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Unreasonable costs won't wash

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.


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