New South Wales Supreme Court CITATION : Nutech Wall & Ceiling Systems v VMF Holdings (NSW) (in liquidation) & Ors [2009] NSWSC 737 HEARING DATE(S) : Written Submissions JUDGMENT DATE : 31 July 2009 JURISDICTION : Equity JUDGMENT OF : White J DECISION : Direct that the moneys paid into court by the fourth to seventh defendants on 19 February 2009 together with interest earned thereon be paid out to Mr Andrew Ross of Ferrier Hodgson Forensics Pty Ltd. CATCHWORDS : PRACTICE AND PROCEDURE - challenge to fees of referee - whether tasks improperly delegated - referee required to express opinion on question of law - parties ultimately agreed that question should be answered differently - whether referee's fees should be moderated to reflect additional costs occasioned by earlier opinion CATEGORY : Procedural and other rulings CASES CITED : Nutech Wall & Ceiling Systems v VMF Holdings (NSW) [2008] NSWSC 980 Nutech Wall & Ceiling Systems Pty Ltd PARTIES : v VMF Holdings (NSW) Pty Ltd (in liquidation) & 6 Ors FILE NUMBER(S) : SC 2904/02 SOLICITORS : Plaintiffs: Miller Noyce 4th-7th Defendants: Dennis & Co Solicitors IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION WHITE J Friday, 31 July 2009 2904/02 Nutech Wall & Ceiling Systems Pty Ltd v VMF Holdings (NSW) Pty Ltd (in liquidation) & 6 Ors JUDGMENT 1 HIS HONOUR: On 15 December 2008 orders were made by consent disposing of the issues in these proceedings. An issue has subsequently arisen in relation to outstanding fees of the referee, Mr Ross of Ferrier Hodgson. The plaintiff on the one hand, and the fourth to seventh defendants on the other hand, were jointly and severally liable for his fees. 2 Mr Ross, provided his report on the first reference on 1 May 2008. The orders directing the reference did not specify whether the profit or loss of the joint venture should be determined as at 9 April 2002 or should be determined taking into account the income and expenses of the joint venture projects on hand as at 9 April 2002 up to their completion. Mr Ross was required to form his opinion on that question and to give reasons for his opinion. The plaintiff had contended that the profit or loss of the joint venture should be determined as at 9 April 2002. The fourth to seventh defendants contended to the contrary. Mr Ross did as he was required to do. On 1 May 2008 he reported that in his opinion the profit or loss of the joint venture should be struck as at 9 April 2002. He gave reasons for that view. He provided a report as to the profit of the joint venture at that date. 3 As I noted in my reasons of 19 September 2008, at the hearing of the notices of motion concerning the adoption of the referee's report of 1 May 2008, the plaintiff accepted that the accounting should be made on the basis of a winding-up of the joint venture having regard to the profits and losses of each of the projects which were joint venture projects. On 19 September 2008 I referred to Mr Ross the question of what was the loss or profit of the joint venture on the assumption that the income and expenses of the joint venture projects contracted for as at 9 April 2002 up to their completion were to be taken into account in determining joint venture profit or loss. As noted in my reasons of 8 December 2008, that reference reached an impasse. Mr Ross advised that the submissions of the parties did not enable him to complete his report. On 3 December 2008 I directed Mr Ross to provide such report as he could by 8 December 2008, being the first day fixed for hearing. He did so. 4 On 17 December 2008 Mr Ross rendered an invoice for $47,838.45 inclusive of GST in respect of work performed in the period from 24 November to 8 December 2008. After taking into account a balance held in trust for his fees, he sought payment of $22,893.67 from the plaintiff on the one hand, and the fourth to seventh defendants on the other. I ordered the parties to pay the moneys claimed into court. Mr Ross and the plaintiff have agreed to orders for the payment out of the moneys paid into court by the plaintiff. The defendants object to the fees claimed. 5 It initially appeared from correspondence between Mr Ross and the defendants' solicitors that the dispute would be about the quantum of fees charged for providing Mr Ross' report of 8 December 2008. However, I do not understand those fees to be challenged, except insofar as a more general challenge has been made to costs incurred by employees of Ferrier Hodgson to whom, it is said, Mr Ross improperly delegated work. I deal with the question of delegation below. 6 Mr Ross' report of 8 December 2008, although not expressing a definitive opinion on the profit or loss of the joint venture because of the absence of necessary information from the parties, was nonetheless a detailed document which reported on many, if not most, of the issues relevant to striking a profit or loss. It may well have been instrumental in the parties reaching a compromise. Had the final hearing proceeded, I would have needed persuasive reasons not to adopt the report. 7 Mr Ross provided a detailed narrative of the work done in preparing the report and the hours spent by the partners, manager and other employees of Ferrier Hodgson in producing the report. Having regard to the contents of the report I have no reason to doubt that the time was spent productively. 8 The focus of the submissions of the fourth to seventh defendants in objecting to payment of the last instalment of Ferrier Hodgson's fees was not confined to the last invoice. Rather, the solicitor for those defendants submitted that the fees now sought should be disallowed having regard principally to other matters concerning both references. The defendants made four general submissions which I have reordered. First, it was said that Mr Ross had improperly or inappropriately delegated work in connection with the reference to employees, and the parties had been charged for the time spent by those delegates in communicating with one another about the processes they were undertaking and for carrying out drafting and other work which should have been carried out by the referee himself. Secondly, it was submitted that the total of the charges of both references was out of proportion to the dispute. The total charges for both references was almost $173,000 plus GST. Thirdly, it was submitted that Mr Ross' conclusion in his first report that profit or loss should be struck as at 9 April 2002 was misconceived and this misconception resulted in substantial additional costs. It was submitted for the defendants that not only did Mr Ross erroneously adopt the approach suggested by the plaintiff, but he failed, as he should have done, to ask the court to determine the question of the date as at which profit or loss of the joint venture should have been determined. Fourthly, objection was taken to sundry specific items of charge. Delegation 9 Pursuant to r 20.20 of the Uniform Civil Procedure Rules 2005 (NSW), in conducting the reference, Mr Ross was entitled to inform himself in relation to the subject of the reference in such manner as he thought fit. In his engagement letter to the parties he expressly stated that whilst he would be the person primarily responsible for the planning, co-ordination and completion of the reference, to ensure that the work was completed in a timely and cost-effective manner, staff with appropriate experience and expertise would be assigned to complete the assignment. 10 Although a regime had been put in place in 2002 with a view to having a third party (BDO Nelson) certify payments of appropriate joint venture expenses after 2 December 2002, and although both parties had retained accountants, which ought to have resulted in a narrowing and clarification of issues in dispute, no such clarification or narrowing of issues occurred. Mr Ross said that: " During the course of the References, the Parties provided me with 49 arch lever files of submissions and documents (along with many more submissions and documents provided electronically or by email). These documents dealt with matters as diverse as submissions in relation to accounting principles and disputes as to the appropriateness of individual costs of as little as $5.09. Further, a good deal of this material was presented in different forms on more than one occasion, requiring that it be sifted for relevance and duplication. It would have been extraordinarily inefficient for me to have undertaken that kind of task personally rather than delegating it to someone with a lower billing cost. " I accept that submission. 11 In my reasons of 19 September 2008 I was critical of the lack of proper assistance provided by both parties to the referee (para [21]). 12 A substantial part of the reference required the carrying out of work in the nature of an audit. In my view there was nothing improper or inappropriate in Mr Ross delegating tasks to his staff and there is nothing to indicate that any particular type of work so delegated was not work appropriate for the staff member to carry out. Inevitably this delegation involved time being spent by staff members in the discussion of the tasks so delegated. I do not accept that the charges made in respect of such discussions were excessive. Global Charge 13 I accept that the costs of the reference are out of proportion to the issues in dispute. That is not the fault of the referee. The parties did not provide proper assistance to him. I accept Mr Ross' submission that the costs of the reference were increased by non-compliance with directions and by a general approach by both parties of delay and obfuscation. In his submissions, Mr Ross said: " In my opinion, based on my observation of the approach taken by the parties to the references, no attempt was made by the parties to deal with the matters in dispute in a way which reflected the amount in dispute. Rather, prior to the reference the parties had already engaged multiple accountants but had been unable to resolve the matters in dispute. The parties produced copious and excessive volumes of material. The parties continued to dispute matters with values as low as $5.09. Indeed, it was only at my instigation (as part of the first reference) that consideration of matters was limited to those more than $2,000. " I accept that submission. 14 Except in two respects, the defendants have not sought to identify what Mr Ross could or should have done differently to reduce the cost of the reference. One complaint concerns delegation of tasks. I have rejected the defendants' complaint about delegation. I accept Mr Ross' submission that the delegations reduced the cost which would otherwise have been incurred had he been required to carry out all of the tasks personally. The second complaint is that Mr Ross should have sought directions in relation to the time at which the profit and loss of the joint venture should be struck below. I deal with that below. Effect of the First Reference 15 I do not know how it came to pass that the orders for the first reference left it to Mr Ross to determine what is essentially a legal question as to the time at which the profit or loss of the joint venture should be struck. However that came to pass, it was clearly a matter which was left for Mr Ross to determine in the first instance. At the reference the plaintiff submitted that the profit or loss should be struck as at 9 April 2002 and Mr Ross accepted that submission for reasons which he gave. As I set out in my reasons of 19 September 2008 (Nutech Wall & Ceiling Systems v VMF Holdings (NSW) [2008] NSWSC 980) the plaintiff ultimately accepted the position which the defendants had put forward to the referee. Had the issues between the plaintiff and the defendants, including issues of costs, not been compromised, the defendants would have been in a strong position to argue that the additional costs incurred by reason of the approach taken in the first reference as to the date for striking a profit or loss should have been borne by the plaintiff. But I see no reason to deprive Mr Ross of his proper fees because he was required to determine what was essentially a legal question and reached a conclusion which the plaintiff belatedly accepted was wrong. 16 It was submitted for the defendants that they attempted to have Mr Ross return to the court for directions to determine the legal question as to the date to which accounts should be taken. Mr Ross disputed that any such request was made. 17 The orders of 11 December 2007 directing the reference granted liberty to the referee and any party to seek directions "with respect to any matter arising in the proceedings under the reference". But the orders also required Mr Ross to form and express his opinion as to whether the profit or loss should be struck as at 9 April 2002. What the defendants say they proposed would have been an application to vary the orders appointing Mr Ross to inquire and report on the questions set out in the schedule to the orders, as distinct from the giving of directions with respect to such an inquiry and report. In my view, it was for the defendants, not for the referee, to seek such a variation of the order. 18 No written request or formal submission was made to Mr Ross that he seek directions as to the date at which the profit or loss should be struck. Instead, written submissions were put to him on 31 March 2008 as to why he should determine the profit or loss of the joint venture having regard to the completion of the joint venture projects. The submissions did not include a request that he seek directions to have that question determined by the court. In his submission in reply, the defendants' solicitor says that on or about 18 April 2008 he proposed to Mr Ross that there be a conclave of experts to resolve issues in dispute. He also says that he said to Mr Ross "there is a really large gap between the parties as to what date the accounting should be taken. In my view that's a legal issue." According to the defendants' solicitor, Mr Ross said "Well I am not a lawyer" and he replied "I understand that. I think that is why Justice Nicholas left it open to you to come back to the court." According to him Mr Ross said "If I think I need help there then I'll take it under consideration. But I'll decide that if the need arises". 19 Mr Ross has not responded to this submission and I do not know whether he takes issue with it. Assuming that a conversation to that effect took place, it does not amount to a request by the defendants that Mr Ross seek such directions. Moreover, the solicitor misstated the effect of the liberty to seek directions. Given the lateness at which the statement was made, it was also not practicable for Mr Ross then to seek such directions. Had he done so, he may well have been criticised, given that the orders for the reference clearly required him to express his own opinion on that matter and the parties had been put to expense in making submissions to him about it. It is not suggested that Mr Ross needed further information to form his opinion for which directions might have been needed. Rather, it is said that he should have realised that the issue was not one appropriate for an accountant to decide. That obviously was not the view taken when the orders for the reference were made on 11 December 2007. Mr Ross should not be criticised for completing the task assigned to him. Specific Items in Dispute 20 The defendants challenge four items totalling $2,678 incurred in May and December 2008 where one of Mr Ross' partners at Ferrier Hodgson undertook quality assurance review of his reports. I express no view as to whether such charges would be generally appropriate where an accountant in a firm is appointed as a referee to inquire and report on matters in dispute. It is the personal opinion of the referee that is required, but he or she is entitled to inform himself or herself in such manner as he or she thinks fit. In an appropriate case that can include consultation with a partner albeit at an expense to the parties. The charges in question in the present case form a very minor part of the overall fees (less than 1.7 percent). Having regard to the detailed content of the reports, I do not consider that the charges are inappropriate. 21 Objection is also taken to charges totalling $2,502 for the preparation of an interim report of 17 April 2008 and $3,957 in respect of the preparation and conduct of a meeting with the parties on 5 November 2008. It is said that the charges were "disproportionate to the task". 22 Mr Ross was required to prepare an interim report to obtain an extension of time. The report had to set out the reasons for the required extension. He was not relieved of that burden because the parties did not object to the extension of time. Mr Ross said, and I accept, that the need to prepare the interim report arose from failure of the parties, and particularly the defendants, in meeting the timetables he had established for the reference. 23 The meeting of 5 November 2008 was an important meeting attended by counsel. Mr Ross said that at that stage the plaintiffs' submissions suggested that the second reference would not be able to proceed and to prepare for the meeting it was necessary that he understand those submissions and their bases in considerable detail, to assess whether any alternative approach could be adopted to allow the second reference to proceed. Mr Ross provided a further interim report on 5 November 2008 which led to my making new orders in relation to the conduct of the reference on the following day. I accept Mr Ross' submissions as to the necessity for the work undertaken in preparation for the meeting on 5 November 2008. I reject the defendants' submissions that the specific charges they identified were excessive. Conclusion 24 For these reasons, I direct that the moneys paid into court by the fourth to seventh defendants on 19 February 2009 together with interest earned thereon be paid out to Mr Andrew Ross of Ferrier Hodgson Forensics Pty Ltd. ****** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.