read into this any more than that his Honour gave leave to Mr and Mrs Maxwell-Smith to file the amended notice of motion. I certainly do not take his Honour to have provided them with any indication as to the appropriateness of the amended notice of motion, particularly in so far as it raises allegations of misconduct against S & E Hall. The directions made by Foster J on 27 August 2009 indicate that his Honour intended to confine the issues arising out of the notices of motion filed by the parties within reasonable bounds and that his Honour was especially concerned to ensure that there be no evidence filed by Mr and Mrs Maxwell-Smith “going to whether or not they should have been made bankrupt in the first place.”  Regrettably, a substantial portion of the material Mrs Maxwell-Smith has directed me to concerns that issue. 

11                                          At the commencement of the hearing the solicitor appearing for S & E Hall applied to have paragraphs 1 and 2 of the amended notice of motion struck out. He informed me that he was not in a position to deal with the motion should I proceed to hear it. That is understandable given the nature of the allegations underlying the orders sought against S & E Hall and the fact that they were not the subject of any claim for relief when directions where made by Foster J on 27 August 2009.  

12                                          It is not appropriate, in my view, for Mr and Mrs Maxwell-Smith to claim relief of the kind specified in paragraphs 1 or 2 of their amended notice of motion against S & E Hall by motion filed in the bankruptcy proceeding. The present hearing is concerned with the taxation that occurred pursuant to the order of Moore J. If Mr and Mrs Maxwell-Smith have a maintainable cause of action against S & E Hall for abuse of process then they can commence a separate proceeding.  It is certainly not for me to advise them about that and I say nothing more about it.  But I will not allow them to make the claim by notice of motion filed in the bankruptcy proceeding.  I propose to order that paragraphs 1 and 2 of the amended notice of motion be struck out.

Application to Wilcox J

13                                          It is now necessary to say something more about the facts. After the annulment of  their bankruptcies in July 2004 Mr and Mrs Maxwell-Smith made an application to Wilcox J for relief under s 179(1) of the Bankruptcy Act 1966 (Cth) (the Act) though the application as filed did not specify what relief was actually sought: Maxwell-Smith v Donnelly [2005] FCA 332.  The application appears to have been prompted by a number of things, including a claim by Mr Donnelly for remuneration and expenses (including amounts paid or payable by way of legal costs) in an amount exceeding $92,000.

14                                          Mrs Maxwell-Smith appeared for herself and her husband at the hearing before Wilcox J. His Honour identified six separate criticisms of Mr Donnelly articulated by Mrs Maxwell-Smith. These were:

·        First, the trustee unnecessarily performed work and incurred expenses after he became aware that Mr and Mrs Maxwell-Smith had applied for annulment of the bankruptcies;

·        Secondly, the trustee unnecessarily performed work and incurred expenses in relation to a property at Jindabyne which was jointly owned by Mr and Mrs Maxwell-Smith and two of their adult children;

·        Thirdly, the trustee unnecessarily issued warrants for the arrest of Mr and Mrs Maxwell-Smith because of their failure to attend public examinations in February 2004 in circumstances where there was a good explanation for their failure to attend;

·        Fourthly, the trustee unnecessarily took out an insurance policy over both the Jindabyne property and the Tura Beach property in spite of the fact that they were already insured in the names of their respective owners;

·        Fifthly, the trustee paid a rate assessment in relation to the Tura Beach property which was excessive in that it did not allow for rebates to which Mr and Mrs Maxwell-Smith were entitled to claim;

·        Sixthly, the trustee wrongly failed to give Mrs Maxwell-Smith permission to travel on an overseas cruise with her grandson in May 2004 with the consequence that Mrs Maxwell-Smith was excluded from the vessel because she was on a Portwatch list maintained by the Australian Federal Police.

15                                          His Honour rejected each of Mrs Maxwell-Smith’s criticisms. As to the overseas cruise, it seemed to his Honour that while the matter might have been better handled by Mr Donnelly, the fault lay at least as much on the side of Mrs Maxwell-Smith as the trustee.  As to the other matters, his Honour said that he was not persuaded that unnecessary expenses were incurred. He also declined to order any fuller inquiry in relation to them. However, his Honour added at para [22]:

The situation confronting Mr and Mrs Maxwell-Smith is most unfortunate. In saying that, I have in mind both the unsatisfactory Tribunal decision and the circumstances that led Moore J to annul the bankruptcy orders made against the applicants. Nonetheless, unless Mr Donnelly can be shown to have acted improperly in some way, or to have incurred unnecessary expense, or to be charging an unnecessary or excessive amount, he is entitled to his remuneration and to reimbursement of his expenses.

And at para [24]:

As I say, the appropriate course now is for a detailed account of costs to be prepared and taxed. I hope it will then be possible for some arrangement to be made whereby that amount is paid out, perhaps by the former bankrupts obtaining a loan secured over the Tura Beach property. It would be a further misfortune if their unwillingness or inability to do this led to their home, or the Jindabyne property, being sold up. I hope that, even at this late stage, co-operation and commonsense will prevail.

16                                          His Honour then ordered that the application be dismissed and that “the costs of the application be trustee’s costs in the administration of the former bankruptcies.”

Appeal against Wilcox J’s orders

17                                          Mr and Mrs Maxwell-Smith appealed Wilcox J’s decision. The Full Court (Moore, Nicholson and Conti JJ) gave its decision on 27 October 2006 allowing the appeal in part: Maxwell-Smith v Donnelly [2006] FCAFC 150. Their Honours disagreed with Wilcox J’s conclusion in relation to the matter of the overseas cruise. This was an issue that their Honours considered warranted further investigation. Their Honours said at para [63]-[66]:

63.       In our opinion, Wilcox J gave insufficient consideration to the matters raised by Mrs Maxwell-Smith in support of an inquiry at least as it related to this question of travel. To use the language of the High Court in House v King … his Honour did not take into account a material consideration, namely that the trustee may have misconceived his powers in refusing Mrs Maxwell-Smith permission to travel. The trustee's refusal is a matter, in our opinion, which warrants further investigation and it is appropriate that an inquiry be ordered to investigate that specific matter. It is, with respect, not enough to say, as Wilcox J did, that there was no financial aspect to this complaint. It was characterised by the appellants as an abuse of power. Whether that characterisation is apt or even relevant is a matter that should not be addressed at this stage. It is a matter for the judge who conducts the inquiry.

64.       An inquiry can be conducted on a particular matter: Re Alafaci; Registrar in Bankruptcy v Hardwick (1976) 9 ALR 262. In our opinion, there should be an inquiry into whether the trustee refused Mrs Maxwell-Smith permission to travel on or about 20 May 2005 and, if so, was that refusal appropriate in all circumstances.

65.       Because we have not expressed disagreement with the conclusions of Wilcox J on matters other than the appellants' contention relating to Mrs Maxwell-Smith's travel, it should not be assumed that we accept every comment his Honour made about the trustee's conduct or that, by implication, the fees, costs and disbursements presently charged by the trustee should be accepted in any taxation without careful consideration. We doubt, for example, that the trustee is entitled to payment for convening and attending a creditors' meeting after the bankruptcies were annulled. However these are matters for consideration during any taxation.

66.       As the appellants have partially succeeded in this appeal and partially not, there should be no costs order in the appeal and none in the proceedings below.   

18                                          In the result, their Honours made an order that an inquiry be conducted under s 179 of the Act into whether the trustee refused Mrs Maxwell-Smith permission to travel and, if so, whether that refusal was appropriate in the circumstances.  The Court also ordered that the orders made by Wilcox J be set aside, that the appeal be otherwise dismissed and, perhaps rather generously to Mr and Mrs Maxwell-Smith, that there be no order as to the costs of the appeal and none in the proceeding below. The orders made by Wilcox J which were set aside included his Honour’s order that the trustee’s costs of the application be the trustee’s costs in the administration of the former bankruptcies.

Section 179 inquiry before Allsop J

19                                          In accordance with the Full Court’s order, an inquiry was conducted by Allsop J pursuant to s 179 of the Act: see Maxwell-Smith v Donnelly (in the matter of Inge and Eugene Maxwell-Smith) [2007] FCA 894; [2007] FCA 1005 and [2007] FCA 1097.  His Honour found that there was “no basis for criticism of the … trustee or his manager …”.  He also ordered that “the costs, remuneration and expenses of the respondent trustee … as taxed … form part of the respondent trustee’s costs, charges and expenses of the administration …”.

Appeal against Allsop J’S orders

20                                          Mr and Mrs Maxwell-Smith appealed against the orders made by Allsop J.  Mrs Maxwell-Smith appeared on behalf of herself and her husband at the hearing of the appeal. On 23 November 2007 the Full Court (Bennett, Edmonds and Flick JJ) dismissed the appeal: Maxwell-Smith v Donnelly [2007] FCAFC 180. The Court subsequently ordered that Mr and Mrs Maxwell-Smith pay the costs of the appeal.  It is not necessary to go into the Full Court’s reasons for dismissing the appeal.  An application by Mr and Mrs Maxwell-Smith for special leave to appeal to the High Court was dismissed on 15 May 2008.

Jurisdictional Issues

21                                          It is necessary to say something more about the order made by Moore J pursuant to which the taxation took place. The order required that the trustee’s costs be taxed “in accordance with Part 8 Division 4 of the Bankruptcy Regulations.”  

22                                          The remuneration of a trustee may be fixed by a resolution of creditors or, if the creditors so resolve, by the committee of inspection: s 162(1) of the Act.  Where it is not so fixed, the trustee is to be remunerated as prescribed by the regulations: s 164(2) of the Act. The Bankruptcy Regulations 1996 (Cth) (Regulations) provide that the remuneration of the trustee is to be fixed by reference to a formula based upon the IPAA Guide to Hourly Rates published by the Insolvency Practitioners Association of Australia applicable to the work to be remunerated: reg. 8.08.

23                                          The Regulations also provide a mechanism by which the bankrupt or a creditor dissatisfied with the amount claimed by the trustee by way of remuneration may have the claim taxed: reg. 8.09. In addition, s 167(1) of the Act provides that a trustee of a bankrupt’s estate may (on his or her own initiative or at the request of the bankrupt or a creditor) require a bill of costs for services provided by a person in relation to the administration of an estate to be taxed by a taxing officer. 

24                                          The mechanism by which taxations pursuant to either reg. 8.09 or s 167 are to proceed is laid out in reg. 8.10-8.11. In each case a detailed bill of costs must be prepared that, among others things, show separately and on an itemised basis, the trustee’s professional fees and his or her costs and disbursements. The hearing of the taxation occurs before a taxing officer who is a person appointed by the Inspector General of Bankruptcy: reg. 1.03 and s 167(9).

25                                          There are two sources of the power in the taxing officer to allow or disallow items appearing in a bill of costs prepared in accordance with the Regulations. The first is reg. 8.11 which relevantly provides:

(1)        The trustee and the person requesting a taxation may attend, or be represented at, the hearing of the taxation.

(2)        At the hearing of the taxation the person requesting the taxation may object to an item in the bill of costs:

            (a)     if the person has given notice in writing, at least 2 clear days before the hearing, of the nature and grounds of the objection; or

            (b)     with the leave of the taxing officer — without having given such notice.

(3)        The taxing officer may disallow an item or part of an item, or reduce the amount of an item or part of an item, if:

            (a)     he or she considers that:

                     (i)      the amount of the costs or disbursements in the item is unreasonably high; or

                     (ii)      any of the costs or disbursements in the item were incurred or made improperly, unreasonably, negligently or unnecessarily; or

            (b)     in the case of any disbursements in the item — they are not proved, to the taxing officer’s satisfaction, by production of a receipt, voucher or similar document.

…

(6)       In this regulation:

            taxation means a taxation of costs for the purposes of subsection 167 (1) of the Act or regulation 8.09.

Curiously, reg. 8.11 does not refer directly to the trustee’s professional fees. However, it appears that the taxing officer’s power to allow or disallow extends to the trustee’s professional fees. This is clear from the relevant regulations as a whole, especially reg. 8.11A, which expressly contemplates that the trustee’s claim for remuneration might be disallowed in a taxation under reg. 8.09.

26                                          The second source of power is s 167(5) which requires the taxing officer to be satisfied, before passing a bill, that “the employment of the person in respect of the particular matters out of which the costs arise was duly authorized and was reasonable and necessary.”  This provision requires that the taxing officer be positively satisfied that the employment of the person was reasonable and necessary. It has previously been held of a like provision (s 27 of the Insolvency Act 1897 (Vic)) that it applies not only to the engagement of the person concerned but also to each particular item in the bill:  In Re Cameron (1899) 25 VLR 59.

27                                          The Regulations do not contain any express right of appeal from a decision of the taxing officer except in one quite specific and immaterial situation: see reg. 8.09(5). However, s 167(8) enables a “person interested” to appeal to the Court from a decision of the taxing officer allowing or disallowing a bill of costs or an item in a bill of costs.

28                                          Hence, s 167(8) and the relevant Regulations appear to provide for a right of appeal against a decision of the taxing officer but only insofar as that decision is given in respect of a bill of costs required to be given pursuant to s 167(1). Prima facie, this would appear to exclude a decision given in respect of a trustee’s remuneration.

29                                          It has been held, following amendments made to s 162 in 1996, that it is no longer open to the Court to fix or determine the remuneration of a trustee under that section of the Act: Pattison v Bellin (2000) 103 FCR 590 (Goldberg J).  But while it may no longer be the function of the Court to fix or determine the remuneration of the trustee, it does not follow that the Court lacks the power to disallow improper, unnecessary or unreasonable charges under ss 30, 178 or 179 of the Act. 

30                                          The Registrar who conducted the taxation in the present case was not appointed by the Inspector General of Bankruptcy.  So the taxation conducted by the Registrar was not, strictly speaking, in accordance with the Regulations.  I infer this was something that was, or should have been, known to the parties at the time they invited Moore J to make the consent order.

31                                          Sections 30(1) and (2) of the Act provide:

(1)        The Court:

                          (a)   has full power to decide all questions, whether of law or of fact, in any case of bankruptcy or any matter under Part IX, X or XI coming within the cognizance of the Court; and

                          (b)   may make such orders (including declaratory orders and orders granting injunctions or other equitable remedies) as the Court considers necessary for the purposes of carrying out or giving effect to this Act in any such case or matter.

(2)        The Court may direct such inquiries to be made and accounts to be taken for the purposes of any proceeding before the Court as the Court considers necessary and may, when directing an account to be taken, or subsequently, give special directions as to the manner in which the account is to be taken or vouched.

32                                          It seems to me that the consent order made by Moore J, and the taxation which occurred pursuant to it, were authorised by s 30(1) and (2).  The notices of motion before me raise various issues including what is, in substance, an application by Mr Donnelly for orders giving effect to the Registrar’s decision and an application by Mr and Mrs Maxwell-Smith for orders setting her decision aside.  In my view the Court has power under s 30 of the Act to make orders of the kind sought if it is otherwise appropriate to do so. 

Nature of the Review

33                                          This leads me to the issue of the nature of my review of the Registrar’s decision.  In Wenkart v Panzter (2005) 223 ALR 384 Branson J heard an appeal under s 167(8) against the decision of a taxing officer appointed by the Inspector General in Bankruptcy.  Her Honour said at paras [34]-[35]:

34.       In my view, the principles to be applied when an appeal is brought to the court under s 167(8) of the Act are analogous to those identified by Jordan CJ, with the concurrence of Harvey CJ in Eq and Street J, in Schweppes’ Ltd v Archer (1934) 34 SR (NSW) 178. These principles were approved by Kitto J in Australian Coal and Shale Employees’ Federation v Commonwealth (1953) 94 CLR 621 at 628 (Australian Coal and Shale). Jordan CJ in Schweppes’ Ltd v Archer stated:

                        In appeals as to costs, the principles to be applied are these. 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 to 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. [Citations omitted]

35.       I note that in Ide v Ide (2004) 184 FLR 44; 50 ACSR 324; [2004] NSWSC 751 at [39] Young CJ in Eq observed with respect to receivers’ remuneration:

                        … the court constituted by a judge, never considers a review of quantum, but only matters of principle.

One of the two authorities cited by his Honour in support of his above observation was Australian Coal and Shale. It is not necessary for me to reach a view on whether his Honour expressed the position too strongly. It is sufficient to note that it will rarely, if ever, be appropriate for the court to review a decision of a taxing officer on a line by line basis.

An appeal against her Honour’s decision was allowed by the Full Court on different grounds: Pantzer v Wenkart (2006) 153 FCR 466. 

34                                          I adopt the same approach as Branson J.  I have reviewed the Registrar’s reasons for the purpose of determining whether her decision was affected by any error of principle. I have not undertaken a line by line review of the bills of costs which were taxed by the Registrar but I have reviewed them to the extent I considered necessary for the purpose of better understanding her overall approach.

The Registrar’s decision

35                                          The taxation hearing occurred over 3 days.  The trustee was represented before the Registrar throughout the hearing.  Mrs Maxwell-Smith attended the first day of the hearing only.  But it is clear that she was given the opportunity to raise objections and to make submissions which she did both orally and in writing. 

36                                          The Registrar outlines in her reasons for decision the procedure followed at the hearing of the taxation.  The Registrar worked through each of the bills item by item.  The approach taken by her was to allow items if she was “… satisfied that the items claimed were able to be supported by the material in the file, as well as being work that was appropriately undertaken by the trustee and his solicitor both during and after the annulment of the bankruptcy.”

37                                          The Registrar’s reasons set out a number of general objections taken by Mrs Maxwell-Smith to the taxation of the bills.  While there were 7 bills submitted for taxation, the Registrar decided to issue separate certificates of taxation for the bankruptcy period (Certificate No 1; Bill 1), the post bankruptcy period (Certificate No 2; Bills 2-6) and the High Court special leave application which had been excluded from Certificate No 2 (Certificate No 3; Bill 7).

38                                          A general objection raised by Mrs Maxwell-Smith before the Registrar was that “the Trustee and his staff acted in bad faith, irresponsibly, and not in the interests of creditors and the bankrupts.”  Other general objections recorded by the Registrar in her reasons are:

(a)        “the fact that the Trustee undertook the administration of the bankrupt estate at all and the view that he should have done nothing and immediately accepted that the sequestration order should not have been made;”

(b)        “that the Trustee did not exercise commercial judgement and applied his position as a Trustee for his own financial gain;”

(c)        “that money was wasted on public examinations as, for example, a statement of affairs was prepared as soon as possible;”

(d)        “a delay in the hearing of the annulment application;”

(e)        “that the Trustee has no entitlement to remuneration and indemnity for costs and expenses after the annulment (para 50, submissions 8 May 2008);”

(f)        “that house insurance was organised and paid on the properties of the bankrupts (apparently duplicating the bankrupts’ insurance on these properties);”

(g)        “that the Trustee should not have held a creditors’ meeting after the annulment order was made;”

(h)        “that there were changes made by the Trustee’s solicitor from his original bill of costs, and consequently, the reliability of the whole bill of costs and rates charged are in question;”

(i)         “that the Trustee refused to allow Mrs Maxwell-Smith use of her passport to undertake a cruise with her grandchildren.”

39                                          The Registrar accepted Mrs Maxwell-Smith’s objection to the costs and expenses involved in holding the creditor’s meeting.  None of Mrs Maxwell-Smith’s other general objections succeeded.

40                                          Mrs Maxwell-Smith also relied upon the Full Court’s “no costs” order and submitted, in substance, that the order meant what it said.  She also challenged the reasonableness of the trustee’s solicitors’ bills including the hourly rates charged by them.  She submitted that much of the work carried out by the solicitors was unnecessary and that the hourly rates charged were excessive, especially having regard to the “premium” or “uplift fee” the solicitors charged the trustee.  I will return to these matters later in my reasons. 

41                                          In addition to considering matters raised by Mrs Maxwell-Smith, the Registrar appears to have investigated the reasonableness of particular items even if not the subject of specific objection.  I think this was appropriate.  The power to disallow an item under reg. 8.11(3) is not confined to items to which an objection has been taken.  The Registrar identified double-counting, errors in addition and other problems in the bills submitted for taxation.  In accordance with the approach taken by her, items affected by these errors were disallowed or adjusted appropriately.

Evidence

42                                          The parties accepted that I was entitled to have regard to material that was before the Registrar for the purpose of reviewing her decision. Before me Mr and Mrs Maxwell-Smith also relied upon the following:

·        Affidavits made by Mrs Maxwell-Smith on 4 May 2009, 21 July 2009, 16 October 2009, 12 November 2009 and 16 November 2009;

·        A document entitled “Appeal on Taxation and decision by Registrar Hedge” filed 28 April 2009; and

·        A document entitled “Submissions by the Applicants in Support of the Notice of Motion Amended” filed 17 November 2009.

The document dated 28 April 2009 was in the nature of a signed statement by Mrs Maxwell-Smith. I allowed her to tender this document and it was received into evidence. Neither it nor any of the affidavits made by Mrs Maxwell-Smith was objected to by the trustee. Nor was there any cross-examination of Mrs Maxwell-Smith.

43                                          The trustee relied upon an affidavit of his solicitor, Mr David Crompton, sworn 19 August 2009 which, among other things, responded to various allegations made against him in Mrs Maxwell-Smith’s affidavit of 4 May 2009. There was no cross examination of Mr Crompton. The trustee also tendered a portion of a statement of affairs prepared by Mr and Mrs Maxwell-Smith which, it was submitted by his counsel, showed that they had assigned a value of $2.00 to their property at Tura Beach. There was no other evidence called by the trustee.

Mrs Maxwell-Smith’s SUBMISSIONS

44                                          Mrs Maxwell-Smith submitted that the “trustee’s right to remuneration is restricted to work reasonably and bona fide undertaken for the purpose of administrating the estate or performing a statutory public duty with reasonable care and skill and in an efficient and economical way”: see Adsett v Berlouis (1992) 37 FCR 201 at 212, Pantzer v Wenkart (2006) 153 FCR 466 at para [43].

45                                          She submitted that nearly all of the work undertaken by the trustee and his manager in the course of the administration of Mr and Mrs Maxwell-Smiths’ estates was unreasonable and unnecessary and that most of the legal actions which occurred could have been avoided.

46                                          She also submitted that the trustee acted recklessly and irresponsibly in that he knew that her and her husband’s estates were solvent from the time the sequestration orders were made.  She submitted that the trustee needlessly took steps to arrange for their public examination, to transfer title to their properties into the trustee’s name and to insure those properties under policies issued in his name.  All of this work, Mrs Maxwell-Smith submitted, was unnecessary.

47                                          Mrs Maxwell-Smith submitted that the trustee had acted in bad faith and that he was in truth motivated by a desire to profit from the difficult situation in which S & E Hall had put Mr and Mrs Maxwell-Smith by obtaining the sequestration orders in the first place.

48                                          She made various other submissions to the effect that the trustee and his legal representatives had mislead Wilcox J and, more recently, the Registrar. She also submitted that the Registrar was biased, that she acted unfairly toward her and that she ignored important evidence.

The trustee’s submissions

49                                          So far as Mrs Maxwell-Smith’s general submissions are concerned, counsel for the trustee relied upon the previous decisions of Wilcox J, Allsop J and the Full Courts which heard the appeals from their Honours’ decisions. He took the same position in relation to some of the more specific issues referred to in Mrs Maxwell-Smith’s submissions. In particular, he relied upon the decision of Wilcox J and the Full Court in relation to the complaints concerning the matters of the public examinations (which I was told by counsel for the trustee did not take place in any event) and the transfer of title, and insurance of, Mr and Mrs Maxwell-Smith’s properties. He relied upon the decision of Allsop J in answer to Mrs Maxwell-Smith’s submissions concerning the matter of the overseas cruise.

50                                          As to the “no costs” order made by the Full Court in the appeal from the decision of Wilcox J, counsel for the trustee submitted that it did not carry with it any implication that the trustee could not recover his costs of the proceedings before Wilcox J and the Full Court.

51                                          As to the question of the hourly rates of the trustee’s solicitors, and the premium or uplift fee applied to them, counsel for the trustee relied upon the reasons for decision of the Registrar. In written submissions which he was invited to file following the hearing of the notices of motion the trustee submitted that there was no basis for the Court to overturn the findings and exercise of discretion of the Registrar concerning the hourly rates charged by the trustee’s solicitors.

consideration

The general objections to the Registrar’s decision

52                                          There is no evidence at all from which I could infer that the Registrar was biased or that she acted unfairly toward Mr and Mrs Maxwell-Smith.  I am not satisfied that the Registrar’s decision was affected by procedural unfairness of any kind. 

53                                          I am prepared to accept that the Registrar may have “cut off” Mrs Maxwell-Smith from time to time.  But I do not think that is enough to establish procedural unfairness.  The Registrar was under a duty to progress the taxation in an efficient and orderly way.  I can understand why it may have been necessary for the Registrar to intervene from time to time so as to keep the taxation on track. 

54                                          Nor am I satisfied that the Registrar ignored important evidence.  I do not think the Registrar was required to refer in her reasons for decision to every fact or circumstance relied upon by Mrs Maxwell-Smith.  Nor does it follow that any particular matter which was not referred to by the Registrar in her reasons for decision was ignored or overlooked by her. 

55                                          So far as the allegations made against the trustee and his manager are concerned, I have no doubt that Mrs Maxwell-Smith is convinced that the trustee has acted recklessly and irresponsibly and that he has performed work that was unnecessary for him to perform.  But the Registrar was not persuaded that the trustee had acted recklessly or irresponsibly or that most of the work he performed was unnecessary.  I am not satisfied, as a general proposition, that the Registrar’s decision was wrong.

56                                          Many of the complaints made by Mrs Maxwell-Smith before the Registrar and again before me were rejected by Wilcox J when the same matters were raised before his Honour.  They were also rejected by the Full Court.  The Full Court disagreed with his Honour’s conclusion in relation to the overseas cruise.  However, the complaints made by Mrs Maxwell-Smith in relation to that matter were then rejected by Allsop J and Mrs Maxwell-Smith’s attempts to set aside his Honour’s orders were wholly unsuccessful.

57                                          Mr and Mrs Maxwell-Smith were entitled to challenge Mr Donnelly’s conduct before Wilcox J and Allsop J.  They were also entitled to challenge their Honour’s orders in the Full Court and the High Court.  But it is hardly a surprise that a substantial proportion of the costs and expenses which were allowed by the Registrar related to those proceedings.  They were all proceedings which Mr and Mrs Maxwell-Smith took against Mr Donnelly and which he had no choice but to defend.

58                                          The judgment of the Full Court which heard the appeal from Wilcox J made it clear that the fees, costs and disbursements of the trustee would need to be carefully considered.  I am satisfied that the trustee’s claims were carefully considered by the Registrar.  

59                                          I am also satisfied that, as a matter of principle, the trustee was entitled to his costs of the proceeding before Allsop J, the appeal against his Honour’s orders and the application for special leave to appeal against the Full Court’s dismissal of the appeal.  Allsop J’s order explicitly recognised and provided that the trustee’s remuneration, costs, charges and expenses were payable in accordance with the relevant principles.  I think the Full Court’s reasons for dismissing the appeal (including the appeal against his Honour’s costs order) did so implicitly. 

60                                          In Pantzer v Wenkart (2006) 153 FCR 466 the question that arose was whether a former trustee could recover from the estate of a former bankrupt remuneration, costs and expenses arising out of litigation between them which occurred after the annulment of the bankruptcy.  The Full Court held that the former trustee was entitled to recover from the estate of the former bankrupt such remuneration, costs and expenses where “… the trustee (or former trustee) had been properly involved in the litigation as an incident of having acted as a trustee charged with the responsibility of administering the bankrupt’s estate” (153 FCR 466 at para [44]).  The proceedings before Allsop J and the Full Court which heard the appeal against his Honour’s orders was litigation of that character.  So too was the proceeding in the High Court in which Mr and Mrs Maxwell-Smith sought special leave to appeal against the Full Court’s orders dismissing the appeal. 

61                                          The proceedings before Wilcox J and the Full Court which heard the appeal against his Honour’s orders raise slightly different considerations to which I shall return.  However, overall, I am satisfied that the Registrar’s decision was not affected by any error of principle except in relation to three particular matters.  The first matter is that which I have just mentioned namely, the costs of the proceedings before Wilcox J and the appeal to the Full Court against his Honour’s orders.  The second is concerned with the trustee’s solicitors’ entitlement to a 25% premium or “uplift fee”.  The third concerns the public examinations. 

Costs of the hearing before Wilcox J and the Full Court

62                                          Mrs Maxwell-Smith referred the Registrar to the Full Court’s “no costs” order in support of a submission that the trustee was not entitled to his costs of the hearing before Wilcox J or the Full Court.  The Registrar rejected Mrs Maxwell-Smith’s submission.  In doing so she referred to the Full Court decision in Pantzer v Wenkart (2006) 153 FCR 466 in support of the proposition that “… where a former bankruptcy trustee was drawn into litigation as a result of his role as trustee, he is entitled to claim remuneration and expenses, which include his legal costs on a solicitor client basis.”

63                                          I have already mentioned that the costs order made in the Full Court was rather generous to Mr and Mrs Maxwell-Smith.  I say this because all but one of the findings made by Wilcox J was upheld on appeal.  Although the Full Court differed from his Honour in holding that there should be an inquiry pursuant to s 179 into the matter of permission to travel, this issue appears to have occupied only a small part of the appeal.  Moreover, in the inquiry that followed, Allsop J found that there was no basis for criticising the conduct of the trustee or his manager.

64                                          However, I think it significant that Wilcox J made the costs order that he did.  Had it not been set aside, that order would have entitled the trustee to his solicitor client costs of defending the application made by the former bankrupts and the question of the trustee’s entitlement to those costs would not have been an issue before the Registrar. I do not think the trustee can get away from the fact that the Full Court set aside that order and substituted a fundamentally different order which must be given effect.  It is necessary to look at the context in which the orders were made for the purpose of deciding what they mean.  It seems to me to be unlikely that the Full Court would have set aside Wilcox J’s costs order and substituted the “no costs” order if it intended that the trustee should be able to recover his solicitor client costs as part of his costs and expenses of the administration irrespective of whether or not the costs order made by his Honour was set aside. 

65                                          The decision of the Court of Appeal in Re Hodgkinson [1895] 2 Ch 190 provides some support for holding that the trustee is not entitled to his costs.  In that case the appellant was a trustee of a testator’s estate and questions arose concerning the manner in which he had dealt with income of the trust estate.  An action was commenced against him by the testamentary guardian on behalf of an infant beneficiary.  After answering the question posed in favour of the testamentary guardian, Kekewich J declined to make any order as to the costs of the action.  Thereafter, the trustee claimed a right to retain out of the trust estate the costs, charges and expenses incurred by him in the action.  The matter went back to Kekewich J who declared that the trustee had no right to retain and pay the costs of the previous action out of the trust estate.  The Court of Appeal (Lindley, Lopes and Kay LJJ) upheld the order.  Lindley LJ said at 193-194:

Kekewich J. settled the point in controversy in favour of the infant, and declared that the expenses of the repairs were to come out of capital, and directed the trustee so to pay them, and the order concluded with these words: “And the judge doth not think fit to make any order as to the costs of the action.”  What does that mean?  The appellant’s counsel says it means nothing, and that the order means neither more nor less than if that passage had been left out of it.  I cannot take that view.  It seems to me that this is a common form of order perfectly familiar to all of us, and it means that the judge, having had his attention called to the matter, and being asked to make an order for payment of the costs, declines to do so.  It is not the same as if he said nothing: the effect is that each party must pay his own costs.  If so, how is that consistent with the retainer by the trustee of his costs out of the estate?  I cannot think it is.  We must remember that this was an action between a trustee and his cestui que trust, and if the judge says, “I make no order as to costs,” that negatives the prima facie right of the trustee to take his costs out of the estate.

Lopes LJ was of the same opinion.  His Lordship said at 194:

The question turns on the proper construction of the words of the order, “The judge doth not think fit to make any order as to the costs.”  I should have thought it as clear as anything can be.  The judge says he does not think fit to make any order as to costs, and that can only mean one thing–namely, that each party is to pay his own costs.  The form is well known, and has been constantly used by all of us to mean what I have said.  The appellant’s counsel say that this is not the true meaning, and that it is just the same as if the words were not in the order, and that he may retain his costs out of the estate notwithstanding.  It seems to me that that cannot be so; it must have been intended that the words should have some effect; and that contention cannot for a moment be maintained. 

66                                          I think the correct interpretation of the order of the Full Court is that it was intended to deprive the former trustee of his right to obtain his costs of the proceeding out of the estates of the former bankrupts.  It follows in my opinion that the Registrar was in error in allowing the trustee his costs of the application before Wilcox J and his costs of the appeal against his Honour’s orders. 

67                                          However, the remuneration claimed by the trustee in respect of work undertaken in connection with the application before Wilcox J and the Full Court is in a different category.  The “no costs” order made by the Full Court does not expressly extend to the trustee’s remuneration and I do not think it can be treated as doing so by implication.  I think the Registrar was right to allow the trustee’s claim for remuneration in respect of work performed for the purpose of defending the application heard by Wilcox J and the appeal against his Honour’s orders.

The trustee’s solicitor’s premium / uplift fee

68                                          The Registrar considered the reasonableness of the rates charged by the trustee’s solicitors.  She referred to an initial costs agreement and “subsequent updates” provided to her by the trustee and noted that these documents provided for the work undertaken by the solicitors to be charged for on an hourly basis at specified rates which were also the subject of a 25% premium or “uplift fee”.

69                                          There were 3 different costs agreements and some related correspondence advising the trustee of increases in the hourly rates provided for in those agreements which were produced by the trustee to the Registrar in support of his claim.  Each of the costs agreements purports to identify the work to be performed and the fees to be charged.  Each also has something to say concerning a 25% premium or uplift fee.  I have reproduced relevant parts of the costs agreement in the schedule to these reasons. 

70                                          Most of the solicitor’s work was performed by a partner.  The hourly rates during the years in question with and without the premium or uplift fee were as follows:

71                                          After considering submissions made on behalf of the trustee and Mrs Maxwell-Smith, the Registrar said that she was satisfied “… that the rates are high but not unreasonably high …” and that she would “allow the rates as claimed pursuant to the various retainer agreements.”  However, the Registrar first needed to ascertain what fees the trustee had actually agreed to pay the solicitors.  She had to determine whether the costs agreements between the trustee and his solicitors entitled the solicitors to charge a 25% premium or uplift fee. 

72                                          This question is to be answered having regard to the documents provided by the trustee to the Registrar in support of his claim as well the requirements of the Legal Profession Act 1987 (NSW) (the 1987 Act) and the Legal Profession Act 2004 (NSW) (the 2004 Act). 

The 1987 Act

73                                          The 1987 Act was in force until 1 October 2005 when it was repealed and replaced by the 2004 Act which came into effect on that date.  Sections 184 to 189 of the 1987 Act were concerned with costs agreements relating to the provision of legal services by a barrister or solicitor retained by the client. 

74                                          Section 184(4) provided that a costs agreement was void if it was not in writing or evidenced in writing.  Section 186(1) provided that a barrister or solicitor could make a costs agreement under which payment of all of the barrister’s or solicitor’s costs was contingent on the successful outcome of the matter in which the barrister or solicitor provided the legal services.  Such a costs agreement was called a “conditional costs agreement”.  Section 187 provided:

(1)       A conditional costs agreement may provide for the payment of a premium on those costs otherwise payable under the agreement only on the successful outcome of the matter.

(2)       The premium is to be a specified percentage of those costs or a specified additional amount. The premium is to be separately identified in the agreement.

(3)       The premium is not to exceed 25% of those costs.

The 2004 Act

75                                          Section 322(2) in Division 5 of the 2004 Act similarly provides that a costs agreement must be written or evidenced in writing.  Section 323(1) also provides that a costs agreement may provide that the payment of some or all of the legal costs is conditional on the successful outcome of the matter to which those costs relate.  Section 324(2) provides that such a conditional costs agreement may provide for the payment of a reasonable premium on the legal costs otherwise payable on the successful outcome of the claim to which the costs relate. This is referred to as the “premium” which, by virtue of s 324(4), must not exceed 25%.  Section 323(3) states that a conditional costs agreement:

(a)       must set out the circumstances that constitute the successful outcome of the matter to which it relates, and

(b)       may provide for disbursements to be paid irrespective of the outcome of the matter, and

(c)       must be:

            (i)      in writing, and

            (ii)     in clear plain language, and

            (iii)     signed by the client, and

(d)       must contain a statement that the client has been informed of the client’s right to seek independent legal advice before entering into the agreement, and

(e)       must contain a cooling-off period of not less than 5 clear business days during which the client, by written notice, may terminate the agreement.

76                                          Section 327(1) of the 2004 Act provides that a costs agreement that contravenes, or is entered into in contravention of, any provision in Division 5 is void.  Even so, s 327(2) provides, subject to presently immaterial exceptions, that legal costs under a void costs agreement are recoverable as set out in s 319(1)(a) or (c) of the 2004 Act.  Relevantly, sub-para (c) allows for the recovery of legal costs according to the fair and reasonable value of the legal services provided. 

The first costs agreement

77                                          The first costs agreement is dated 16 November 2004.  I do not think it is a “conditional costs agreement” for the purposes of s 186 of the 1987 Act.  The costs agreement states that:

If recovery of our fees is dependant on the success of recovery actions or the estate otherwise having sufficient funds to permit payment, in accordance with section 187 of the Legal Profession Act we will charge a premium of 25% of the amount of our fees …

(Emphasis added)

78                                          There does not seem to be any agreement on the face of the document which would establish any right to the payment of a premium in the event of a successful outcome.  Nor did the trustee point me to any related document recording or evidencing an agreement between the trustee and the solicitors which would do so. 

79                                          The use of the word “if” in the first costs agreement is in my view no mere slip.  This is apparent when regard is had to the third costs agreement (to which I will come) which adopts a similar approach to the 25% premium. 

80                                          I do not think the solicitors were entitled to charge the trustee a premium under the first costs agreement. 

The second costs agreement

81                                          The second costs agreement is dated 24 May 2005.  I think it is a conditional costs agreement for the purposes of s 186 of the 1987 Act.  The agreement expressly recognises that the recovery of the solicitor’s fees is dependent on “the success of recovery actions or the estate otherwise having sufficient funds to permit payment” and, on that basis, the solicitors propose to charge a premium of 25% on the amount of their fees calculated in accordance with the specified rates.

82                                          I am satisfied that the solicitors were entitled to charge the trustee a 25% premium under the terms of the second costs agreement.  However, most (if not all) of that work related to the appeal from the orders of Wilcox J.  It follows that most (if not all) of the charges imposed under the second costs agreement are not allowable by reason of the Full Court’s “no costs” order. 

The third costs agreement

83                                          The third costs agreement is dated 1 December 2006.  By this time the 2004 Act had come into force.  The work to which this agreement applies is more specifically defined.  It covers appearances and advice in relation to the s 179 inquiry and other matters consequential or incidental thereto.

84                                          Like the first costs agreement, the relevant paragraph of the costs agreement which is concerned with the payment of 25% “uplift fee” commences with the word “[i]f”.  It states:

If we agree that payment of our fees and disbursements will be conditional in any way, such as being subject to your entitlement to recover such for the bankrupt estate, in accordance with section 314 of the Legal Profession Act we will also charge an uplift fee of 25% of the amount of our fees calculated in accordance with the above rates.  We have not at this point agreed that our fees are conditional in any way and this letter should not be taken as indicating that we have.  This uplift fee is considered to be warranted because our entitlement to recover our fees and disbursements is conditional and we may not ultimately recover such in whole or part and because we have agreed to wait for payment until it is known whether the conditions will be satisfied. 

(Emphasis added)

85                                          What I have said about the first costs agreement applies to the third costs agreement.  However, as the passage I have quoted above shows, the third costs agreement goes somewhat further than the first in that it makes it absolutely clear that the solicitor has not agreed, and is not offering, to enter into a conditional costs agreement.

86                                          I do not consider the third costs agreement is a conditional costs agreement for the purposes of s 323(1) of the 2004 Act.  Hence, the requirements of s 323(3) are irrelevant.  While the costs agreement is not void and is enforceable as between the solicitor and the trustee, it does not require the trustee to pay the solicitor a 25% “uplift fee”. 

87                                          I therefore conclude that the solicitors were not entitled to charge the trustee an “uplift fee” under the third costs agreement. 

Public Examinations

88                                          In relation to the trustee’s claim for remuneration, costs and expenses of the public examinations, the Registrar stated at para [34] of her reasons:

In the view of the taxing officer … a public examination is not at all unusual in a bankruptcy where a statement of affairs has not been provided.  Section 81 of the Bankruptcy Act provides that on application of a trustee, a Registrar may at any time (whether before or after the end of a bankruptcy) summon a bankrupt for examination in relation to the bankruptcy.  The Trustee’s role includes exploring and confirming the financial position of the bankrupt and on information available to the taxing officer from the decisions of the Court involving these parties, from the submissions by the Maxwell-Smiths and from the submissions by the Trustee, I am satisfied that the Public Examinations were not unusual or unreasonable.  Accordingly, in principle, the necessary costs of the Trustee and his solicitors in relation to the public examinations will be allowed.  It is noted, however, that a number of individual items of work undertaken by the Trustee’s staff in relation to public examination preparation has been reduced and disallowed. 

89                                          It seems to me that the Registrar has assumed, incorrectly, that the whole of this part of the trustee’s claim resulted from Mr and Mrs Maxwell-Smith’s failure to lodge a statement of affairs when first required.  Significantly, in my view, her reasons do not distinguish between costs arising before the lodgement of the statement of affairs and those arising after it was lodged.  It is clear enough that there was a lengthy delay on the part of Mr and Mrs Maxwell-Smith in lodging the statement of affairs.  The reasons for the delay were never explained to me by Mrs Maxwell-Smith and I have no reason to believe they were anything but unsatisfactory.  But it appears that Mrs Maxwell-Smith met with Mr Donnelly on 27 February 2004 and that Mr and Mrs Maxwell-Smith signed the statement of affairs either before or after that meeting.  The trustee’s bill of costs reveals that a member of his staff collected the statement of affairs on 1 March 2004. 

90                                          I have previously referred to a submission by counsel for the trustee to the effect that Mr and Mrs Maxwell-Smith assigned a value of $2.00 to their property at Tura Beach in their statement of affairs.  The implication of this was that Mr and Mrs Maxwell-Smith had misrepresented the state of their financial affairs to the trustee and that this provided a justification for the further work which was performed in relation to the public examinations following lodgement of the statement of affairs. 

91                                          The document tendered in support of that submission was an extract from the statement of affairs which is handwritten.  For the purpose of considering the trustee’s submission I have reviewed a copy of the whole document which is on the Court file and which was before the Registrar.  Having looked at the whole document, I am satisfied that Mr and Mrs Maxwell-Smith did not assign a value of $2.00 to the Tura Beach property as was suggested by counsel for the trustee. The relevant entry is in fact a question mark (“?”) rather than a number (“2”) which implies that Mr and Mrs Maxwell-Smith did not know what the current value of the property was.  The house was described in the statement of affairs as being 8 years old, made of brick, with 2 bedrooms, a study, a rumpus room and in good condition.  I do not accept that the trustee would have understood Mr and Mrs Maxwell-Smith to have been representing that their property was worth $2.00.

92                                          I think the statement of affairs would have indicated to Mr Donnelly that Mr and Mrs Maxwell-Smith were most likely solvent.  Yet the relevant bill of costs (Bill 1) show that the trustee and his solicitors incurred substantial costs in relation to public examinations after the statement of affairs was received by him. 

93                                          It is also significant that Mr and Mrs Maxwell-Smith had by this time filed their application to have their bankruptcies annulled.  That application was filed on 10 February 2004 though not heard until 11 June 2004.  The decision to annul the bankruptcies was based upon a denial of procedural fairness found to have occurred at the time the sequestration orders were made.  In his reasons for judgment Moore J noted at [24] that “… counsel for the Trustee acknowledged in submissions that probably the applicants were solvent when the sequestration orders were made.”  This concession owed nothing to information acquired by the trustee in the public examinations which, as I have already mentioned, were never held. 

94                                          In my view, all further work concerning the public examinations should have been put on hold from 1 March 2004, if not permanently, then at least until the outcome of Mr and Mrs Maxwell-Smith’s application for annulment of their bankruptcies was known.  Instead the trustee and his solicitor continued to incur costs as though there was a continuing need for the public examinations to occur.  I am satisfied that the claim for remuneration, costs and expenses associated with the public examinations should have been disallowed by the Registrar in so far as it relates to the period beyond 1 March 2004. 

Outcome of the review

95                                          It follows that the trustee is entitled to a total amount that is considerably less than what was allowed by the Registrar.  What I propose to do is order that the matter be referred back to the Registrar to allow her to review the bills of costs in light of my reasons.  The Registrar should then prepare a short report for me which indicates what further amounts should be disallowed as a consequence of my finding concerning the “no costs” order made by the Full Court, my findings concerning the meaning and effect of the first and third costs agreement and my finding concerning the public examinations.

96                                          My present view is that there is no need for any further hearing to take place before the Registrar and that, in the interests of saving costs, it would be preferable if there was none.  However, I will hear from the parties on that issue if they take a different view.

Other orders

97                                          I will strike out paragraphs 1 and 2 of Mr and Mrs Maxwell-Smith’s amended notice of motion.  I will order that Mr and Mrs Maxwell-Smith pay S & E Hall its costs of the motion in an amount to be fixed by me.  S & E Hall must file and serve an affidavit providing details of the costs incurred by it which I will use to assess S & E Hall’s party-party costs.  S & E Hall’s solicitor was excused from attending the hearing of the motion early on the first day so I expect the costs involved to be modest. 

98                                          I refuse all other orders sought by Mr and Mrs Maxwell-Smith in their amended notice of motion. 

99                                          In relation to the trustee’s notice of motion, I think it should be stood over for the purpose of making further orders in light of the Registrar’s report.  It is my intention to make an order for the payment of the trustee’s total entitlement after it is finally ascertained.  And unless there is some co-operation between the trustee and Mr and Mrs Maxwell-Smith which renders it unnecessary for me to do so, it is also my intention to make an order for possession of the Tura Beach property so that it may be sold by Mr Donnelly, thereby allowing him to be paid what he is owed from the proceeds of the sale. 

Costs

100                                       It remains to be seen what the total amount allowed to the trustee will be but it is already apparent that he is entitled to an amount which is likely to be substantially less than the $435,254.16 claimed in the bills of costs submitted for taxation.  I will hear further argument on the question of costs (including the costs of the taxation) after the amount of his total entitlement is finally ascertained. 

101                                       I wish to thank Mr M. Aldridge SC and Mr D. Ash of counsel who appeared as amicus curiae.  Their role was limited to making some helpful submissions on the question of jurisdiction which, at the end of the day, were not disputed by the trustee in any respect.

*          *          *

Schedule

First costs agreement dated 16 November 2004

The Work:     •      Represent you in proceedings commenced by Inge Maxwell-Smith against you.

                       •      Advise in relation to proceedings.

                       •      Represent you in any related or incidental proceedings (including appeals and enforcement of any orders made in your favour).

                       •      Advise as required.

                       •      Incidental or related work.

Our Fees:       Our fees are calculated taking into account the amount of professional time expended on the work at the following rates (which are exclusive of GST):

                       •      Partner                                              $400 per hour

                       •      Senior Associate                                $330 per hour

                       •      Solicitor (depending on experience)     $250-300 per hour

                       We may alter these rates by giving you written notice of our intention to do so. 

                       …

                       If recovery of our fees is dependant on the success of recovery actions or the estate otherwise having sufficient funds to permit payment, in accordance with section 187 of the Legal Profession Act we will charge a premium of 25% of the amount of our fees calculated as above. 

Second costs agreement dated 24 May 2005

The Work:     •      Represent you in the proceedings which the Maxwell-Smiths have commenced to appeal from the orders made by Wilcox J on 21 March 2005.

                       •      Represent you in all subsequent and related proceedings, including appeals and attempts to enforce orders against you from the decision in the above proceedings.

                       •      Enforce any orders (including for payment of costs) made in your favour in any of the above proceedings. 

Our Fees:       Our fees are calculated taking into account the amount of professional time expended on the work at the following rates (which are exclusive of GST):

                       •      Partner                                              $400 per hour

                       •      Senior Associate                                $330 per hour

                       •      Solicitor (depending on experience)     $250-300 per hour

                       We may alter these rates by giving you written notice of our intention to do so.

                       …

                       As recovery of our fees is dependant on the success of recovery actions or the estate otherwise having sufficient funds to permit payment, in accordance with section 187 of the Legal Profession Act we will charge a premium of 25% of the amount of our fees calculated as above. 

Third costs agreement dated 1 December 2006

The Work:     •      To appear on your behalf in and advise concerning the enquiry (to be conducted pursuant to s179 of the Bankruptcy Act) into your conduct with respect to the Maxwell-Smith estate.

                       •      To act for you in proceedings consequential, incidental or related to the enquiry, including appearing appeals and enforcing orders (including orders for payment of costs) made in your favour.

Our Fees:       Our fees are calculated taking into account the amount of professional time expended on the work at the following rates (which are exclusive of GST):

                       •      Partner                                              $500 per hour

                       •      Senior Associate                                $425 per hour

                       •      Solicitor (depending on experience)     $275-375 per hour

                       We may alter these rates at any time during the matter by giving you written notice of the alterations …

                       If we agree that payment of our fees and disbursements will be conditional in any way, such as being subject to your entitlement to recover such for the bankrupt estate, in accordance with section 314 of the Legal Profession Act we will also charge an uplift fee of 25% of the amount of our fees calculated in accordance with the above rates.  We have not at this point agreed that our fees are conditional in any way and this letter should not be taken as indicating that we have.  This uplift fee is considered to be warranted because our entitlement to recover our fees and disbursements is conditional and we may not ultimately recover such in whole or part and because we have agreed to wait for payment until it is know whether the conditions will be satisfied. 

Associate:

Dated:         14 May 2010