Australian Securities and Investments Commission v Atlantic 3 Financial (Aust) Pty Ltd & Ors [2004] QSC 284

SUPREME COURT OF QUEENSLAND CITATION: ASIC v Atlantic 3 Financial (Aust) Pty Ltd [2004] QSC 284 PARTIES: AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION (applicant) v ATLANTIC 3 FINANCIAL (AUST) PTY LTD ACN 056 262 723 (first respondent) FREDRIC MICHAEL ACKER (second respondent) GERILYN MARIE POLANSKI (third respondent) FILE NO: S4426 of 2003 DIVISION: Trial Division PROCEEDING: Application for costs DELIVERED ON: 7 September 2004 DELIVERED AT: Brisbane HEARING DATE: Written submissions JUDGE: Mullins J ORDER: The second and the third respondents pay the costs of Gregory Michael Moloney and Peter Ivan Felix Geroff (“the accountants”), including reserved costs, of the application filed on 11 September 2003 to be assessed on a standard basis up to (but not including) the service on the accountants of the respondents’ notice of objection and thereafter (from and including the service on the accountants of the notice of objection) to be assessed on an indemnity basis. CATCHWORDS: PROCEDURE - COSTS - where court appointed investigative accountants and supervisors in respect of unregistered managed investment schemes applied for approval of remuneration - where parties responsible for paying the remuneration filed a notice of objection containing 696 objections - where remuneration was approved subject to a slight reduction - whether accountants were successful on their application and entitled to an order for costs - whether notice of objection was so oppressive and speculative that the accountants were entitled to costs on an indemnity basis - accountants entitled to an order for costs and for the costs incurred from and after the service of the notice of objection to be assessed on an indemnity basis -- 1 of 6 -- 2 Colgate-Palmolive Co v Cussons Pty Ltd (1993) 46 FCR 225 Lancet Pty Ltd v Olholm Developments Pty Ltd [2001] 1 QdR 22 Venetian Nominees Pty Ltd v Conlan (1998) 20 WAR 96 SOLICITORS: Gadens Lawyers for Messrs GM Moloney & PIF Geroff Lynch & Company for the second and third respondents [1] MULLINS J: When I published my reasons for judgment (“the reasons for judgment”) in respect of the determination of the costs and remuneration of Messrs Moloney & Geroff (“the accountants”) as investigative accountants appointed pursuant to the order of this Court made on 27 May 2003 (“the order”), the question of the costs of the application was adjourned. The citation for the reasons for judgment is [2004] QSC 133. [2] The parties solicitors subsequently made written submissions. The accountants’ submissions were delivered on 15 July 2004. The submissions on behalf of Dr Acker (“the second respondent”) and Ms Polanski (“the third respondent”), to whom I shall collectively refer to as “the respondents”, were delivered on 6 August 2004. [3] Each of the parties relies on the course that the application took and the outcome to make the respective submissions on costs. As the progress of the application and how the various issues were disposed of are set out in detail in the reasons for judgment, I will not repeat them in these reasons, except to the extent that is necessary to explain my decision on the question of costs. [4] The accountants succeeded on their application. Although the respondents take issue with that as the description of the outcome, it reflects what occurred, when the -- 2 of 6 -- 3 amount of the costs and remuneration and disbursements was fixed in the sum of $201,193.61 which was only $2,813 less than what was claimed by the accountants. [5] The submission on behalf of the accountants is that they should have their costs and they should be assessed, in whole or part, on an indemnity basis, because of the nature and extent of the notice of objection which was delivered on behalf of the respondents on 30 December 2003 (to which reference is made in paragraph [11] of the reasons for judgment). [6] Because of the manner in which the respondents’ solicitor conducted the hearing of the application, as set out in paragraph 16 of the respondents’ submissions, the reduction achieved in the costs and remuneration as a result of the hearing and that the response of the accountants to the extensive objections had the effect of narrowing the issues, the respondents submit that they should pay 70% of the applicants’ costs of the application to be assessed on a standard basis. Relying on the well known principles on the circumstances that make it appropriate for an award of indemnity costs set out in Colgate-Palmolive Co v Cussons Pty Ltd (1993) 46 FCR 225, 232-234, the submission is made that there are no grounds to support the making of a punitive order for costs against the respondents. [7] The affidavit of Mr Moloney that was filed in support of the application for approval of the accountants’ costs and remuneration and disbursements was in the form that was suggested in Venetian Nominees Pty Ltd v Conlan (1998) 20 WAR 96, 103 and Lancet Pty Ltd v Olholm Developments Pty Ltd [2001] 1 QdR 22, 42 as appropriate to enable the court to perform the task of determining whether the remuneration that was sought was fair and reasonable. -- 3 of 6 -- 4 [8] After the application was filed, directions were made on 25 September 2003 which set a timetable for the steps to be undertaken by the parties, before the hearing of the application. The accountants were required by the directions to allow the respondents’ solicitors to review and seek copies of the non-privileged documents created by the accountants in respect of the work and expenses the subject of the application for the approval of remuneration and disbursements, before the respondents were required to file and serve the notice of objection. [9] The notice of objection comprised 696 separate objections covering most of the items of work undertaken by the accountants in the period of about six weeks that was involved in the claim for remuneration and disbursements. [10] The accountants in their written submissions on the question of costs give examples of what they describe (and I accept) as illogical and unmaintainable objections. For example, complaint was made by the respondents about lack of file notes and the complaint was made, when there were file notes, about the time spent in drafting them. The description which I applied in paragraph [11] of the reasons for judgment was that the notice of objection was speculative, having regard to the fact that all possible objections were taken. It is particularly pertinent in considering the nature and extent of the objections that the respondents were familiar with the loans and dealings in respect of which the accountants were required to undertake their work pursuant to the order and that the accountants’ tasks were affected by the withholding of information by the respondents from the accountants: paragraphs [17] to [19] of the reasons for judgment. The respondents were also privy to the time constraint that was placed on the accountants in undertaking the tasks required under the order which affected how the work was carried out. -- 4 of 6 -- 5 [11] The work required of the accountants to respond to the notice of objection was immense. That was apparent from the written response prepared by the accountants to the notice of objection that was filed on 27 January 2004, accompanied by five volumes of annexures. [12] At one stage it was foreshadowed in connection with this application for approval of remuneration and disbursements that the accountants would be seeking an order for costs in respect of their work and that of their staff in responding to the notice of objection. The written submissions of the accountants on the question of costs note that the accountants will be making a separate approval for remuneration in respect of that work. [13] Although the respondents claim that their approach in filing such an extensive notice of objection resulted in some reduction (which was very slight) to the remuneration that was claimed and that a large number of the objections were able to be abandoned as a result of the further information elicited by the respondents in cross-examination of the accountants and their staff about the accountants’ work practices which were pursued in cross-examination as a result of the content of some of the objections that were made, the reality was that the notice of objection had very little impact on the ultimate outcome of the application. [14] It was the respondents’ choice to take the approach they did in the notice of objection and to speculate on whether that would effectively reduce the amount of the costs and remuneration and disbursements sought by the accountants. [15] The nature and extent of the objections in the notice of objection had an immense effect on the work required on the part of the accountants to respond and prepare for -- 5 of 6 -- 6 the hearing of the application for the approval of their remuneration and disbursements. The accountants were required to go to great lengths to support their claim for fair and reasonable remuneration that was far beyond what the material which they filed in support of the application should reasonably have required. Having regard to all the circumstances pertaining to the work for which the accountants were seeking approval of their remuneration and disbursements of which the respondents were aware, the notice of objection was not what should have been expected from the respondents. The notice of objection was so oppressive and speculative, that it warrants a departure from the usual order for costs, as from the service of the notice of objection on the accountants. [16] The order for costs which I consider is appropriate in all the circumstances of this application is: The second and the third respondents pay the costs of Gregory Michael Moloney and Peter Ivan Felix Geroff (“the accountants”), including reserved costs, of the application filed on 11 September 2003 to be assessed on a standard basis up to (but not including) the service on the accountants of the respondents’ notice of objection and thereafter (from and including the service on the accountants of the notice of objection) to be assessed on an indemnity basis. -- 6 of 6 --