Bell v Hartnett Lawyers (No 2)

[2021] NSWSC 1270

Supreme Court

New South Wales

• Amendment notes

Medium Neutral Citation:

Bell v Hartnett Lawyers (No. 2) [2021] NSWSC 1270

Hearing dates:

23 March, 26 April, 27 May & 13 July 2021

Date of orders:

12 October 2021

Decision date:

12 October 2021

Jurisdiction:

Equity - Applications List

Before:

Slattery J

Decision:

The plaintiff’s solicitors’ costs in the Possession proceedings will not be referred for costs assessment but will become the subject of a specified gross sum costs order. The plaintiff in the Equity proceedings is ordered to pay the costs of the Motion to set aside the originating process.

Catchwords:

COSTS – Costs assessment – Civil Procedure Act 2005, s 98(4) – a mortgagee (“the mortgagee”) brings proceedings in 2014 for possession (“the Possession proceedings”) of real estate of a deceased mortgagor (“the mortgagor”) – the mortgagee appoints solicitor to act for her in the Possession proceedings – son of deceased mortgagor (“the son”) evicted from mortgaged property – mortgagee also dies – no legal representative of her estate is appointed – mortgage debt is $33,000 – the mortgagee’s solicitors’ fees consume the bulk of the proceeds of sale of the mortgaged property, which are in excess of $352,137.02 - a balance of $33,792.46 remains for the mortgagor – son questions reasonableness of solicitors' fees in acting for the mortgagee and seeks referral to costs assessment – solicitor resists referral to costs assessment to a referee, or the making of a specified gross sum costs order – whether solicitors' fees should be referred for costs assessment – whether any referral for costs assessment should be under Queensland law in Queensland or in New South Wales under New South Wales law – whether Civil Procedure Act, s 98 orders are possible after one failed costs assessment and before another.

MORTGAGES AND SECURITIES – Priorities – estate of deceased mortgagor entitled to equity of redemption in net proceeds of sale of mortgaged property – solicitor for mortgagee entitled to equitable litigation lien over proceeds of sale of mortgaged property – which equity is prior in time – issue not clearly raised on the pleadings – directions made for issue to be pleaded.

CIVIL PROCEDURE – Service of originating process in equity proceedings (“the Equity proceedings”) – where service of process is said to be defective pursuant to Uniform Civil Procedure Rules 2005 – where service failed to include a notice under the Service and Execution of Process Act 1992 (Cth) – the Court grants leave to serve originating process – what costs orders should be made.

Legislation Cited:

Civil Procedure Act2005, ss 26, 56, 60, 98(4)(c)

Legal Profession Act 2004, ss 305(b), 355(5)

Legal Profession Act 2007 (QLD), s 335

Legal Profession Uniform Law: Uniform Law 2014 (NSW), s 264(1)

Real Property Act1900, s 57(2)(b)

Service and Execution Act 1992 (Cth)

Uniform Civil Procedure Rules 2005, Part 20, Division 3, rr 6.29, 6.32(d), 7.10, 7.10(2)(a)-(b), 10.34

Cases Cited:

Adams v Bank of New South Wales [1984] 1 NSWLR 285

Aged Care Services Pty Ltd v Kanning Services Pty Ltd (2013) 86 NSWLR 174

Atanaskovic Hartnell v Birketu Pty Ltd – Supervisory Jurisdiction [2020] NSWSC 573

Atanaskovic Hartnell v Birketu Pty Ltd (2021) 392 ALR 154

Australasian Performing Rights Assoc Ltd v Marlin [1999] FCA 1006

Bank of Western Australia Ltd v Marsh [2000] WASC 2008

Beach Petroleum NL v Johnson (No. 2) (1995) 57 FCR 119

Boyce v McIntyre (2009) 78 NSWLR 152

Council of the NSW Bar Association v Siggens [2021] NSWCA 40

Deakin-Bell v NSW Trustee and Guardian [2016] NSWSC 540

Edgar & Walker v Mead (1916) 23 CLR 29

Gel Custodians Pty Ltd v Estate of the Late Geoffrey Francis Bell [2013] NSWSC 973

Hadid v Lenfest Communications Inc [2000] FCA 628

Hamod v State of New South Wales [2011] NSWCA 375

Harrison v Schipp (2002) 54 NSWLR 738

Newell; Murinti v De Costi (2018) 97 NSWLR 390

Nicholls v Michael Wilson Partners Ltd (No 2) [2013] NSWCA 141

Nudd v Mannix [2009] NSWCA 327

Penson v Titan National Pty Ltd (No.3) [2015] NSWCA 121

Preston v Nikoladis [2017] NSWSC 1527

Re Sherborne Estate (No 2); Vanvalen v Neaves (2005) 65 NSWLR 268

Road Chalets Pty Ltd v Thornton Motors Pty Ltd (1986) 47 SASR 532

Robert Anthony Bell v Beau Timothy John Hartnett Lawyers [2021] NSWSC 202

Watson Wyatt Superannuation Pty Ltd v Oberlechner & 2 ors (2008) ASC 155-091

Willmott v Barber (1881) 17 Ch D 772

Texts Cited:

G Dal Pont, Law of Costs (4th ed, 2018, LexisNexis Butterworths)

JP Hamilton, “Containment of costs: litigation and arbitration” (presentation, 1 June 2007)

RP Meagher, JD Heydon, MJ Leeming, Meagher, Gummow & Lehane’s Equity: Doctrines and Remedies (5th ed, 2015, LexisNexis Butterworths)

Category:

Procedural rulings

Parties:

The 2014/354291 proceedings:

Plaintiff/Respondent: Gwendoline Rosemary Deakin-Bell
Defendant/Applicant: Anthony Robert Deakin-Bell as legal personal representative of the Estate of Mabel Dawn Deakin-Bell

The 2020/254590 proceedings:

Plaintiff/Respondent: Robert Anthony Bell
Defendant/Applicant: Beau Timothy John Hartnett trading as Hartnett Lawyers

Representation:

The 2014/354291 proceedings:

Counsel:
Plaintiff/Respondent: I. King
Defendant/Applicant: S. Sykes

Solicitors:
Plaintiff/Respondent: H. Deen, Hartnett Lawyers
Defendant/Applicant: D. Pickering, McVittie Legal

The 2020/254590 proceedings:

Counsel:
Plaintiff/Respondent: S. Sykes
Defendant/Applicant: I. King

Solicitors:
Plaintiff/Respondent: D. Pickering, McVittie Legal
Defendant/Applicant: H. Deen, Hartnett Lawyers

File Number(s):

2014/354291; 2020/254590

Publication restriction:

No

Judgment

1. This is the Court’s second judgment in two related sets of proceedings. The first set of proceedings (No. 2014/354291) was brought in 2014 by a mortgagee, Gwendoline Deakin-Bell (“Gwendoline”), to enforce a mortgage over residential land at Ballina (“the Ballina property”), from a deceased mortgagor, the late Mabel Deakin-Bell (“Mabel”).

2. Although they bear the same surname, the mortgagor and mortgagee were not directly related. The mortgagor was the first wife of the late Robert Anthony Deakin-Bell (“Robert”) and the mortgagee was his second wife. Gwendoline succeeded to the position of mortgagee under the mortgage, which had originally been created during Robert’s divorce from Mabel.

3. Due in part to the family dispute, neither probate nor administration of Mabel’s deceased estate had been taken out by the time the Possession proceedings commenced. So the mortgagee’s solicitors, Hartnett Lawyers, a Queensland law firm, first brought the Possession proceedings against Anthony Robert Deakin-Bell (“Anthony”), Mabel’s son, who was named as executor in Mabel’s will and who was in occupation of the Ballina property. Later the NSW Trustee and Guardian was joined as the appropriate defendant where there is no representative of the state of a deceased mortgagor: Gel Custodians Pty Ltd v Estate of the Late Geoffrey Francis Bell [2013] NSWSC 973 (“Gel Custodians”).

4. On 29 April 2016 the Possessions List Judge, Davies J, gave judgment for possession of the Ballina property. He also made costs orders against the mortgagor for indemnity pursuant to the mortgage and authorised the mortgagee to apply the balance of the proceeds of sale, first to her legal costs and then to pay the balance to Mabel’s deceased estate, or in the alternative into Court: Deakin-Bell v NSW Trustee and Guardian [2016] NSWSC 540 (“the Possession proceedings”). The Ballina property was sold pursuant to the Court’s orders yielding net proceeds of $352,137.02. The mortgagee died in 2018. Since her death no one has taken out probate or administration of her estate, although the beneficiaries under her will have been notified of these proceedings.

5. After the conclusion of the Possession proceedings, Anthony, the son of the deceased mortgagor eventually obtained a grant of probate of her estate. Based on that grant, in 2020 Anthony brought proceedings (No. 2020/254590) on behalf of Mabel’s estate against Hartnett Lawyers (“the Equity proceedings”), seeking a declaration that Hartnett Lawyers held what Anthony believed was the remaining surplus proceeds of the sale of the Ballina property of $287,551.30 on trust for the mortgagor’s estate.

6. The Equity proceedings in substance gave an account as between the mortgagor and mortgagee to Mabel’s estate. As a result of the Equity proceedings, Anthony and his solicitors, McVittie Legal, became aware that the mortgagee and Hartnett Lawyers had applied all but $33,792.46 of the proceeds of sale of the Ballina property to the outstanding mortgage debt, to the costs of the mortgagee sale and to their legal fees of $288,601.03. Anthony has continued to act as the representative of Mabel’s estate throughout the Equity proceedings, although Hartnett Lawyers have challenged his representative status.

7. The Equity proceedings first came before me in the Equity Applications List on 26 February 2021. By their Motion, Hartnett Lawyers claimed that service of the plaintiff’s originating process in the Equity proceedings on 1 September 2020 had been defective and that the Court should not give Anthony leave to proceed. The Court granted Anthony leave to proceed upon further originating process that he had re-served on 24 February 2021 and ordered that the Possession proceedings and the Equity proceedings be listed together: Robert Anthony Bell v Beau Timothy John Hartnett Lawyers [2021] NSWSC 202 (“the first judgment”). The costs of that application are determined in this judgment.

8. In the first judgment (at [3] – [12]), the Court outlined some factual background to these proceedings. This judgment should be read with the first judgment. Events, matters and persons are referred to in both judgments in the same way. Several family members featuring in these proceedings share the same surname. The Court will for convenience and brevity often refer to them by their first names. The Court intends no disrespect by this.

9. As result of the relisting of the Possession proceedings and the Court’s case management of both the Possession and the Equity proceedings, Anthony is now the defendant in the Possession proceedings, representing Mabel’s estate. The Court has ordered that the Possession proceedings continue in the absence of a representative of Gwendoline’s estate. Mr Beau Timothy John Hartnett trading as Hartnett Lawyers is the sole named defendant in the Equity proceedings. But for convenience the defendant in the Equity proceedings will often also be referred to as “Hartnett Lawyers”.

10. Both the commencement of the Equity proceedings and the relisting of the Possession proceedings derive from the same fundamental claim for relief: Anthony contends that Hartnett Lawyers have charged excessive legal fees as the mortgagee’s solicitor and that any excess fees should be paid to Mabel’s estate. Hartnett Lawyers make several points in answer. The firm says: that it did not charge excessive legal fees as Gwendoline’s solicitors; that those fees were in accordance with the firm’s fee agreement with Gwendoline; and, that even if its fees were reduced on a costs assessment initiated by Anthony, the firm is entitled to retain the fees as against both Gwendoline’s estate and Anthony.

11. The issues for the Court’s determination in this judgment are:

1. what are the Court’s powers to review the mortgagee’s legal and other costs to determine which of those costs should properly be allowed as against the mortgagor;

2. should the Court intervene here to order a cost assessment or any of the other relief sought;

3. whether the mortgagee’s costs in the Possession proceedings should be,

1. referred to a costs assessor for a costs assessment, and if so whether any such assessment should be determined by cost assessor in New South Wales under the law of New South Wales or by cost assessor in Queensland under the law of Queensland; or

2. referred out under Uniform Civil Procedure Rules 2005, Part 20 Division 3 (“UCPR”) to be determined by referee upon inquiry and report; or

3. made the subject of a specified gross sum order instead of assessed costs pursuant to Civil Procedure Act2005, s 98(4)(c);

4. if any referrals or orders are made to review Hartnett Lawyers' costs in issue (3) and if on that review the Court determines that some part of the fees of Hartnett Lawyers should not be allowed as against the mortgagor, can the mortgagor recover the differential from Hartnett Lawyers;

5. what costs orders should be made in the Equity proceedings arising out of the orders made with the first judgment; and

6. what should happen to the Equity proceedings now that the Possession proceedings have been revived.

12. Further procedural background and the broader history of these two proceedings need examination before these six questions are determined.   

Procedural Background and Some Additional History

13. Hartnett Lawyers conducted the Possession proceedings on behalf of Gwendoline between 2014 and late 2016. Hartnett Lawyers sent their final bill in November 2016. They then applied the proceeds of sale that were held in their trust account to meet that bill and their prior bills. Hartnett Lawyers did not give prior notice to Anthony or his lawyers, McVittie Legal, before applying the funds in trust to meet the legal bills they had incurred for the mortgagee.

14. Hartnett Lawyers’ fees came under challenge from Anthony’s legal representatives, McVittie Legal. A protracted contest of correspondence between the parties took place in the years 2017 to 2020, in which Anthony sought an account of the mortgagee’s costs and a costs assessment and Hartnett Lawyers resisted that course on various grounds.

15. Some features of that contest deserve special mention. It appears that a family dispute was the reason Anthony had not obtained probate of Mabel’s will during the Possession proceedings. Indeed, at one point Anthony renounced his rights to probate of Mabel’s will. That family dispute resolved in 2017 and Anthony obtained probate of Mabel’s will. But Hartnett Lawyers challenged his right to probate based on alleged procedural irregularities in his probate application. This challenge also had the effect of undermining his standing on behalf of the mortgagor to question the mortgagee’s costs. That challenge resurfaced in this litigation.

16. In February 2018 McVittie Legal filed in the Registry of this Court for the Manager Costs Assessment an application for the assessment of costs in the Possession proceedings against Gwendoline as respondent and naming Hartnett Lawyers as the costs respondent’s legal representative. The Manager Costs Assessment referred the matter out to Mr Christopher Wall, a solicitor of the firm Walker Gibson King at Cooma to undertake the costs assessment.

17. Mr Wall received the papers on 22 February 2018 and expeditiously communicated with the parties in relation to the costs assessment, to seek documents from them. He communicated with McVittie Legal, Gwendoline and Hartnett Lawyers. During the cost assessment process Mr Wall received communications that indicated that Hartnett Lawyers had encountered difficulty obtaining instructions from Gwendoline about the cost assessment. Without instructions from Gwendoline, Hartnett Lawyers did not take an active part in Mr Wall’s cost assessment. Mr Wall had to correspond to the last known address of Gwendoline but had no further input from Hartnett Lawyers.

18. This showed in his final cost assessment report which he delivered on 20 April 2018. Mr Wall’s report complains that although he was required to determine whether the legal costs were “proportionately and reasonably incurred and proportionate and reasonable in amount”, he was nevertheless without information about the basis on which various estimates of costs given by Hartnett Lawyers to Gwendoline had been made and in many cases was unclear about what legal services were provided in the Possession proceedings and corresponding to the various charges in Hartnett Lawyers' bills of costs.

19. Before attempting to do his best on the materials available he rather mournfully acknowledged that the material was “woefully inadequate” but he was nevertheless obliged to complete his costs assessment task. Based on the material provided he awarded “an amount of costs of $40,000 as a global amount given the above [lack of] information”. This became a certificate of determination of costs issued by the Manager Cost Assessment on 26 June 2018 in the sum of $37,345.50 (being the $40,000 of assessed costs less a filing fee of $2,654.50).

20. Because Hartnett Lawyers were without instructions from Gwendoline, Mr Wall did not have the benefit of their participation or their justification of their fees and charges. Hartnett Lawyers was entitled to take the strict legal position that they did and leave the matter for Gwendoline. In the result, due to no fault of Mr Wall, the cost assessment is not one which fairly considers all that could be said on behalf of Hartnett Lawyers to justify their fees.

21. Between mid-2018 and mid-2020 McVittie Legal and Hartnett Lawyers engaged in correspondence. Relying upon Mr Wall’s cost assessment, McVittie Legal demanded that Hartnett Lawyers return the sum of $287,551.30 to Mabel’s estate, which was calculated as the net proceeds of sale, less the repayment of the principal sum with interest, less the amount allowed by Mr Wall’s cost assessment. Hartnett Lawyers declined to make the payment and eventually McVittie Legal commenced the Equity proceedings late in 2020.

22. Once the Possession and Equity proceedings were united the Court case-managed them to ensure they were properly constituted to determine the real issues in dispute. This involved a series of procedural contests between March and July 2021 that are briefly outlined in this section. Throughout this period, Mr S. Sykes appeared for Anthony, instructed by McVittie Legal and Ms I. King appeared for Mr Hartnett, instructed by Hartnett Lawyers.

23. By his Summons in the Equity proceedings, Anthony sought a declaration that Hartnett Lawyers held an amount of $287,551.30 in their trust account as trustee for Anthony; and, freezing orders that the said sum not be disposed of by Hartnett Lawyers.

24. On 26 February 2021, Hartnett Lawyers’ 22 September 2021 Motion to set aside the originating process was heard in the Equity Applications List. The Court granted leave to the plaintiff to proceed on later served originating process under UCPR, r 10.3(4). The matter was relisted on 19 March 2021 to determine any remaining issues including the costs of Hartnett Lawyers’ Motion, raising the issue of defective service of the Summons. This 19 March 2021 listing was adjourned to 23 March 2021, because the Court experienced difficulties with its internal IT systems that day and the hearing could not proceed.

25. On 23 March 2021, Anthony moved on a Motion filed on 18 March 2021 in the Equity proceedings, seeking relief allowing him to retract his prior renunciation of probate of Mabel’s will of 19 May 2010 and confirming the subsequent grant of probate to him on 5 January 2017. In the alternative, he sought orders pursuant to UCPR, r 7.10(2)(b) appointing him as Mabel’s representative in these proceedings or appointing him as administrator ad litem for Gwendoline’s estate. He also sought procedural orders to join the appropriate parties to the Possession proceedings. These orders included, removing Gwendoline and the NSW Trustee and Guardian as parties and substituting the Queensland Public Trustee as a plaintiff in the Possession proceedings.

26. At the hearing on 23 March 2021, the Court ordered Hartnett Lawyers to produce: (1) Gwendoline’s last known will; and (2) a copy of all invoices for legal costs and disbursements rendered to Gwendoline in respect of legal services provided to her between 2014 and 2016. Anthony tendered these documents after judgment was reserved and they became Exhibit 3. The matter was then adjourned for further hearing and for directions to 26 April 2021.

13. On 7 April 2021, Anthony filed a Statement of Claim in the Equity proceedings seeking an order that Mr Hartnett pay the amount of $285,047.99 to Anthony, and in the alternative, an order that the Court refer for determination an assessment of the defendant’s costs payable in accordance with Order 5.2 made by Davies J on 29 April 2016 in the Possession proceedings, pursuant to Legal Profession Act 2004 (NSW) ("LPA 2004"), s 350.

14. On 23 April 2021, in advance of the 26 April 2021 hearing, the Court received proposed short minutes of order prepared on behalf of Anthony proposing that he be appointed administrator ad litem of Gwendoline’s estate. Hartnett Lawyers objected to this course. They contended they had given the last known contact details of the executors of Gwendoline’s estate to Anthony and that no evidence was available, either of Anthony’s attempts to communicate with the executors of Gwendoline’s estate, or that Anthony had alerted the Public Trustee of Queensland to such an application. Finally, Hartnett Lawyers contended that Anthony would be in a position of conflict of interest if he were appointed to represent Gwendoline’s estate, as well as representing Mabel’s estate.

15. On 26 April 2021, the Court reconstituted both the Equity and Possession proceedings to ensure that all necessary (and no unnecessary) parties were joined without occasioning unnecessary additional expense. The Court made the following detailed orders, notations and directions that day, which included orders under UCPR, r 7.10 allowing the Possession proceedings to continue without a representative of Gwendoline’s estate and for Anthony to represent Mabel’s estate:

“The Possession Proceedings

(1)   Note that the plaintiff in the possession proceedings, Gwendoline Rosemary Deakin-Bell, died on 31 May 2018 and although no one has yet applied for probate of her last will or to represent her in the possession proceedings, her estate nevertheless has an interest in the possession proceedings.

(2)   Note that the late Gwendoline Rosemary Deakin-Bell was a resident of Labrador in the State of Queensland at the time of her death and that her last will dated 12 February 2014 gave the whole of her estate in equal shares to her daughter, Linda May Lynch of 8 Whipbird Court Burleigh Waters, Queensland and to her son James Stephen Halmarick of 1/34 Gleneagles Drive Robina, Queensland.

(3) Order under Uniform Civil Procedure Rules 2005 (UCPR), r 7.10(2)(a) until further order that the possession proceedings may continue in the absence of a representative of the estate of the late Gwendoline Rosemary Deakin-Bell.

(4)   Note it is in the interests of justice that the estate of the late Gwendoline Rosemary Deakin-Bell be represented in the possession proceedings by any person interested in her estate if any such person wishes to represent her estate and for that purpose the Court:

(a) Direct that the solicitor on the record for the defendant in the possession proceedings, Hartnett Lawyers to notify the children of the late Gwendoline Rosemary Deakin-Bell, namely the said Linda May Lynch and the said James Stephen Halmarick (a) of the existence and nature of these proceedings, (b) of these orders and directions, by supplying them with a copy thereof, and (c) of their right to represent the estate of their mother in these proceedings by applying to the Court for orders under UCPR, r 7.10(2)(b); and

(b)   Further direct that Hartnett Lawyers file a short affidavit describing their compliance with Order 5(1).

(5) Note that Anthony Deakin Bell (the executor) has obtained probate of the estate of the late Mabel Deakin Bell, the defendant in the possession proceedings, and that the proceedings shall by force of that probate, or otherwise by appointment pursuant to UCPR, r 7.10(2)(b), hereafter continue against the executor on behalf of the estate of the late Mabel Deakin-Bell in place of the NSW Trustee and Guardian.

(6) Order in the possession proceedings, to enforce and carry into effect the orders made by Davies J on 29 April 2016 (Deakin-Bell v NSW Trustee and Guardian [2016] NSWSC 540), that any money presently standing to the credit of the late Gwendoline Rosemary Deakin-Bell in the trust account of the solicitor on the record for the plaintiff in the possession proceedings, Mr Beau Hartnett, be paid into Court by Friday, 7 May 2021, to abide by the Court’s determination in the possession proceedings as to the entitlement to those monies as between the estate of the late Gwendoline Rosemary Deakin-Bell and the estate of the late Mabel Deakin-Bell (the entitlement issues).

(7)   Direct the parties to bring in agreed directions by Friday, 21 May 2021, or in default of agreement their alternative proposed directions and submissions in support of no more than three pages,

(a)   to make provision for the resolution of the entitlement issues in the possession proceedings, and

(b)    to refer, if required, the fees charged by Hartnett Lawyers to the plaintiff in the possession proceedings to an assessment of costs, indicating what kind of cost assessment is proposed to be ordered on the basis for that order.

The Equity Proceedings

(8)   Order the plaintiff in the equity proceedings to file and serve any statement of claim upon which he seeks to rely by Tuesday, 25 May 2021, or indicate by that date that he does not seek further relief in those proceedings but will only seek relief in the possession proceedings.

(9)   Reserve for further argument the question of the costs of the defendant’s motion dated 25 September 2020 in the equity proceedings.

In Both Proceedings

(10)   Stand both the possession and the equity proceedings over for further directions before Slattery J on Thursday, 27 May 2021 at 9:30am.”

30. When this matter came before the Court on 27 May 2021, the Court declined Hartnett Lawyers’ request for leave to withdraw as solicitor on the record for Gwendoline’s estate in the Possession proceedings. But the Court noted that Hartnett Lawyers’ submissions were then advanced on the firm’s own behalf rather than on behalf of Gwendoline’s estate. The Court then heard final submissions on 13 July 2021, when the parties spoke to their written submissions.

(1) The Court’s Powers to Review the Mortgagee’s Legal Costs

31. Hartnett Lawyers argue that the Court’s powers to review the mortgagee’s legal and other costs are limited. Hartnett Lawyers submits that the costs agreement made between Gwendoline and the firm is binding and that whatever orders the Court makes to reduce costs as between Gwendoline’s estate and Mabel’s estate, the firm is entitled to retain all the costs it has been paid by Gwendoline’s estate.

32. Hartnett Lawyers say the firm is not required to refund the difference between any revised costs figure determined between mortgagor and mortgagee and the costs Hartnett Lawyers have been paid: called in these reasons, “the costs differential”.

33. This submission is not persuasive. It requires a short analysis of the Court’s powers in this situation and what the appropriate legal standard that the Court uses to allow or disallow the legal costs of mortgagees such as Gwendoline.

34. First, the Court retains jurisdiction to fix costs as between mortgagee and mortgagor notwithstanding the costs provision in a mortgage. The Court’s discretion to fix costs is not ousted by the mortgage costs indemnity provisions: Bank of Western Australia Ltd v Marsh [2000] WASC 2008 at [4], (per Sanderson M) and Watson Wyatt Superannuation Pty Ltd v Oberlechner & 2 ors (2008) ASC 155-091; [2008] NSWSC 272 at [36] (per Brereton J, as his Honour then was).

35. There are multiple sources of authority identifying the Court’s power to adjust the costs as between the mortgagor and the mortgagee, and to have them quantified independently. It is sufficient to refer to UCPR, r 42.25, which expressly authorises the Court not to allow payment to a mortgagee, who has acted unreasonably. The ordinary equitable principal is that the mortgagee would be unable to recover costs which are the result of misconduct or where the mortgagee has acted unreasonably: Road Chalets Pty Ltd v Thornton Motors Pty Ltd (1986) 47 SASR 532. There is nothing in the indemnity clause in the mortgage in this case that would displace this ordinary rule.

36. Anthony’s submissions point to the Court’s inherent supervisory jurisdiction over legal practitioners as officers of the Court as a basis to order Hartnett Lawyers to pay any costs differential to Anthony: Council of the NSW Bar Association v Siggens [2021] NSWCA 40 at [9]. These submissions are correct.

37. The inherent jurisdiction and powers of the Supreme Court in respect of the control and discipline of Australian lawyers are not affected by anything in the Legal Profession Uniform Law: Uniform Law 2014 (NSW) (“LPUL”) cf LPUL, s 264 (1)). That supervisory jurisdiction, together with Civil Procedure Act, s 99 would, if required, be quite a sufficient basis for the Court to intervene in this case to order Hartnett Lawyers to pay any costs differential to Anthony. These reasons will briefly examine the supervisory jurisdiction to order the payment of any costs differential and then the co-ordinate jurisdiction under Civil Procedure Act, s 99 and other bases for the Court’s intervention.

38. The Court’s discussions of this subject in these reasons does not indicate a pre-conceived view that either the Court’s inherent supervisory jurisdiction or its jurisdiction conferred under Civil Procedure Act, s 99 should be engaged in this case. Rather, the jurisdiction is identified to correct a submission made on behalf of Hartnett Lawyers that a Court ordered costs assessment is likely to be futile. Hartnett Lawyers submit that in a costs assessment initiated by a non-associated third party payer, such as Anthony, the solicitor is not affected by the outcome, because the solicitor can deploy in the solicitor’s defence LPA 2004, s 350(8)(d) that “the assessment of the costs payable by the non-associated third party payer does not affect the amount of legal costs payable by the client to the law practice”.

39. Whilst LPA 2004, s 350 preserves the incidence of legal costs as between the law practice and the client, notwithstanding success on a costs assessment by the non-associated third party payer, the Court’s supervisory jurisdiction transcends that simple case. And it is hardly surprising that s 350(8)(d) would not provide a complete answer to a mortgagor’s complaint of alleged excessive mortgaged fees because the third party payment provisions are designed for consumer protection where someone other than the client is responsible for paying legal fees: Boyce v McIntyre (2009) 78 NSWLR 152; [2009] NSWCA 185.

40. The Court has not decided whether to exercise its supervisory jurisdiction in this case and could not do so on the existing material. Hartnett Lawyers decided to sit out Mr Wall’s cost assessment, because it was without instructions and no indication had been given to the firm that the Court’s supervisory jurisdiction might be engaged. It would be unfair now for the Court to act upon Mr Wall’s cost assessment against Hartnett Lawyers, as is urged by Anthony, for that reason alone. It would also be unfair because, as Mr Wall himself acknowledged, the limited material given to Mr Wall makes his conclusions somewhat speculative and based more on the ordinary case rather than on specific evidence of what Hartnett Lawyers did in this case.

41. The Supervisory Jurisdiction. Hammerschlag J concisely described the essential features of the Court’s inherent supervisory jurisdiction in a recent case, John Ljubomir Atanaskovic and the persons named in Schedule A trading as Atanaskovic Hartnell v Birketu Pty Ltd – Supervisory Jurisdiction [2020] NSWSC 573 at [29] – [31]. In a passage approved on appeal by the Court of Appeal in Atanaskovic Hartnell v Birketu Pty Ltd (2021) 392 ALR 154; [2021] NSWCA 201 at [130] (per Gleeson JA), Hammerschlag J said:

“[29] The Court has a well-established inherent supervisory jurisdiction, to which solicitors are amenable, which is designed to impose on them higher standards than the law applies generally: United Mining & Finance Corporation Limited v Becher [1910] 2 KB 296 at 304; Wade v Licardy (1993) 33 NSWLR 1 at 6-9. A solicitor is expected to act honourably and ethically. A solicitor is expected to keep her or his word.

[30] This jurisdiction is disciplinary and compensatory. It is not exercised for the purposes of enforcing legal rights, but for the purpose of ensuring honourable conduct on the part of the Court’s own officers. It is distinct from any legal rights or remedies of the parties, it is unaffected by anything which affects the strict legal rights of the parties, and it is not limited to technical principles: Re Gray [1892] 2 QB 440 at 443 per Lord Esher MR; R & T Thew Limited v Reeves (No 2) [1982] 1 QB 1283 at 1285; Countrywide Banking Corporation Limited v Kingston [1990] 1 NZLR 629 at 637; Australian Guarantee Corporation (NZ) Ltd v East Brewster Urquhart & Partners [1990] 2 NZLR 167 at 173; McIlriath v Ilkin [2007] NSWSC 911 at [10].

[31] The jurisdiction extends to ensuring that a solicitor honours an undertaking given by her or him in that capacity. The fact that the solicitor may have a defence to an action at law on the undertaking does not preclude the Court from exercising the jurisdiction, but it is a factor which the Court may take into account in deciding whether or not to exercise its discretion and, if so, how: Udall v Capri Lighting Limited [1987] 3 All ER 262 at 269; Countrywide Banking Corporation Limited v Kingston [1990] 1 NZLR 629 at 637. It is no answer to a complaint that a solicitor acted in breach of an undertaking given by her or him that there was no consideration for it: United Mining & Finance Corporation Limited v Becher [1910] 2 KB 296 at 303-4; John Fox v Bannister, King & Rigbeys [1988] QB 925 at 928, 931; Wade v Licardy (1993) 33 NSWLR 1 at 9.”

42. An important relevant feature of the jurisdiction identified in this passage is that the jurisdiction may be engaged whether or not a solicitor has a defence to an action at law. Here, Hartnett Lawyers indicate that LPA 2004, s 350(8)(d) is an answer to any costs differential brought about by a successful non-associated third party payer costs assessment initiated by Anthony. Authorities are clear that the supervisory jurisdiction is available notwithstanding provisions such as LPA 2004, s 350(8)(d).

43. The Court’s supervisory jurisdiction includes the Court’s capacity to scrutinise the conduct of solicitors to ensure that they do not charge exorbitant fees or otherwise take improper advantage of their clients: NSW Crime Commissioner v Fleming (1991) 24 NSWLR 116; (1991) 54 A Crim R 401; [1992] ANZ ConvR 344 at [123] (per Gleeson CJ) recently affirmed by the Court of Appeal in Atanaskovic Hartnell v Birketu Pty Ltd at [145]. And such general jurisdiction is exercisable against an Australian lawyer from interstate providing legal services in NSW: Council of the NSW Bar Association v Siggens.

44. Anthony has in general terms hinted at the deployment of this jurisdiction. But that is unsatisfactory. Engaging the jurisdiction requires the identification of particular impugned conduct, fees and charges. Some rigor needs to be brought into these proceedings. If Anthony seeks to engage this jurisdiction he will need to identify with precision the professional costs under challenge and the conduct of Hartnett Lawyers which he seeks to impugn.

45. Civil Procedure Act, s 99. The other source of relevant jurisdiction is Civil Procedure Act, s 99, which relevantly provides as follows:

“99 Liability of legal practitioner for unnecessary cost

(cf Act No 52 1970, section 76C; SCR Part 52A, rules 43 and 43A)

(1) This section applies if it appears to the court that costs have been incurred—

(a) by the serious neglect, serious incompetence or serious misconduct of a legal practitioner, or

(b) improperly, or without reasonable cause, in circumstances for which a legal practitioner is responsible.

(2) After giving the legal practitioner a reasonable opportunity to be heard, the court may do any one or more of the following—

(a) it may, by order, disallow the whole or any part of the costs in the proceedings—

(i) in the case of a barrister, as between the barrister and the instructing solicitor, or as between the barrister and the client, as the case requires, or

(ii) in the case of a solicitor, as between the solicitor and the client,

(b) it may, by order, direct the legal practitioner—

(i) in the case of a barrister, to pay to the instructing solicitor or client, or both, the whole or any part of any costs that the instructing solicitor or client, or both, have been ordered to pay to any other person, whether or not the solicitor or client has paid those costs, or

(ii) in the case of a solicitor, to pay to the client the whole or any part of any costs that the client has been ordered to pay to any other person, whether or not the client has paid those costs,

(c) it may, by order, direct the legal practitioner to indemnify any party (other than the client) against costs payable by that party.

…”

46. Civil Procedure Act, s 99(2)(a) and (b) provide for the legal practitioner to have costs disallowed or to reimburse the client. But s 99(2)(c) extends the Court’s powers to order the legal practitioner to indemnify any party other than the client “against costs payable by that party”. In substance, Hartnett Lawyers’ application of the proceeds of sale of the Ballina property in its trust account to its legal fees required Anthony to pay accept as a fait accompli the payment of the whole of the firm’s costs out of the proceeds of sale of the Ballina property from which he would otherwise be entitled. Without deciding the matter, Civil Procedure Act, s 99 would arguably be engaged here if, as a result of a costs assessment, any of the conditions in s 99(1)(a) or (b) were made out.

47. Some relevant principles in relation to the making of Civil Procedure Act, s 99 orders may be briefly stated. Before the Court can make an order for a legal practitioner to provide an indemnity under Civil Procedure Act, s 99 for the loss suffered by a party, the impugned conduct with which the section deals must have caused the claimed unnecessary costs such that but for that conduct the costs would not have been incurred by either party: Newell; Muriniti v De Costi (2018) 97 NSWLR 398; [2018] NSWCA 49 at [71] – [72]. The preferable course is for a Court to turn a Civil Procedure Act, s 99 application in a two-stage approach. First, it is necessary to identify whether costs have been incurred in respect to conduct that qualifies under s 99(1), then to make a finding of whether causation has been established: per Beazley JA (as her Excellency then was).

48. One difference between the inherent jurisdiction and the Civil Procedure Act, s 99 jurisdiction is that the Court can engage the former of its own motion, whereas the latter can only be engaged by an application by a party seeking indemnity. Any reliance upon s 99 in addition to the inherent supervisory jurisdiction will need to be made clear here.

49. Moreover, the Court also has inherent jurisdiction to enforce its own orders. Ancillary to this jurisdiction is a power to interpret these orders and to determine inter alia whether and what further action is required to achieve enforcement. At ultimate issue here is whether Gwendoline has complied with Order 5 of the orders made in the Possession proceedings. Order 5 allowed the plaintiff in the Possession proceedings to apply the proceeds of sale in certain ways, including (Order 5.1) to repay the principal sum, and (Order 5.2) pursuant to the terms of the mortgage and on an indemnity basis: “the costs and expenses she has incurred in relation to the mortgage and these proceedings to date and any such costs she incurs in the future”. The question raised is whether, in accordance with Order 5, Gwendoline has “[applied] the proceeds of sale towards payment of… the costs and expenses she has incurred in relation to the mortgage”.

46. The authorities show that those “costs and expenses” should be interpreted as covering those costs that fall strictly within the mortgage indemnity as having been “reasonably and properly incurred”. If they are determined to have been “unreasonably incurred” or “improperly incurred”, then they will not fall within the indemnity within clause 5.2. The additional words in Order 5.2, “pursuant to the terms of the mortgage and on an indemnity basis” only seek to reinforce the same principles and do little to vary the application of established principles to this case. The text of the indemnity in the mortgage in the Possession proceedings does not suggest that Gwendoline was entitled to recover costs that were unreasonably or improperly incurred. But the issue of the proper construction of the mortgage has not been ventilated.

47. Therefore, upon a cost assessment, upon a referral to a referee, or upon the fixing of a specified gross sum under s 98(4)(c), the determination is to take place on the basis that the mortgagee should recover costs unless the mortgagee has been guilty of misconduct or has acted unreasonably.

(2) Should the Court Intervene?

52. A preliminary question is whether the Court should intervene to take any of the three courses Anthony urges. A proper basis should be shown for the Court to examine compliance with its orders. But an outline of the main financial integers of this case raises concern that the open-ended form of Order 5.2 may have led to the neglect of Civil Procedure Act2005, s 60. Section 60 requires that the practice and procedure of this Court be implemented “with the object of resolving the issues between the parties in such a way that the cost to the parties is proportionate to the importance and complexity of the subject matter in dispute”.

53. The Court has the advantage, as do the parties, of having access to the file in the Possession proceedings, which have been relisted with the Equity proceedings. That file shows that the Possession proceedings did not involve a final contested hearing. Proceedings in the Common Law Possession List, which do not go to a final contested hearing, are ordinarily not legally or factually complex. Here in pursuit of a mortgage debt of $30,000 judgment for possession was obtained, the sheriff executed the judgment for possession evicting an occupant, and the land was subsequently sold for $352,137.02. After meeting the mortgage debt and interest, the bulk of these sale proceeds were applied in late 2016 to meet the mortgagee’s legal fees, which it turns out were almost 10 times the size of the mortgage debt.

54. Although the principal amount being recovered under the mortgage is not the only relevant consideration, these bare facts raise an issue as to the proportionality of the mortgagee’s legal costs. They are enough for the Court, at the request of the defendant, to exercise its discretion in the Possession proceedings to examine whether Gwendoline’s estate has complied with the Court’s orders of 29 April 2016.

(3) Possession Proceedings: Costs Assessment, Reference Out, or Lump Sum?

55. Anthony submits that in the Possession proceedings the Court should: (a) fix a specified gross sum for the costs payable under the mortgage pursuant to Civil Procedure Act, s 98(4)(c); (b) refer the matter to costs assessment; or (c) refer the matter to a referee and/or for report and inquiry pursuant to UCPR, Part 20, Division 3.

56. The clearly preferable course is for the Court to fix a specified gross sum under Civil Procedure Act, s 98(4)(c) or in the Court’s inherent jurisdiction. The Court’s s 98(4)(c) jurisdiction is plenary and adaptable to be used in circumstances such as the present. The Court’s specified gross sum costs jurisdiction is embodied in Civil Procedure Act, s 98(4), which confers a suite of broad discretionary powers on the Court in relation to costs, as follows:

“(4)   In particular, at any time before costs are referred for assessment, the court may make an order to the effect that the party to whom costs are to be paid is to be entitled to:

(a)   costs up to, or from, a specified stage of the proceedings, or

(b)   a specified proportion of the assessed costs, or

(c)   a specified gross sum instead of assessed costs, or

(d)   such proportion of the assessed costs as does not exceed a specified amount.”

57. The Civil Procedure Act, s 98(4)(c) jurisdiction is only available before a matter is referred for the assessment of costs. Referral to costs assessment has not occurred in this case, so the specified gross sum costs jurisdiction is available.

58. Reported Australian case law on the topic of specified gross sum costs orders is scant until the early to mid-1990s, when in cases such as Beach Petroleum NL v Johnson (No. 2) (1995) 57 FCR 119; (1995) 135 ALR 160 (von Doussa J) (“Beach Petroleum”) judges began more commonly to apply Australian rules that were precursors to s 98(4)(c).

59. But Courts have long exercised the power to fix a specified gross sum instead of assessed costs as part of the Court’s inherent costs discretion, without the need to rely upon specific statutory provisions or rules. One early example of the High Court of Australia exercising such inherent jurisdiction is Edgar & Walker v Mead (1916) 23 CLR 29; (1916) 23 ALR 259; [1916] HCA 70 in which Isaacs J (at 46) applied the practice which Jessel MR had described and adopted in Willmott v Barber (1881) 17 Ch D 772:

“But taking everything into consideration, including the several findings in favour of the respective parties, and realizing the desirability of putting an end to unnecessary further expense, I act on the principle laid down or recognized by the Court of Appeal in Willmott v. Barber. It was there stated that the discretion of the Judge as to costs is very large and extends even to the course which Jessel M.R. said he sometimes adopted, and generally found the parties were grateful to him for so doing. He thus described the course: “fix a definite sum for one party to pay to the other, so as to avoid the expense of taxation, taking care in doing so to fix a smaller sum than the party would have to pay if the costs were taxed.”

60. The principles for the making of specified gross sum costs orders instead of assessed costs are well settled and reflect many of the considerations mentioned by Isaacs J. Civil Procedure Act, s 98(4)(c) is expressed in general terms and is not limited to cases of a particular type: Australasian Performing Rights Assoc Ltd v Marlin [1999] FCA 1006 (Burchett J). The power to award a Civil Procedure Act, s 98(4)(c) specified gross sum instead of assessed costs is exercised whenever circumstances warrant its exercise; the purpose of the rule is to avoid the expense, delay and aggravation arising out of taxation: Beach Petroleum. The case law frequently emphasises the adaptability of the power and that it is not confined to previously defined classes of cases.

61. Probable inability to pay a costs order is but one example of a proper basis for the making of a s 98(4)(c) order. If the unsuccessful party ordered to pay costs is unlikely to be able to pay the amount of costs ordered, then the successful party is further aggravated by having to fund the additional costs of taxation, those costs also being unrecoverable: Harrison v Schipp (2002) 54 NSWLR 738; [2002] NSWCA 213 (“Schipp”) at [21] (Giles JA) and Hadid v Lenfest Communications Inc [2000] FCA 628 (“Hadid”) (Lehane J).

62. The adaptability of the power means it can be assessed for deployment in new situations. The specified gross sum can be fixed under s 98(4)(c) by the application of what has been described as a “broad brush” approach, having regard to all the information available to the Court: Schipp at [22] and Hadid at [27] and Penson v Titan National Pty Ltd (No.3) [2015] NSWCA 121 at [7] and [25]. The approach taken to the estimation of costs must be “logical, fair and reasonable” and the powers should only be exercised when the Court considers it can do so “fairly between the parties, and that includes sufficient confidence in arriving at an appropriate sum on the materials available”: Schipp at [22] per Giles JA.

63. A definitive statement of the applicable law on the application of s 98(4)(c) in this State appears in Hamod v State of New South Wales [2011] NSWCA 375 at [813] to [820] (“Hamod”). Some of the relevant principles stated in Hamod are: that before exercising the power the Court should be confident that the approach taken to estimating costs is fair, logical and reasonable; that the terms of s 98(4), together with the more general considerations reflected in Civil Procedure Act, ss 56(1), 57(1)(d) and 60, suggest the factors that merit particular consideration include the degree of any disproportion between the issue litigated and the costs claimed and the complexity of proceedings in relation to their cost; that the power may also be exercised where a party's conduct has unnecessarily contributed to the costs of the proceedings, especially where the costs incurred have been disproportionate to the result of the proceeding; that the assessment of any lump sum to be awarded must represent a review of the successful party's costs by reference to the pleadings and complexity of the issues raised on the pleadings; the interlocutory processes; the preparation for final hearing and the final hearing; that in the exercise of its discretion, the Court is not required to undertake a detailed examination of the kind that would be appropriate to taxation or formal costs assessment; that the costs ordered should be based on an informed assessment of the actual costs, having regard to the information before the Court (for example, by relying on costs estimates or bills); and that the approach taken to estimate the costs to be ordered may involve an impressionistic discount of the costs actually incurred or estimated, in order to take into account the contingencies that would be relevant in any formal costs assessment.

64. This may indeed be a case for the exercise of the Court’s inherent power. A temporal condition in Civil Procedure Act, s 98(4) is that the Court may make such an order “at any time before costs are referred for assessment”. But that is not a limitation in this case for two reasons. First, if necessary, the Court can exercise its inherent supervisory jurisdiction. But secondly, the Court’s reasons show that the original costs assessment in this case has been a failure; that assessment was unfair to Hartnett Lawyers; Hartnett Lawyers does not wish to propound that assessment against itself; the Court will not require it to do so; and another assessment is warranted. The Court is now contemplating, as an option, referring the issues of costs in these proceedings for assessment once again. That is sufficient to enliven the jurisdiction in s 98(4), even though there has already been one prior assessment.

65. The application of these principles indicates the Court should itself review the costs Gwendoline charged and if it considers that upon an assessment that there is an arguable case for their reduction, rather than refer them out to a costs assessor or to a referee for report, the Court should exercise its s 98(4)(c) power or its inherent power fix a revised sum and then make any consequential orders for reimbursement, if they are required.

66. This course is preferable for the following reasons. First, there is a sound basis to exercise the jurisdiction provided it is exercised cautiously. The Court has much of the required information to make a s 98(4)(c) order. It has the Court file for the Possession proceedings. It has Exhibit 3, the detailed memoranda of fees from Hartnett Lawyers. It has much of the voluminous correspondence between the parties during the Possession proceedings and in the continuing contest thereafter. It has available the benefit of the experience in the Possession proceedings of the same lawyers who appeared for Gwendoline. If any other evidence is required, it can be provided to the Court. One example of additional evidence that may be required is the costs agreement signed between Gwendoline and Hartnett Lawyers.

67. Anthony’s submissions urge the Court to make a s 98(4)(c) order now based on the materials presently before the Court. But that would be procedurally unfair to Gwendoline’s estate and to Hartnett Lawyers including Mr Wall’s costs assessment. The relisted proceedings to date have not yet given them an opportunity to explain and justify the costs expenditure that has taken place on behalf of the mortgagee, which is sought to be defended as proper and reasonable. They are entitled to more specific contentions from Anthony challenging their fees and charges. They should then be given an opportunity to answer those contentions before the Court considers fixing a lump sum in this case that is different from the existing fees and charges upon which Hartnett Lawyers were paid. The directions with this judgment provide for that to occur.

68. Second, this case now involves a contest in which one side contends that costs expenditure so far is disproportionate to the real matters that have been in dispute. It is desirable that the most procedurally simple measures now be taken to avoid aggravating the situation by having costs further increase, as the proceedings move between this Court and a costs assessor or a referee.

69. Third, given the nature of the issues raised in which the mortgagor is being critical of the solicitor for the mortgagee as an officer of the Court, it is important for the Court itself to retain close supervision over the matter to ensure maximum procedural fairness to both sides.

70. Fourth, reference out to a referee will require the parties to pay the costs of the referee. And after the referee’s inquiry has taken place, there can be further hearings about whether the referee’s report should be accepted. If the matter remains with the Court no such costs will be incurred.

71. Fifth, reference out to a cost assessor will require another decision-maker to become familiar with the matter. The Court is already familiar with it, now having given two judgments in the proceedings. Referral to a cost assessor will require the parties to prepare bills of costs in an assessable form, expend further costs in acquainting that new decision-maker with the history of the matter and the issues and will introduce another avoidable layer of potential review of a cost assessor’s decision.

72. Sixth, the relief sought in the Equity proceedings substantially overlaps with the review of the mortgagee’s costs being undertaken in the Possession proceedings. The interplay of these two is best dealt with by the Court, which has jurisdiction to deal with both proceedings at the same time.

73. Finally, there is a pointless dispute between the parties about whether Queensland or New South Wales law applies should the matter be referred to a cost assessment by the Court. The dispute is pointless because undoubtedly one or other of these laws applies and neither party has clearly indicated to the Court that there is any substantive difference between the applicable statutory law of Queensland or the law of New South Wales as to the principles on which a cost assessment would be undertaken in this case. Both parties point to potentially competing applicable provisions in each State which are almost identical in form.

74. The contest about applicable law can be briefly described. The parties are agreed on one matter: Gwendoline’s retainer of Hartnett Lawyers occurred prior to the introduction of the current legal profession legislation both in New South Wales and in Queensland. Thus, the New South Wales and Queensland legislative provisions potentially applicable to the contemplated costs assessment are respectively the LPA 2004, ss 350(1) and 350(5), and the Legal Profession Act2007 (QLD) (“LPA 2007”), s 335.

75. Hartnett Lawyers submit that the costs agreement between Gwendoline and the firm is governed by the law of Queensland: LPA 2007, s 302. And they submit that Gwendoline did not elect to have New South Wales law apply to her retainer of the firm. Moreover, they submit that Anthony’s legal representatives have long conceded the appropriateness of an assessment under LPA 2007, s 335. They submit that the referral for cost assessment should be under LPA 2007, s 335 and the mortgage clause 5.

76. Anthony submits that he has a right to assessment by reason of the combination of LPA 2004, s 304 (by direct application or by his making an election standing in the shoes of Gwendoline’s estate) and s 350 and clause 5 of the mortgage. He says he is undoubtedly a non-associated third-party payer entitled to seek an assessment and that the provision of the legal services has a “substantial connection” with this jurisdiction because it relates to Court proceedings in this jurisdiction: Legal Profession Regulations2005, r 109(d).

77. But so far as the Court can see comparing this legislation, Anthony would qualify as a non-associated third-party payer under both the provisions of the LPA 2004, s 350 and LPA 2007, s 335.

78. If there is no real substance to this dispute, in the sense that the outcome of the dispute would make a real difference to the cost assessment, it would be preferable for the Court to avoid an unnecessary legal issue that may only generate further disputation between these parties. Leaving the proceedings in this Court to undertake a s 98(4)(c) determination is the better course. The Court will hear submissions about whether the application of Queensland and New South Wales law would indeed make any difference to the outcome of a cost assessment in this case. But so far it is not obvious to the Court that it would.

79. For these reasons the Court will determine the quantum of the costs payable by the mortgagor under Civil Procedure Act, s 98(4)(c).

(4) Can the Court Order the Recovery of fees from Hartnett Lawyers?

80. The next question is: if some part of Hartnett Lawyers’ fees were to be disallowed as between the mortgagee and mortgagor, can the mortgagor recover the differential directly from Hartnett Lawyers. It is not necessary to decide this question yet. It is presently a hypothetical, until the Court determines that there is any differential between the fees and charges of Hartnett Lawyers and the fees properly to be deducted from the proceeds of sale on account as between the mortgagor and mortgagee.

81. This question is also related to Hartnett Lawyers’ application to dismiss the Equity proceedings. Anthony resists this on the basis that he may have action in restitution against Hartnett Lawyers for money had and received to the use of the mortgagor, which has been pleaded in those proceedings. Based on Adams v Bank of New South Wales [1984] 1 NSWLR 285; (1984) NSW ConvR 55-179 the Court pointed out in the first judgment that a solicitor for the mortgagee, such as Hartnett Lawyers, is not ordinarily immediately accountable to the mortgagor in respect of surplus proceeds held by the solicitor and does not ordinarily have a trustee relationship with the mortgagor.

82. Anthony also seeks to argue in the Equity proceedings that he subrogated to various rights of Gwendoline’s estate against Hartnett Lawyers, including Gwendoline’s rights to question Hartnett Lawyers’ fees and to refer them for a costs assessment. Anthony relies for this argument on cases such as Aged Care Services Pty Ltd v Kanning Pty Ltd (2013) 86 NSWLR 174. But the subrogation argument is obscure and unpleaded.

83. Anthony supports the argument by tendering an undertaking to indemnify Gwendoline’s estate and to elect to take up various rights of review under LPA 2004. His apparent strategy is to put himself in the shoes of Gwendoline’s estate and indemnify the beneficiaries of Gwendoline’s estate while pursuing action to recover alleged overpayments directly from Hartnett Lawyers. In the meantime, he wishes to leave the Equity proceedings dormant and in reserve.

80. For reasons which will become clear below, this is an unnecessarily complex way of attempting to resolve the issues between Anthony and Hartnett Lawyers. And it raises the possibility of protracted argument about whether or not subrogation is available in these circumstances. The Court has a simpler solution, which is discussed immediately below and deals more directly with Anthony’s rights to recover fees from Hartnett Lawyers.

81. Civil Procedure Act, s 56(2) imposes on the Court a duty to “seek to give effect to the overriding purpose when it exercises any power to it by this Act or by rules of court”, the overriding purpose being (s 56(1)) “to facilitate the just, quick and cheap resolution of the real issues in the proceedings”. The Court has been much assisted by the research and written submissions of counsel on both sides of this case. Through no fault of either counsel, it does appear to the Court that one of the “real issues” in the case has not as yet been identified by either party. A question of equitable priorities is a potential central issue in this case, which the submissions of neither party have yet addressed. Lest this issue be lighted upon by the parties at a later time, after costs have been diverted to other issues, the Court has decided to mention it now.

82. The equitable priorities issue arises in the following way. Mabel’s estate held an equity of redemption in the Ballina property. When the Ballina property was sold, that equity of redemption was turned into an equivalent equitable interest in the proceeds of sale held in the Hartnett Lawyers trust account in Gwendoline’s name.

83. Hartnett Lawyers also has an equitable interest in the same proceeds of sale. Although the costs agreement made between Gwendoline and Hartnett Lawyers is not presently available to the Court, it undoubtedly either confers, or confirms the position at general law, that Hartnett Lawyers has an equitable lien to be paid legal costs out of money derived from a judgment or award for the payment of the money resulting from legal proceedings in which the solicitor has acted for the client: Ex parte Patience; Makinson v the Minister [1940] 40 SR (NSW) 96; (1940) 57 WN (NSW) 65 at [100] – [101] and Firth v Centrelink (2002) NSWLR 451; [2002] NSWSC 564.

84. Hartnett Lawyers’ equitable lien lay over the same funds that were the subject of the equity of redemption. Which equitable interest has priority, is to be decided by the equitable rules concerning priorities between the two competing equities: the usual rule is that the claims rank in time of temporal priority, but the holder of the later interest may be able to demonstrate why the ordinary rule should be displaced and why the later interest prevails over the earlier interest: cf RP Meagher, JD Heydon, MJ Leeming, Meagher, Gummow & Lehane’s Equity: Doctrines and Remedies (5th ed, 2015, LexisNexis Butterworths) at [8-015] – [8-090].

85. In this case, the parties’ respective entitlements to the same fund will be decided by such principles, rather than by the mere fact that Hartnett Lawyers has already applied the funds to its own account. This is a matter for closer examination by both parties. Anthony will need to articulate the claim and Hartnett Lawyers will need to plead why it claims priority to the funds over Anthony. If the Court finds in the Equity proceedings that Mabel’s estate has priority to the costs differential then the Court has power to order Hartnett Lawyers to return the funds directly to Anthony to restore to him the priority which he is entitled to in Equity.

(5) What Costs orders should be made on the Motion in the Equity proceedings?

90. The next question is what costs orders should be made on Mr Hartnett’s Motion of 22 September 2020 that was heard on 26 February 2021 and determined on 11 March 2021.

91. Hartnett Lawyers submit that they were substantially successful in showing that the first service of originating process upon them was defective, a matter which was effectively conceded. The service of process that was ultimately relied upon only occurred immediately before the hearing of the Motion. Hartnett Lawyers submit that the Court granted an indulgence under UCPR, r 10.3 to allow Anthony to proceed on a further originating process served as late as 24 February 2021.

92. Anthony submits that Hartnett Lawyers had no measure of success on the Motion, the substantive relief being claimed was that the Summons in the Equity proceedings be struck out, which the Court has declined to do. Moreover, Anthony submits that Hartnett Lawyers committed considerable resources to attempting to argue without success that this Court had no jurisdiction to deal with the subject matter of the Equity proceedings.

93. Anthony is partly right that resources were expended for the Motion on issues on which Hartnett Lawyers did not succeed. But on the question of service Hartnett Lawyers was successful, although the late service of further originating process on 24 February could perhaps have resolved the dispute consensually and avoided a contested hearing had the parties been less procedurally aggressive. In the result the Court will order that Anthony pay 60% of Hartnett Lawyers’ costs of the Motion of 22 September 2020.

94. The current situation where Anthony seeks to keep the Equity proceedings in reserve is unsatisfactory. Treating the matter as a priorities dispute can be done within the Equity proceedings. But that in turn will involve the costs and expense of arguing about equitable priorities. If Hartnett Lawyers maintain their position that Anthony cannot recover the costs differential from them, then this will have to be determined in the Equity proceedings. But Anthony will not be allowed to leave the Equity proceedings dormant. He will have to plead equitable priorities issues and Hartnett Lawyers will have to plead their defence. For these reasons, the Equity proceedings will not be struck out.

95. On the other hand, another costs efficient possibility presents itself. If Hartnett Lawyers is prepared to concede that the Court’s inherent supervisory jurisdiction or Civil Procedure Act, s 99 are sufficient to make an order against Hartnett Lawyers in favour of Anthony, if the pre-conditions for those orders are otherwise established, then it may be possible to do away with the Equity proceedings all together. That will be a matter for further consideration between the parties to reach a consensus and simplify the future management of these proceedings. The Court will not require any concessions to this effect.

(6) Case Managing the Equity and Possession proceedings

96. Hartnett Lawyers have sought leave to withdraw as the solicitor on the record for Gwendoline’s estate. Mr Hartnett perceives himself to be in a position of conflict of interest with Gwendoline’s estate, as he is contesting the repayment of fees to its former client. If he is allowed to withdraw Anthony seeks to join him as a party to those proceedings.

97. Mr Hartnett has long since ceased to act for Gwendoline’s estate. At the latest from the time of her death in 2018 he has not received any instructions from her and there is no evidence that anyone on behalf of her estate has instructed him to take any positive steps. Mr Hartnett’s past actions as the solicitor on the record for Gwendoline and an officer of the Court who was active on the record until late 2016, is still amenable to the Court’s supervision. He will not be given leave to withdraw and will remain on the record to enable the Court to exercise that supervisory jurisdiction in respect of his past conduct of the Possession proceedings. It will not be necessary to join him as a party. If he perceives his position on the record were to become embarrassing then he can renew this application.

98. But to allay his fears about a continuing conflict of interest, the Court recognises that he has no existing retainer on behalf of Gwendoline’s estate and has no active duties towards Gwendoline’s estate in the Possession proceedings. The Court has now made orders under UCPR, r 7.10(2)(a) that the Possession proceedings continue in the absence of a representative of that estate.

99. The somewhat unusual issues in this case raise several discrete issues, some of which the Court has dealt with by making additional directions with the orders made today. These directions are designed to further the overriding purpose of the Civil Procedure Act as stated in s 56, to facilitate the just, quick and cheap resolution of the real remaining issues between these parties.

100. Given the history of this matter between 2014 and the present time, it is desirable that the remaining issues in this case be resolved as cheaply and expeditiously as possible. One possible option for the resolution is mediation. That history and the need for each party to contain further expenditure on costs, indicates that the Court should not force a mediation upon unwilling parties. The Court will seek the consent of each party to mediation under Civil Procedure Act, s 26 before proceeding down that path. By the time specified in the orders and directions below, the parties must indicate their consent to mediation or otherwise. They will by then have a much better understanding of the nature of the remaining issues.

101. It is undesirable for the parties to have an untrammelled liberty to file evidence on the remaining costs issues. Specified gross sum costs orders are not uncommonly made in relation to fees of the order of those at stake in this case and without the filing of expert evidence.

102. Given the Court’s reasoning in this judgment, the final disposition of the Equity proceedings will be reserved to allow the parties to plead their competing priorities claims.

103. Order 5.2 in the Possession proceedings refers to Gwendoline being compensated for “any such costs that she incurs in the future”. But it is not clear whether Hartnett Lawyers now claim to have incurred legal costs pursuant to the mortgage on behalf of Gwendoline or her estate, since their last bill was issued in November 2016. This issue needs to be flushed out. If Hartnett Lawyers are going to make such a claim, they need to formulate it quickly so all issues can be dealt with together to finality.

104. The Court has decided to make limited costs orders against Anthony in respect of the Hartnett Lawyers application in the Equity proceedings on 26 February 2021 (“the 26 February 2021 costs orders”). As the Court is considering making a specified gross sum costs order in respect of the Hartnett Lawyers costs in the Possession proceedings, it is logical that a similar order be made in relation to the 26 February 2021 costs. If necessary, offsetting orders can be made, depending upon the outcome of both processes.

105. The Court will constrain each party’s capacity to expend further costs in arguing about the quantum and recovery of past costs. The Court has power under Civil Procedure Act, s 98(1)(b) to make cost capping orders, provided the Court gives adequate notice to the parties that such an order is on the cards. The Court also has a general power to order maximum costs in proceedings under UCPR r 42.4: Preston v Nikoladis [2017] NSWSC 1527 at [310]-[315].

106. The Civil Procedure Act, s 98(1)(b) and UCPR, r 42.4(1) powers may be activated on the application of a party or of the Court’s own motion, and prospectively or retrospectively: G Dal Pont, Law of Costs (4th ed, 2018, LexisNexis Butterworths) (“Dal Pont”) [7.42] – [7.47]; Nudd v Mannix [2009] NSWCA 327; Nicholls v Michael Wilson Partners Ltd (No 2) [2013] NSWCA 141. However, it is preferable that any such order be made prospective and not retrospective: Re Sherborne Estate (No 2); Vanvalen v Neaves (2005) 65 NSWLR 268; [2005] NSWCA 1003 at [22]–[26], [31]; Dal Pont [7.42] – [7.49]; JP Hamilton, “Containment of costs: litigation and arbitration” (presentation, 1 June 2007).

107. The Court is contemplating making such an order for future costs in the sum of $10,000. The parties will have an opportunity at the next directions hearing to attempt to justify and argue for a different cap, if they are so minded, depending upon the issues then in play.

108. The parties should anticipate the making of such an order by confining themselves to a modest costs budget. The parties are on notice that the Court is unlikely to give them substantial additional costs compensation for resolving the remaining costs issues in proceedings that relate to a principal mortgage debt of $30,000 and which have already lasted for seven years.

109. Given that, upon the Court’s analysis, this appears really to be a priorities dispute between two parties with priorities claims to a fund held nominally in Gwendoline’s estate, it can fairly safely be inferred that her estate has no valid claim to any of these funds. But for more abundant caution, a copy of these reasons should be provided to the beneficiaries of Gwendoline’s estate, with a note indicating that they are entitled to appear, if they wish, at the next directions hearing nominated by the Court. They can appear by telephone if necessary. But the Court will also ask both Hartnett Lawyers and Anthony that each has no other claim against the estate. One or other party should send these reasons to the beneficiaries.

Conclusions and Orders

110. For these reasons, the Court makes the following orders, notations and directions:

1. in these orders, the expressions,

1. “the solicitors” refers to Hartnett Lawyers, the defendants in proceedings No. 2020/254590, “the Equity proceedings”,

2. “Anthony” refers to Anthony Robert Deakin-Bell, the defendant in proceedings No. 2014/354291 the Possession proceedings and the plaintiff in the Equity proceedings,

3. “Gwendoline” refers to the plaintiff in the Possession proceedings, and

4. “mortgage” refers to the registered first mortgage upon which Gwendoline claimed right to possession in the Possession proceedings.

2. Order that Anthony shall by 12pm on 20 October 2021 identify and provide in the form of a list or schedule, the fees, charges or disbursements, or classes of fees charges or disbursements, of Hartnett Lawyers, recorded in Exhibit 3, which Anthony submits were improperly or unreasonably incurred, or were not incurred pursuant to the mortgage, together with Anthony’s contentions as to why the said fees, charges or disbursements, or classes of fees charges or disbursements were improperly or unreasonably incurred, or were not incurred pursuant to the mortgage.

3. Order that by 12pm on 29 October 2021 the solicitors shall provide a list, or schedule in reply to Anthony’s list or schedule identifying their justification for the fees, charges or disbursements, or classes of fees charges or disbursements from Exhibit 3 that are challenged by Anthony, or admitting that such fees, charges or disbursements, or classes of fees charges or disbursements were improperly or unreasonably incurred, or were not incurred pursuant to the mortgage.

4. Order that the solicitors shall by 12pm on 20 October 2021 identify and provide in the form of a list, or schedule any fees, charges or disbursements, or classes of fees charges or disbursements, which they claim to have incurred pursuant to the mortgage after 14 November 2016 (“the post-14 November 2016 costs”).

5. Order that by 12pm on 29 October 2021 Anthony shall provide a list, or schedule in reply to the solicitor’s list or schedule of post-14 November 2016 costs, a list, or schedule of the fees, charges or disbursements, or classes of fees charges or disbursements, of the post-14 November 2016 costs, which Anthony submits were improperly or unreasonably incurred, or were not incurred pursuant to the mortgage, together with Anthony’s contentions as to why the said fees, charges or disbursements, or classes of fees charges or disbursements were improperly or unreasonably incurred, or were not incurred pursuant to the mortgage.

6. In relation to additional evidence to deal with the remaining costs issues in these proceedings, the parties:

1. are not at liberty to file additional evidence without the leave of the Court, and

2. any party wishing to file additional evidence shall indicate in writing by 10am on Monday 8 November 2021, the nature and extent of the additional evidence that party proposes to adduce before the Court undertakes its review and considers the exercise of its Civil Procedure Act, s 98(4)(c) powers.

7. As to any competing equitable claims to the proceeds of sale of the Ballina property:

1. Direct Anthony to amend the pleadings in the Equity proceedings to raise any issue of equitable priorities by 12pm on 20 October 2021; and

2. Direct the solicitors to raise any counter-issue of equitable priorities in its pleadings in the Equity proceedings by 12pm on 29 October 2021.

8. Direct the parties to indicate in writing by 10am on Monday 1 November 2021, whether they consent to mediation of the remaining issues in these proceedings.

9. Order Anthony to pay 60% of the solicitors’ costs of the Motion dated 22 September 2020 in the Equity proceedings and otherwise dismiss the said Motion.

10. List the Possession proceedings and Equity proceedings for further directions on Tuesday, 2 November 2021 at 9.30am, on which occasion the Court will consider a timetable for the parties to provide concise written submissions on remaining issues, if they wish.

11. Note that the Court will consider making a cost capping order on 2 November 2021, prohibiting each of the parties from seeking to recover costs of more than $10,000 in respect of the remaining costs issues in these proceedings.

12. Note that the Court has declined to grant leave to Hartnett Lawyers to withdraw as the solicitor on the record in the Possession proceedings but Hartnett Lawyers is not required henceforth to take any steps to action on behalf of Gwendoline’s estate in those proceedings.

13. Grant liberty to apply.

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Amendments

13 October 2021 - Coversheet - Catchwords - "Mortgages and Securities" instead of "Equity"; Citations amended.

Throughout - "Mr Bell" changed to "Anthony".

[3] - line 4 - comma removed.

[10] - line 9 - "that" removed.

[11](3)(b) - line 3 - semicolon added; [11](4) - line 1 - apostrophe added; [11](5) - line 2 - "and" inserted.

[18] - line 2 - "was" instead of "is"; line 8 - "the" removed, apostrophe added.

[19] - line 8 - comma inserted.

[20] - line 3 - "were" removed.

[24] - line 2 - "Equity" inserted.

[27], [38] - line 6 - abbreviation added.

[35] - line 4 - "to" inserted before "allow".

[46] - line 3 - "to" inserted before "indemnify".

[47] - line 7 - extra citation reference added.

[49] - line 4 - full stop instead of colon.

[50] - line 11 - "been" instead of "being".

[59] - line 3 - "statutory provision or" added before "rules".

[66] - line 1 - "the" removed before "preferable".

[87] - line 1 - "either" removed.

[88] - line 1 - "s" added to "fund".

[96] - line 2 - "Mr Hartnett" instead of "He". line 3 - "he" instead of "they".

Order (5) - line 1 - "4pm on" removed. "October" instead of "November".

Order (8) - line 1 - "1" instead of "8".

Order (11) - "consider" instead of "considering"

Decision last updated: 13 October 2021