The Federal Court recently dismissed a claim against a liquidator alleging breaches of the Australian Consumer Law (ACL) in respect of pre-appointment representations made by the liquidator regarding the capping of his and his firm’s fees. Although the liquidator’s actual fees vastly exceeded the cap, the Court found that the information provided to the liquidator prior to him making the relevant representations was incomplete and the tasks to be completed were materially greater in extent and complexity than had been disclosed to him.

Relevant background

Victoria Project Pty Ltd (VPPL) incorporated in 2010 as the joint venture vehicle for the development of a multi-use building in Melbourne. 35% of the shareholding in VPPL was held by Austhome Group Pty Ltd (Austhome), of which Mr David Wu was the sole director. Mr Wu was one of five directors of VPPL. Practical completion of the development was achieved in March 2014 and from then VPPL went about its business of selling lots within the development. At all times VPPL was solvent and profitable.

Disputes arose as between Mr Wu and Austhome (herein referred to as ‘the Wu parties’) and the other directors and shareholders of VPPL (the majority shareholders) from late 2014. Following a number of unsuccessful attempts by the Wu parties to have VPPL wound up, the parties ultimately executed a deed in August 2019 (the Deed) resolving their disputes. Pursuant to the Deed, Mr Stephen Dixon was to be appointed liquidator of VPPL, the parties would use their best endeavours to cap the costs of the liquidation at $60,000 plus GST and the Wu parties would indemnify VPPL if the ‘costs of the liquidation’ exceeded this amount. Mr Dixon was appointed as liquidator of VPPL in October 2019.

Prior to this agreement, Mr Wu had contacted Mr Dixon in March 2018 and enquired as to the likely cost for Mr Dixon to conduct an in specie distribution of VPPL’s assets. Between April 2018 and April 2019, Mr Dixon made a number of oral and written representations that he would cap his fees at $50,000 plus GST and disbursements (the remuneration representations). Although Mr Dixon admitted to having made the remuneration representations, the information provided by Mr Wu to Mr Dixon in and before April 2019 regarding the state of affairs of VPPL and the likely scope of work was in dispute.

The proceeding

The proceeding was brought before the Court as, inter alia, an application by the liquidator for judicial advice regarding the construction of certain terms in the Deed. The proceeding then underwent what His Honour described as a ‘metamorphic transformation’. The Wu parties and the majority shareholders filed pleadings and joined issue as to what was meant by ‘costs of the liquidation’ in the indemnity contained in the Deed. The Wu parties also brought a cross claim against Mr Dixon and his firm alleging breaches of the ACL. The Wu parties contended the remuneration representations were misleading or deceptive and/or Mr Dixon did not have reasonable grounds for making them, and that the April 2019 remuneration representation amounted to unconscionable conduct.

The decision regarding the cross claim

His Honour found that Mr Wu did not disclose the following matters to Mr Dixon which he knew were relevant to Mr Dixon’s fee assessment and the likely scope of work:

• He did not know the extent of VPPL’s liabilities and was concerned about its financial position and profitability;
• He believed one director had not made full disclosure of the financial position of VPPL to Mr Wu;
• VPPL had not filed tax returns for the 2017 and 2018 financial years;
• Given the above matters, he was concerned about the accuracy of the fee proposed by Mr Dixon;
• The existence of ongoing disputes regarding two shops in the development;
• Potential building defects that required investigation and/or repair.

His Honour held that the making of the remuneration representations was not objectively misleading or deceptive because Mr Wu knew the ‘cap’ had been calculated on a limited set of information and that the tasks required to be undertaken by Mr Dixon were materially greater in extent and complexity than he had disclosed. Therefore, Mr Wu was not induced into error in thinking and believing that all of the tasks were capable of being performed by Mr Dixon within the capped fee. In respect of the unconscionable conduct claim, His Honour rejected each submission made by the Wu parties and found that Mr Dixon’s remuneration representation was made on the overall understanding that his task as liquidator would be relatively straightforward. Considered in this context, His Honour found the unconscionable conduct claim also failed. 

Take aways

Firstly, fee estimates are invariably representations as to future matters so as to enliven s4 of the ACL – so professionals must ensure they have reasonable grounds for their estimates and must be prepared to depose to those reasonable grounds.

Secondly, the full suite of professionals who may be asked for a fee estimate can take comfort that the Court will consider your fee estimate in light of the information provided to you and reasonably available to you. Diligence should be exercised in obtaining relevant information before providing your fee estimate (and strict compliance with any regulations specific to your profession), but where a potential client withholds information they know to be relevant, they will not be objectively ‘misled’.

Moray & Agnew acted for Mr Dixon and his firm in respect of the cross claim.

Further information / assistance regarding the issues raised in this article is available from the author, Laura Wilkie, Senior Associate or your usual contact at Moray & Agnew.