Thursday, 23 October 2014

Albarran and Pleash 'prejudicial' unintentionally: Black

Richard Albarran and Blair Pleash must justify authorising more than half a million dollars in legal fees paid to their former solicitors after the NSW Supreme Court's Justice Ashley Black yesterday ruled the Hall Chadwick partners had failed to adequately review the solicitor's invoices.

In handing down judgement in the matter of Joe & Joe Developments (Subject to a Deed of Company Arrangement). Justice Black found the lack of scrutiny unintentional but "significant".

"I am satisfied, for the purposes of s 447E of the Corporations Act, that Messrs Albarran and Pleash have managed the Company's business in a way that is prejudicial to the interests of its creditors or members, or have made an omission that is prejudicial, by reason of their failure to undertake appropriate review of the invoices which they had received from their former solicitors, and thereby to supervise the work undertaken by those former solicitors," Justice Black said at paragraph 184 of his 111 page judgement.

"I am also satisfied that the matter is of significance, given the extent of the potential issues arising on the face of the former solicitors' invoices and the extent of the deficiency in the deed administration, and that the Court should properly make an order under that section to seek to address the issue."

The judge's findings represent a partial win for plaintiff Tony Elias, a director and shareholder of Joe & Joe Developments. The building firm has been subject to the terms of a DoCA executed on March 31, 2009 after Tony Elias and co-shareholder Joseph Kossaifi fell out in 2008 over the best way to distribute the profits from their mixed commercial and residential development at North Narrabeen.

Albarran and Pleash, neither of whom responded to multiple requests for comment, were appointed voluntary administrators on February 9, 2009. Their former solicitors, who Justice Black chose not to identify, were engaged to undertake the legal work on behalf of the VAs.

The parties then executed the DoCA and the former solicitors continued to act for Albarran and Pleash in their capacity as deed administrators.

But feuding between the shareholders impeded the DoCA's progress, a fact Justice Black acknowledged.

"The development of the commercial and retail units on that land took place between November 2005 and March 2007. Differences between Mr Elias and Mr Kossaifi as to what should be done in respect of the completed development emerged from early 2007 and had grown to a substantial dispute by 2008. It seems to be common ground, and was amply demonstrated by the evidence, that at least Mr Kossaifi and Mr Elias were no longer willing or able to work together by that time," Justice Black said.

He was also reluctant to accept some of the more vociferous pleadings about the legal fees paid to the former solicitors, which stand between $500,000 and $800,000 depending on which side you listen to.

"The Plaintiffs submit that, had a costs agreement been entered into for each piece of work of matter that the solicitors were acting on, it would have been clear what their instructions were, what the scope of the work was to be and what was to be charged.

"It seems to me that submission has, first, the difficulty that it would not have been practicable for a costs agreement to have been entered into for each segment of work, although it may have been open to plan or budget segments of the work in a manner that was not done; but, more fundamentally, there is little likelihood that that course would have reduced the costs which arose from the complexity of the administration, the non­-compliance by the shareholders with the terms of the DOCA and the numerous disputes which arose as to the respective parties' obligations to which I have referred."

The judge in fact goes into great detail about how shareholder dysfunction frustrated the efforts of Albarran and Pleash to effectuate the terms of the DoCA and while finding that they had fallen short of the standard expected in terms of adequately monitoring the lawyer's invoices, said "a failure of process is not the same as indifference".

Tony Elias sued the pair in October 2012, seeking orders that Albarran and Pleash had managed the company in a manner prejudicial to the interests of its creditors and members.

He also sought relief relating to allegations that Pleash and Albarran incurred unreasonable legal costs, failed to have the costs assessed, required a deed of release that would prejudice creditors interests and delayed or failed to perform the DoCA. Justice Black rejected many of the claims but agreed the deed administrators should have done more to review their former solicitor's fees.

"I consider that relief is warranted in respect of the payments made by Messrs Albarran and Pleash of invoices rendered by their former solicitors," he said, adding that "the Plaintiffs have alleged, and established, that the failure to review the relevant invoices was prejudicial to creditors, at least so far as it deprived the Company, creditors and contributories of proper supervision of legal costs being incurred by the Company, or funded from monies which would otherwise be available for distribution to creditors or contributories."

"It seems to me that the breadth of the Court's powers is sufficient, in principle, to make orders tailored to the difficulties that have arisen from the nature of the invoices rendered by Messrs Albarran's and Pleash's former solicitors and the failure of Messrs Albarran and Pleash to review them.

"However, there is no particularly satisfactory means of achieving the result that the Company, the creditors and contributories are placed in the position they would have been had the deed administrators adequately reviewed their former solicitors' invoices when they were received.

"Any approach that is now adopted involves a risk the Company, creditors and contributories will not properly be compensated for payments which should not have been made to the former solicitors, or the deed administrators will be left (subject to any recourse to the former solicitors) to repay costs that were properly paid at the relevant time, but which they are unable to justify several years later.

"However, it must be recognised that the latter risk arises from the deed administrators' failure to adequately review those invoices as they were received, and it seems to me preferable, in that situation, that they should be left to bear that risk rather than the Company, its creditors and its contributories be left uncompensated for amounts which should not properly have been paid out.

"Messrs Albarran and Pleash should therefore be allowed a further opportunity to lead evidence to justify the legal costs that they have paid and, to the extent that such costs are not then justified by evidence, they should be ordered to repay such costs to the Company and be left to such rights as they have as against their former solicitors," the judge said.

The matter was heard over five days in August. Justice Black has asked the parties to bring in short minutes of order to give effect to the judgement. Failing that, he has asked the parties for draft submissions to be filed by November 5. The former solicitors advised they had no comment to make.

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