By Tony Johnson - 28 Jul 2017
A recent High Court decision has proved that unreasonable
costs by professionals won't wash with the Courts.
Take these scenarios:
- A tenant or guarantor agreeing a landlord is indemnified for
all its costs (including all legal costs)
- A trustee being indemnified for all their costs from the assets
of a trust
- An unsecured creditor faced with liquidators being entitled to
all their costs in priority to unsecured creditors
Then imagine the landlord, trustee or liquidator presenting a
completely unreasonable fee. This could prove a nightmare for the
tenants, guarantors, beneficiaries or unsecured creditors.
Thankfully all is not lost. Despite the indemnity, solicitors,
trustees and liquidators' costs are subject to Court review. The
right to ALL costs is always conditional on the costs being
reasonable in the circumstances.
The recent High Court decision in Ranolf Trust was a
salient lesson to liquidators. In that case total unsecured
creditors were valued at approximately $130,000. The company in
liquidation was a trustee company. As a trustee, it had an
indemnity from the assets of the trust for any debts and costs.
The Court pointed out that the liquidators' principal duty was
to take possession of, protect, realise and distribute the assets
of the company to its creditors. The right of indemnity meant it
should have been a straight forward matter for the liquidators to
obtain payment from the trust to meet all the unsecured creditors'
and their own costs. Instead, the liquidators incurred costs of
over $500,000 and tried to claim them from the assets in the
trust.
The Court held that although the liquidators had an implied
indemnity, the amount of costs still needed to be reasonable. The
Court determined the amount claimed was not reasonable and awarded
the liquidators costs of around $140,000 only.
In relation to legal fees, there are other ways to challenge the
amount of costs. This includes a complaint to the Law Society or an
application to the Court that the costs be taxed (reviewed by the
Court registrar). Either way, the ability to challenge the amount
of fees (even if an indemnity clause exists) provides some balance
to an otherwise vulnerable position a person may be subject to
where an indemnity exists.
If you wish to discuss any matters raised in this article
contact Tony
Johnson or Pierce Bedogni.