In our January Legal Update article, What Must Receivers Reveal, we reported on an ongoing dispute between companies in the Westpoint Group, and receivers appointed to those companies in 2006. The founder of the Westpoint Group, Mr Norm Carey, is trying to get the receivers to provide copies of their invoices and invoices for the legal work done by their lawyers, Corrs Chambers Westgarth, during the receivership.
Readers will no doubt recall that the Court of Appeal recently held that the receivers were required to provide the detailed invoices, subject to any claim for legal professional privilege (LPP). The Court found that insufficient evidence had been put forward to explain why the receivers were entitled to claim LPP, but decided that the receivers should have an opportunity to put forward further evidence.
A week after the publication of our January article, the Court of Appeal handed down a supplementary decision. Although many of the arguments against the receivers failed, the Court found that most of the time before it had been spent on the issue of LPP, where Mr Carey had enjoyed some success. The Court found that this justified a cost order in favour of Mr Carey and the other appellant, of 75% of the cost of the appeal, and 75% of the costs of the original application.
In the cases referred to in our earlier article, the receivers retained Mallesons Stephen Jaques (now King & Wood Mallesons) to represent them in court.
Some of the Westpoint companies have now issued proceedings against Mallesons, seeking to review the bills issued by Mallesons for defending the receivers.
In WA, the Legal Profession Act 2008 gives the clients of a legal practice the right to have their legal bills assessed by a taxing officer in the Supreme Court. A person who is not a client, but is liable to pay someone else's legal costs, is known as a "third party payer", and they also have the right to have their costs reviewed in this way.
The companies in the Westpoint Group argue that they are liable to pay the invoices issued by Mallesons to the receivers in the earlier dispute. The companies say that this means they are third party payers and therefore entitled to call for those costs to be assessed.
A costs assessment can be a very time-consuming and labour-intensive process. A taxing officer can make a variety of orders about a legal bill in a costs assessment, including orders that it be reduced if found to be excessive.
Mallesons responded to the proceedings by applying to have them dismissed, saying that the action had no prospect of success and that it should not have been commenced in the first place as no-one, except the receivers, had any authority to cause the companies to issue the proceedings. Mallesons claimed that the costs of the application, and of the action, should therefore be paid by the plaintiff's lawyers and those instructing them.
In a decision handed down earlier this month, the Supreme Court found that the action was not so hopeless that it should be struck out at this early stage, so the arguments must proceed to a full hearing for determination.
The Court also declined to order that the lawyers or their instructors pay Mallesons' costs.
These findings involved an interesting analysis of what the director of a company can still do after the appointment of a receiver.
Unlike other forms of external administration, the appointment of a receiver does not entirely suspend the powers of the directors. When trying to determine what a director of a company in receivership can and cannot do, the question is whether the exercise by a director of a power in the name of the company will interfere with the receivers doing their job.
The Court found that in this case, a request to the receivers' lawyers to submit their bills for assessment would not interfere with the conduct of the receivership. It could therefore be within the powers of the directors to cause the companies to make such a request and to initiate a costs assessment.
This latest action against the Westpoint receivers has only just started and some of the findings made this month could go another way at a full hearing of the matter. In any event it seems likely that the receivership of the Westpoint Group will continue to test, and possibly make, the law in this area for a little while yet.
Carey v Korda [2012] WASCA 228(s)
Huntingdale Village Pty Ltd v Mallesons Stephen Jaques [2013] WASC 48
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