Ireland v Retallack (No 2)
[2011] NSWSC 1096
•19 September 2011
Supreme Court
New South Wales
Medium Neutral Citation: Mark Gerard Ireland as Executor of the Estate of the late Charles Stuart Gordon v Sandra Jane Retallack & Ors (No 2) [2011] NSWSC 1096 Hearing dates: 8 September 2011 Decision date: 19 September 2011 Jurisdiction: Equity Division Before: Pembroke J Decision: See paragraphs [67] - [70]
Catchwords: COSTS - court's control over solicitor's costs - Section 98(4) Civil Procedure Act - capping costs - Section 99(2) Civil Procedure Act - disallowing costs
WASTED COSTS - expenditure incurred without reasonable cause - not recoverable
EXPERT REPORTS - unnecessary - not reasonable to carry out the work to which the costs relate
EVIDENCE - irrelevant - not reasonable to carry out the work to which the costs relate
SOLICITORS - acting on behalf of executor - duties and responsibilities
TRUSTS AND SUCCESSION - payment of costs of proceedings out of specific property or out of residue - Section 93 Trustee ActLegislation Cited: Civil Procedure Act 2005
Legal Profession Act 2004
Probate and Administration Act 1898
Supreme Court Act 1981 (UK)
Trustee Act 1925Cases Cited: Australian Performing Rights Association Limited v Marlin [1999] FCA 1006
Beach Petroleum NL v Johnson (No 2) (1995) 57 FCR 119
Breen v Williams (1996) 186 CLR 71
Foord v Brock [2005] NSWCA 156
Hadid v Lenfest Communications [2000] FCA 628
Harrison v Schipp (2002) 54 NSWLR 738
Ideal Waterproofing Pty Limited v Buildcorp Australia Pty Limited [2006] NSWSC 155
Idoport Pty Limited v National Australia Bank Limited [2007] NSWSC 23
Mark Gerard Ireland as Executor of the Estate of the late Charles Stuart Gordon v Sandra Jane Retallack [2011] NSWSC 846
Kelly v Jowett [2009] NSWCA 278
Kendirjian v Ayoub [2008] NSWCA 194
Leary v Leary [1987] 1 WLR 72
Lemoto v Able Technical Pty Ltd (2005) 63 NSWLR 300
Mills v Cannon Brewery Co Limited [1920] 2 Ch 38
Murdocca v Murdocca (No 2) [2002] NSWSC 505
NA & J Investments Pty Ltd v Minister Administering the Water Management Act 2000 (No 2) [2011] NSWLEC 98
Ridehalgh v Horsefield [1994] Ch 205
Secured Income Real Estate (Aust) Ltd v St Martins Investments Pty Ltd (1979) 144 CLR 596
Sherborne Estate (No 2); Vanvalen v Neeves (2005) 65 NSWLR 268
Sony Entertainment (Australia) Limited v Smith [2005] FCA 228
Sparnon v Apand Pty Ltd (Federal Court of Australia, von Doussa J, 4 March 1998, unreported)
Speight v Gaunt (1883) 9 App Cas 1
Treadwell v Hickey [2010] NSWSC 1119
Wentworth v Wentworth [1996] NSWCA 548
Woolf v Snipe (1933) 48 CLR 677Category: Costs Parties: Mark Gerard Ireland as Executor of the Estate of the Late Charles Stuart Gordon - plaintiff
Sandra Jane Retallack - first defendant
Gordon Family Corporation Pty Ltd - second defendant
Richard d'Apice - third defendantRepresentation: Counsel:
E C Muston - for the plaintiff
L Ellison SC - for the first defendant
P P O'Loughlin - for the third defendant (the Trust)
M Dempsey SC - for Argyle Lawyers
D H Murr SC - for Richard d'Apice
Solicitors:
Argyle Lawyers Pty Ltd - for the plaintiff
King Cain Solicitors - for the first defendant
Makinson & d'Apice Lawyers - for the second and third defendants
File Number(s): 2010/00380339
Judgment
Introduction
This is a costs application arising out of my decision given on 12 August 2011: Ireland v Retallack [2011] NSWSC 846. I had previously made an order for the separate determination of certain questions of construction arising out of the testator's will. The hearing was therefore no more than a will construction suit. I explained in paragraphs [34] - [38] of my principal judgment why other relief sought in the summons was in any event misdirected. In the course of my reasons I also expressed criticism of the irrelevant evidence that was tendered, and the wasted expenditure that was incurred, on behalf of the estate.
My criticisms were primarily directed to the solicitors for the plaintiff/executor. They largely concerned, but were not limited to, the preparation of unnecessary expert reports. I stated, among other things, that I would consider whether the circumstances called for an order disallowing costs pursuant to Section 99(2)(a) of the Civil Procedure Act 2005 . At a directions hearing on 26 August 2011, I also stated that, whether or not I made a Section 99 order, I would make fixed sum costs orders pursuant to Section 98(4) of the Act.
In the result, I gave leave to the plaintiff's solicitors, a firm called Argyle Lawyers Pty Limited (Argyle), to be separately represented by senior counsel. In its written submissions, Argyle conceded that, applying ordinary principles of taxation or assessment, the court may form the view that:
the costs incurred in some respects were not objectively necessary and reasonably incurred in connection with the disposition of the construction suit.
I regard that as a statement of the minimum position.
Jurisdictional Framework
The jurisdiction of the court to determine the amount of the costs that should be allowed in proceedings before it is well established. Superior courts have long had a general jurisdiction "to ascertain, by taxation, moderation, or fixation, the costs, charges, and disbursements claimed by an attorney or solicitor from his client": Woolf v Snipe (1933) 48 CLR 677 at 678 (Dixon J). This jurisdiction enables the court to "regulate the charges made for work done by attorneys and solicitors of the Court in that capacity, and to prevent exorbitant demands": Woolf v Snipe (supra).
To that general jurisdiction has been added in more recent times a number of statutory provisions that reinforce and buttress the general power over solicitors' costs. In some cases, particularly in proceedings in this court, they have extended it. The Civil Procedure Act 2005 includes the following relevant provisions:
(a) Section 98 gives the court full power to determine by whom, to whom and to what extent costs are to be paid. It also permits the court to order, among other things, that a party to whom costs are to be paid should receive a specified gross sum instead of assessed costs;
(b) Section 99 permits the court, where it appears, among other things, that costs have been incurred without reasonable cause in circumstances where a legal practitioner is responsible, to make an order disallowing the whole or any part of the costs in the proceedings as between the solicitor and the client.
In addition, Section 56 imposes a duty on parties to assist the court to further the overriding purpose of facilitating the just, quick and cheap resolution of the real issues in dispute. It also permits the court to take into account a breach of that duty in exercising a discretion with respect to costs. Further, Section 60 states that the practice and procedure of the court should be implemented with the object of ensuring that the cost to the parties of proceedings in the court is proportionate to the importance and complexity of the subject matter in dispute.
Further still, Section 366 of the Legal Profession Act 2004 provides that nothing in Division 11 of that Act limits the power of the court to determine in any particular case the amount of costs payable. Division 11 is headed "Costs Assessment". In the case of an assessment, Section 364 provides that the costs assessor must consider, among other things, whether or not it was reasonable to carry out the work to which the costs relate.
Executors and Solicitors
As well as that jurisdictional framework, there is a practical and legal context that shapes the resolution of the costs questions that arise in this case. On the one hand, the opportunity for a solicitor acting on behalf of an estate to incur unnecessary expenditure and to make excessive demands for legal costs, is patent. On the other hand, the existing beneficiaries of the estate repose trust in the executor and his or her solicitor to conduct legal proceedings, and incur expenditure on behalf of the estate, with the same care, prudence and circumspection that would be expected of a reasonable person of business looking after his or her own affairs. This is after all, the executor's legal duty as a trustee: Breen v Williams (1996) 186 CLR 71 at 137 (Gummow J); Speight v Gaunt (1883) 9 App Cas (HL) 1 at 19 (Lord Blackburn).
A reasonably competent solicitor will know and understand that fundamental duty of the executor. That duty must necessarily control and govern the actions of the executor. It must also guide the solicitor's conduct of the proceedings and the choices that he recommends or makes on the executor's behalf. To that end, the solicitor must endeavour to ensure that he does not make decisions or incur expenditure that may result in conduct by the executor that is inconsistent with that duty. In particular, the solicitor must ensure that the work done and the expenditure incurred is prudent, appropriate and proportionate to the real issues in dispute. A reasonable person looking after his or her own affairs would expect nothing less. The court, in its supervisory role, has the same expectation.
The Real Issues in Dispute
The summons was filed on 29 October 2010. It followed advice from senior counsel that it was necessary at the outset to determine the proper construction of Clauses 4, 5 and 16 of the will. In particular, it was thought necessary that the meaning of the expression "manipulate my assets" in Clause 16 should be judicially determined.
In my principal judgment, I observed that the summons was perplexing and diffuse: at [1]. Quite why it was drafted in the form that it was is a mystery. It went beyond what was necessary or appropriate. It introduced confusion. At the principal hearing, the parties ignored the summons. They addressed the questions of construction without regard to the need to consider the precise subject matter of prayer 1(a) of the summons. Nor was any argument advanced that went to the issue of impracticability referred to in prayer 1(b) of the summons. I have marked the plaintiff's written submissions at the principal hearing as Exhibit A on this costs application.
The questions of construction raised no issue of serious difficulty. In particular I saw no complication whatsoever with the meaning of the expression "manipulate my assets". I said in my principal judgment at [8]:
The verb 'manipulate' covers all manner of changes, alterations, stratagems and schemes. There is really no limit to what is encompassed by that expression so long as the executor acts reasonably and adheres strictly to the Testator's objective. That objective was clear from Clause 4 and 5 of the will. It was repeated and amplified in Clauses 16 and 17. The Testator's abiding wish was that his daughter should receive Glengowan unencumbered so as to secure to her a viable grazing property and to enable her to continue to live there.
There was no need for expert evidence to resolve any legitimate question of construction arising out of Clauses 4, 5 and 16 of the will. There appeared to be a misapprehension that the resolution of the questions of construction would be assisted by evidence of the various commercial methodologies that might be utilised to achieve the testator's objective. This was simply woolly thinking. On several occasions, senior counsel for the first defendant submitted, with admirable restraint, that the case could and should have been conducted on one document, namely the will. He was right of course. That would have been the conventional approach. Instead, I was presented with a plethora of highly complex and unnecessary accounting and taxation evidence. In addition, a great deal of irrelevant factual evidence was adduced - for no purpose and to no avail.
Unnecessary Costs
I repeat the facts and the findings set out in paragraphs [23] - [45] of my principal judgment. On this costs application Argyle relied on evidence from Mr Quigley and Mr Petrucco. The former was responsible for the day to day conduct of the proceedings on behalf of the plaintiff until 1 April 2011. Mr Petrucco became the solicitor on the record from 5 April. Mr Quigley was apparently the solicitor responsible for recommending that a "corporate reconstruction expert" be engaged. To that end he obtained instructions from the executor. On 17 November 2010, Mr Quigley consulted Mr Keenan from an accounting firm known as BRI Ferrier. Mr Keenan provided a verbal costs estimate of $30,000 for BRI Ferrier and $15,000 for additional specialist taxation advice.
On 15 December 2010, Mr Quigley provided formal written instructions to Mr Keenan. His letter made clear that the engagement related only to these proceedings. It was, in substance, a carte blanche to enquire into and report on all steps that "might conceivably be taken" to give effect to the testator's intention that, among other things, the property known as Glengowan be transferred to Mrs Retallack. In addition, Mr Keenan was asked to advise on the practical effects of taking those steps - that is all of the steps that "might conceivably be taken". This included, in relation to each of those steps, the effects, wherever applicable, of "capital gains tax, stamp duty, income tax, inter-generational transfer exemptions, legal costs, accountancy costs, the mortgage debt to the National Australia Bank and any other practical consequences you consider relevant".
This was an accountant's nirvana. I referred in my principal judgment to the intricacies of each option that were laid out in excruciating and labyrinthine detail in Mr Silvia's report: at [24]. Unfortunately none of it was necessary for the proceedings. None of it was useful. None of it facilitated the resolution of the real issues in dispute, namely the questions of construction arising out of Clauses 4, 5 and 16 of the will.
This unsatisfactory situation only became worse. On 17 February 2011, Mr Keenan stated that "the costs have blown out a bit". On 21 April 2011, he informed Mr Petrucco that BRI Ferrier's time costs were in excess of $97,000 and that the costs of Moore Stephens, who provided additional specialist taxation advice, were in excess of $50,000. Mr Keenan said however that BRI Ferrier would accept $65,000 and that Moore Stephens would accept $25,000 excluding GST. The total of these two amounts was precisely double the initial estimate of $45,000. In due course, Mr Petrucco negotiated a further modest reduction - $60,000 and $22,000 respectively. To this must be added a further $15,000 which is the agreed amount for a supplementary report from Moore Stephens. The final total for the expert reports is therefore $97,000.
It is obvious that there was insufficient ongoing supervision by Argyle over the work being undertaken by the accountants. No satisfactory attempt was made, while the work was being carried out, to ensure that the accountants were working to the initial estimate. There was insufficient scrutiny and inadequate oversight. There was not the same level of prudence and circumspection that one would expect from a reasonable person of business looking after his or her own affairs.
The fault is not however entirely that of Argyle. Professional experts have an obligation to behave promptly, frankly and openly when or if they become aware that their estimate of fees and expenses is likely to be materially exceeded. They must inform their principal and provide an opportunity for an informed choice to be made - whether or not to proceed with the engagement or to re-negotiate its terms and extent. It is commercially unacceptable for a professional expert to remain silent, to complete the work and then to present a bill significantly in excess of the original estimate - as if it were a fait accompli. Such conduct is unacceptable whether it is merely forgetful, or just sharp.
Ultimately however, the real problem is that, whatever it may have cost, the work which Mr Quigley commissioned from BRI Ferrier and Moore Stephens was unnecessary for these proceedings. It did not assist, and never would have assisted, the resolution of the questions of construction arising from the terms of Clauses 4, 5 and 16 of the will. In that sense, the sum of $97,000 for which BRI Ferrier and Moore Stephens claim payment, is wasted expenditure. There was no reasonable basis for incurring it in these proceedings.
Argyle now proposes that only 50% of the costs of the expert reports be apportioned to these proceedings. It proposes to apportion the remaining 50% of those costs to the administration of the estate. Argyle's engagement letter dated 15 December 2010 made clear that the retainer of BRI Ferrier was for the purpose of these proceedings. The current proposal emerged as a result of the criticisms in my principal judgment. It is a partial recognition of the wasted expenditure involved in the expert reports - at least for the purposes of these proceedings.
I am only dealing with the costs of these proceedings. The costs of the administration of the estate, other than those that are incidental to the proceedings, will fall for determination when or if accounts are passed by the executor. As far as these proceedings are concerned, it would not matter whether the amount of the costs of the expert reports proposed to be apportioned to these proceedings was 10%, 20% or 50%. Those costs were simply never necessary for these proceedings. They were not reasonably incurred for the purpose of the proceedings. It was not reasonable, for the purpose of the proceedings, to carry out the work to which the costs relate. They should not, in my view, be recoverable as costs of and incidental to these proceedings.
The same must follow for a proportion of Argyle's own professional costs. Insofar as work was carried out by Argyle in connection with the expert reports, it was of no utility in the proceedings. It was not reasonable to carry out that work. Nor was it reasonable to carry out the work represented by the tender of a large quantity of irrelevant factual evidence. I referred to this additional unfortunate aspect of the proceedings in paragraph [39] - [40] of my principal judgment. The same reasoning must also apply to counsels' fees. However, counsel who originally appeared for the plaintiff no longer appear. They were not separately represented on the costs hearing and no submissions were put on their behalf. It will be sufficient if I leave it to their judgment to make suitable arrangements with Argyle and the executor in the light of these reasons. I am confident in the outcome.
I will shortly explain what costs I propose to allow. But the fact that I have concluded that a substantial proportion of the costs incurred in the conduct of the proceedings on behalf of the executor should not be recoverable, is entirely consistent with the conduct of the hearing on 1 August 2011. It became quite apparent at that hearing that the expert reports and the substantial majority of the factual evidence tendered by the plaintiff, served no useful purpose in facilitating the determination of the proper construction of Clauses 4, 5, and 16 of the will. As the hearing progressed, and submissions were developed, this must have been obvious to the legal representatives of the plaintiff. It should come as no surprise that I have reached the conclusions that I have explained.
Apart altogether from the specific provisions of the Civil Procedure Act and the Legal Profession Act to which I referred in paragraphs [5] - [7] above, the court has long exercised control over unnecessary or unreasonable costs incurred by trustees in legal proceedings, notwithstanding the indemnity to which a trustee is prima facie entitled. I can do no better than repeat the following exposition by Long Innes CJ in Eq in Price v Church of England Property Trust Diocese of Goulburn (1935) 35 SR (NSW) 444 at 460:
It is clear that a trustee is entitled, as a general rule, to be indemnified out of the trust property against his full costs of legal proceedings which he has properly instituted or defended on behalf of the trust; it is, however, equally clear that he will not be allowed to charge against the trust property the costs of unnecessary proceedings, or of elaborate proceedings where he might have obtained the same result by a simpler and less expensive procedure: Thomas v Walker (18 Beav. 521), Wells v Malbon (31 Beav. 48); and I think it highly probable, I need not put it higher at present, that the same result would follow in a case where the trustee had incurred unnecessary costs in proceedings properly instituted against him as trustee.
Costs Claimed
Argyle claims to recover the following costs and disbursements of the proceedings, after discounting the costs of the expert reports by 50%:
Approximate costs (exclusive of GST) in respect of proceedings 2010/360339
Total costs to and including 1 August 2011
Professional costs $ 70,000.00
Disbursements
Senior Counsel $ 18,670.00
Junior Counsel $ 17,700.00
BRI Ferrier - Silvia report (one half) $ 30,000.00
Moore Stephens - Badger report (one half) $ 11,000.00
More Stephens - Supplementary Badger report
(one half) $ 7,500.00
Filing fees and other disbursements $ 6,092.00
TOTAL: $160,962.00
The executor also claims to recover his professional costs. He is a country solicitor and the drafter of the will. He said that he was not in a position to identify his professional fees with any degree of precision. His best estimate was that the sum would not exceed $35,000. At an assumed hourly rate of $350, this represents approximately 100 hours or at least twelve working days at 8 hours per day. I made clear in paragraphs [51] and [54] of my principal judgment that I required evidence at the costs hearing, among other things, of "all costs (within the meaning of Sections 3(1) and 98(6)(a) of the Civil Procedure Act ) that have been incurred in or incidental to these proceedings by the executor". The executor's failure to do as I directed is difficult to understand. I do not propose to give him another opportunity and will do the best I can on the basis of his own generous estimate.
The first and third defendants also seek to recover the whole of their costs. The second defendant did not appear. Despite the preliminary concerns that I expressed in paragraph [49] of my principal judgment, I am satisfied that there is no ground for criticism of Mr d'Apice whatsoever. In fact, I am grateful that he was prepared to assume the role of representative of the trust created by Clause 5 of the will. His counsel's submissions were of considerable assistance. The conduct of the hearing on the part of the first and third defendants was exemplary.
Argyle's Recoverable Costs
I have by now made clear that, as costs of the proceedings, the estate should not be burdened with so much of Argyle's costs and disbursements as relate to the expert reports. Nor should it be burdened with the costs associated with the tender of the irrelevant factual evidence. These costs are not proportionate to the complexity of the issues in dispute. They were incurred without reasonable cause. It was simply not reasonable to carry out the work to which they relate.
I have made an informed assessment based on the evidence that Argyle put before me. That information was not as full or complete as that which would be required for an assessment. But it is what the parties chose to provide in response to the directions in paragraphs [51] and [54] of my principal judgment. And I informed the parties at a directions hearing on 26 August that I intended to make fixed sum costs orders pursuant to Section 98(4) of the Civil Procedure Act . The parties had full knowledge of the purposes for which I required their costs evidence.
As I have mentioned, Argyle accepts that 50% of the costs of the expert reports is not properly recoverable in these proceedings. In my view, the correct figure is nil. The experts' reports did not assist the determination of the proper construction of Clauses 4, 5 and 16 of the will one little bit. They were wholly misguided and irrelevant as a means of facilitating the just, quick and cheap resolution of the real issues in dispute.
As far as Argyle's professional costs are concerned, there can be no explanation for the figure of $70,000 other than that an exorbitant amount of time was spent in the process of reviewing, considering, discussing and exchanging opinions with the accountants. Multiple persons at three separate professional firms have clearly spent many hundreds of hours exploring and debating the commercial options by which the testator's company could most conveniently transfer the property known as Glengowan to Mrs Retallack. Unfortunately the precise method by which the testator's object might be achieved was not an issue in the proceedings. Nor did the choice as to the best method of doing so appear at the hearing to be contentious, as I observed in paragraph [31] of my principal judgment. When I raised that matter again on the costs hearing, I was not controverted.
Worse however, the expense was all the greater because the combined efforts of the solicitors and accountants were channelled into the creation of unnecessary written reports. Necessarily, those reports were compelled to comply with all of the expectations of due care, and the requirements as to form and content, that are applicable to expert reports to be tendered in proceedings in the court. This substantially increased the expense. As is well known, a full-blown expert report, prepared for tender in proceedings in the court, is vastly more expensive than advice given in conference or by a summary letter.
While Argyle is now prepared to acknowledge that 50% of the costs of the expert reports is not properly recoverable to the proceedings, it makes no equivalent acknowledgement in relation to its own costs. I have formed the view that, at a minimum, 50% of Argyle's professional costs must necessarily relate to the unnecessary expert reports. Given the breadth of the evidence and the limited nature of the other issues, 50% is probably generous to Argyle. That amount should not be recoverable in these proceedings. In my view, those costs were incurred without reasonable cause. They are not proportionate to the complexity of the issues in dispute. And it was not reasonable to carry out the work to which, on my estimation, they relate.
Further, there should be an additional discount of 5% for the wasted costs incurred in the collation and tender of a significant quantity of utterly useless factual evidence. I referred to this feature of the hearing in paragraphs [39] and [40] of my principal judgment. It was, once again, not reasonable to carry out the work to which this component of Argyle's professional costs must relate.
The result is that Argyle will be left with $31,500 or 45% of the professional costs which it claims. The analysis by which I have arrived at that figure is, I am satisfied, logical, fair and reasonable. It is based on the evidence put before me and the knowledge that I have derived of the issues during the proceedings. It is, in fact, a generous outcome for a will construction suit involving a one day hearing. In proceedings of this nature there will usually be little opportunity for the executor's solicitor to incur substantial costs. This is appropriate. Apart from the work involved in identifying the problem, obtaining instructions, briefing counsel, obtaining and reviewing his or her advice, corresponding with beneficiaries and attending at court, none of the usual expenses of litigation is ordinarily present in such a case. There will be no discovery, no contested evidence, no witnesses to interview and prepare, no interlocutory skirmishing and certainly no expert evidence.
Legal Principle
I have referred in paragraphs [4] - [7] above to the court's sources of control over the costs of solicitors in proceedings in this court. And in paragraph [25] above, I referred to the court's longstanding equitable jurisdiction over trustees. They provide ample authority for the result that I consider to be appropriate. I should however advert to some particular features of Sections 98(4)(c) and 99(2)(a)(ii) of the Civil Procedure Act.
Section 98(4)(c)
The terms of Section 98(4)(c) are not subject to any express limitation, other than that an order may only be made before costs are referred for assessment. Nor is there any apparent basis for imposing an implied qualification arising from the language of the whole of Section 98 or the surrounding statutory provisions or the evident purpose of Division 2 of the Act.
It is well accepted that, subject to the proviso that it be exercised judicially, the court has an unlimited discretion when making an order pursuant to Section 98(4): Sony Entertainment (Australia) Limited v Smith [2005] FCA 228 at [89] (Jacobson J); Harrison v Schipp (2002) 54 NSWLR 738 at [21] (Giles JA); Australian Performing Rights Association Limited v Marlin [1999] FCA 1006 at [3] (Burchett J); Leary v Leary [1987] 1 WLR 72 at 76 (Purchas LJ).
Nonetheless, the power should only be exercised where the court considers that it can do so fairly between the parties. That includes a requirement that it has sufficient confidence that it is able to arrive at an appropriate sum on the information that is made available: Idoport Pty Ltd v National Australia Bank Limited [2007] NSWSC 23 at [9] (Einstein J); Harrison v Schipp (supra) at [22] (Giles JA); Wentworth v Wentworth (New South Wales Court of Appeal, Priestley, Clarke JJA and Grove AJA, 21 February 1996, unreported) at 23 (Clarke JA). The parties should of course be given an adequate opportunity to make submissions: Hadid v Lenfest [2000] FCA 628 at [24] (Lehane J); Sparnon v Apand Pty Ltd (Federal Court of Australia, von Doussa J, 4 March 1998, unreported) at 4; Beach Petroleum NL v Johnson (1995) 57 FCR 119 at 120 (von Doussa J); Leary v Leary (supra) at 76 (Purchas LJ).
Further, the power may be exercised broadly. A process similar to an assessment is not necessarily envisaged: Hadid v Lenfest (supra) at [35] (Lehane J); Sparnon v Apand Pty Ltd (supra) at 4; Beach Petroleum NL v Johnson (supra) at 120 (von Doussa J); Leary v Leary (supra) at 76 (Purchas LJ). Although considerations that would be relevant to an assessment may be taken into account: Idoport Pty Limited v National Australia Bank Limited (supra) at [117]. The court should however be confident that the approach which it adopts to the estimation of costs is logical, fair and reasonable: Harrison v Schipp (supra) at [22] (Giles JA); Hadid v Lenfest (supra) at [27] (Lehane J); Beach Petroleum NL v Johnson (supra) at 123 (von Doussa J).
In this case I am satisfied that all of the considerations to which I have referred in paragraphs [39] - [41] have been met. However there is one final general matter that deserves comment. I do not think the purpose of the power is simply to avoid the expense, delay or aggravation that may be involved in a protracted costs assessment. That would be an unjustified reading down of the statutory language. Nor do I think that there is any rational reason why the power should be exercised sparingly. The statutory language does not support such a qualification. Nor do I think that there is any reason in principle, or in the statutory language, why the power under Section 98(4)(c) should not be utilised to cap the recoverable costs of a party where the court considers that the claimed costs are excessive in the circumstances. See Sherborne Estate (No 2): Vanvalen v Neeves (2005) 65 NSWLR 268 at [42] - [44].
I regard the power under Section 98(4)(c) as a helpful addition to the arsenal available to the court. Its use will only serve to enhance the interests of justice and further the overriding purpose in an appropriate case. After all, in exercising that power, the court is engaged, as a matter of principle, in a similar exercise to that which an assessor would undertake - designed to achieve the same objective but with broader powers, a wider discretion and at any earlier point in time. The court, just like an assessor, is seeking to determine what is a fair and reasonable amount for a party's costs. In a real and practical sense, the party whose costs are capped under Section 98(4)(c) is not being disadvantaged. All that is happening is that the court is arriving at an appropriate result - faster and in a gross amount.
In this case for example, I would fully expect an assessor to arrive at the same result, by a slower and more expensive process, having regard, among others, to the criterion in Section 364(1)(a) of the Legal Profession Act 2004 - namely whether or not it was reasonable to carry out the work to which the costs relate. For my part, I do not share quite the same reticence about the application of Section 98(4)(c) in circumstances such as these as Palmer J expressed in Sherborne Estate (No 2) (supra) at [43] - [44]. I regard the power given by Section 98(4)(c) as a particularly convenient mechanism by which the interests of justice may be served. I will exercise it in this case by specifying a gross sum for each party. The applicable amounts are set out in paragraphs [67] - [70] below. As against the executor and Argyle, I have also relied on the equitable jurisdiction to which I referred in paragraphs [25] above.
Section 99(2)(a)(ii)
That then leads me to Section 99(2)(a)(ii) of the Civil Procedure Act . Section 99 permits the court to make three types of orders. They are orders that disallow the whole or a proportion of the costs of a solicitor or barrister: Section 99(2)(a); orders that a solicitor or barrister pay costs that their client has been ordered to pay to any other person: Section 99(2)(b); and orders that a solicitor or barrister indemnify any party, (other than their client), against costs payable by that party.
I am only directly concerned in this case with an order disallowing the costs of a solicitor. And there is no need to rely on any of the criteria in Section 99(1) other than that the costs have been incurred "without reasonable cause". The expression "without reasonable cause" is an ordinary English expression that is well known and well understood in the law. It arises in a myriad of circumstances and is applied every day by courts in a sensible and pragmatic way appropriate to the particular facts that call for its application in a given case.
I have already concluded in paragraph [23] above that, in connection with these proceedings, it was not reasonable for Argyle to carry out, and to cause to be carried out, the work involved in connection with the expert reports. It was not "reasonable" because the decision to undertake the work was not guided by good sense or sound judgment. It was based on the misapprehension to which I referred in paragraph [13] above. And it resulted in the executor contravening his statutory duty to assist the court to further the overriding purpose: Section 56(3). Nor, for similar but not quite identical reasons, was it reasonable for Argyle to carry out the work involved in the tender of irrelevant factual evidence.
As a matter of ordinary language and the natural meaning of words, I do not think there is any material difference between "unreasonable", "not reasonable" and "without reasonable cause". Each conveys the same connotation. Each is effectively a synonym for the other. Each means practically the same thing. This was the view of P O Lawrence J in Mills v Cannon Brewery Co Limited [1920] 2 Ch 38 at 45. In Secured Income Real Estate (Aust) Ltd v St Martins Investments Pty Ltd (1979) 144 CLR 596 at 609 Sir Anthony Mason said that he was inclined to agree.
Absent binding authority compelling a different result, I would conclude that the criterion "without reasonable cause" in Section 99(1)(b) has been established on the facts of this case. This conclusion derives support from the decision and reasoning in Kendirjian v Ayoub [2008] NSWCA 194 especially at [208] - [213] (McColl JA). In that case, her Honour held that the failure of the appellant's legal practitioners to ensure that the written submissions prepared prior to the appeal hearing day enabled the court to deal with the appeal on that day meant that the costs of preparing for that day of hearing were incurred "without reasonable cause". See also Kelly v Jowett [2009] NSWCA 278 at [88] (McColl JA).
Argyle relied on three decisions at first instance for the proposition that the expression "without reasonable cause" in Section 99(1)(b) requires a much higher threshold - one that, it is said, is not satisfied in this case. Those decisions are Treadwell v Hickey [2010] NSWSC 1119 at [30] - [36] (Barrett J); Ideal Waterproofing Pty Limited v Buildcorp Australia Pty Limited [2006] NSWSC 155 (Sully J) and NA & J Investments Pty Ltd v Minister Administering the Water Management Act 2000 (No2) [2011] NSWLEC 98 (Pain J). The reasoning in each of those decisions was informed by the decision of the English Court of Appeal in Ridehalgh v Horsefield [1994] Ch 205.
In particular, each of the judgments in those three decisions set out and adopted the following passage in Ridehalgh v Horsefield (supra) at 232:
'Unreasonable' also means what it has been understood to mean in this context for at least half a century. The expression aptly describes conduct which is vexatious, designed to harass the other side rather than advance the resolution of the case, and it makes no difference that the conduct is the produce of excessive zeal and not improper motive. But conduct cannot be described as unreasonable simply because it leads in the event to an unsuccessful result or because other more cautious legal representatives would have acted differently. The acid test is whether the conduct permits of a reasonable explanation. If so, the course adopted may be regarded as optimistic and as reflecting on a practitioner's judgment, but it is not unreasonable.
I do not think that that passage is a sound guide to the meaning and operation of the words "without reasonable cause" where they appear in Section 99(1) of the Civil Procedure Act, 2005 (NSW). In Ridehalgh v Horsefield (supra) their Lordships were considering Section 51(7) of the Supreme Court Act 1981 (UK). The language and syntax of that provision is distinctly different to that of Section 99(1) of the Civil Procedure Act 2005. It is not, in my view, a reliable point of comparison. Among other things, the English Court of Appeal emphasised the collective effect, in the particular statutory context, of the words "improper, unreasonable or negligent". They refused to give each of those words a specific self-contained meaning. They said that in the statutory context which they were considering "no sharp differentiation between these expressions is useful or necessary or intended".
All of that may be indubitably correct. But I do not think that the reasoning in Ridehalgh (supra) on the proper approach to Section 51(7) of the Supreme Court Act 1981 (UK) should be automatically translated to Section 99(1) of the Civil Procedure Act. The phrase "without reasonable cause" in Section 99(1)(b) is a familiar expression. The syntax in which it sits indicates that it must be given effect as a criterion of liability which is free-standing. It must be construed and applied in its own right. If that is done, there is no warrant for over-refinement; no need to seek out qualifications that are not stated or meanings that are not obviously discernible.
For those reasons, I have concluded that I should apply the ordinary, natural and well understood meaning of the expression "without reasonable cause" where it appears in Section 99(1)(b) of the Civil Procedure Act. I explained that meaning and its application to these facts in paragraphs [47] - [48] above. I regard this as a clear case. cf Kelly v Jowett (supra) at [60]; Lemoto v Able Technical Pty Ltd (2005) 63 NSWLR 300 at [92]. In my view, the costs and disbursements incurred by Argyle in connection with the expert reports and the irrelevant factual evidence meet the requisite statutory description of "without reasonable cause". Save for the amounts specified in paragraph [67] below, they should be disallowed pursuant to Section 99(2)(a) of the Civil Procedure Act and the equitable jurisdiction to which I referred in paragraph [25] above.
The Executor's Recoverable Costs
As I have mentioned, the executor also seeks to recover as costs in the proceedings, his own time-based professional costs. He estimates that those costs do not exceed $35,000. Section 98(6)(a) of the Civil Procedure Act makes clear that "costs" in relation to proceedings, include the costs of the administration of any estate or trust. However, a necessary qualification to that definition is that the costs of administration which are subject to the control and supervision of the court pursuant to Section 98, are only those which are incidental to the proceedings: Foord v Brock [2005] NSWCA 156 at [49]. Costs of the administration which are not incidental to proceedings will fall for regulation, if necessary, by a different regime, when or if the executor seeks to have his accounts passed.
The exercise of my discretion pursuant to Section 98 in relation to the executor's costs that are incidental to these proceedings, is not inconsistent with the entitlement given to the executor pursuant to the will to charge and be paid for all professional or other charges for acts done in the administration of the estate: Clause 21 of the will. I am doing no more than controlling the costs of these proceedings. It is not my function to intrude into the costs of the administration outside these proceedings. Nonetheless, senior counsel for the first defendant invited me to make some observations on that matter for the benefit of the parties. I have done so in paragraphs [64] - [66] below.
The reasoning which has led me to disallow the costs of the expert reports and to discount Argyle's professional costs by 55% flows through to the executor. He has undertaken an exorbitant amount of work for no useful purpose. His undoubted but time consuming contribution in reviewing and reading unnecessary expert reports and in compiling irrelevant factual evidence, does not justify the recovery of the whole of the costs of doing so in the proceedings. It was not reasonable to carry out the work to which much of his costs relate. The executor is not, of course, as culpable as Argyle, with whom the fault really lies. But in exercising my discretion pursuant to Section 98, it is appropriate to take into account, among other things, the criteria that must be considered by an assessor pursuant to Section 364(1)(a) of the Legal Profession Act.
I am satisfied that, as costs in the proceedings, the amount claimed by the executor is excessive and unreasonable. As I have said, the work done on the expert reports and the irrelevant factual evidence was unnecessary. The cost of that work was wasted. It would be logically inappropriate to allow, as costs in the proceedings, the executor's costs of that unnecessary work when I have already disallowed the cost of the equivalent work by the accountants and Argyle. I should adopt the same approach.
In any event, and in addition, there has clearly been duplication as between the executor and his solicitors. The executor is the client. He entrusted the conduct of the proceedings to Argyle. It is appropriate that he should be kept abreast and provide instructions in connection with the preparation of the case for hearing. He can be expected to approve and review the evidence proposed to be tendered, no matter how misguided the evidence may be. He will be involved in the decision making process with solicitors and counsel. But he is not justified, simply because he is a solicitor, in exercising over again the same detailed conduct of overseeing and reviewing draft reports by proposed expert witnesses that was undertaken by Argyle. That is just making work for himself.
On both grounds, I am satisfied that an appropriate fixed sum for the executor's recoverable costs in the proceedings pursuant to Section 98(4)(c) of the Civil Procedure Act is 45% of his estimate of the outer limit of those costs. I am satisfied that this represents an outcome that is logical, fair and reasonable, given my knowledge of the case and my appreciation of the way it was prepared and conducted, and notwithstanding the executor's failure to provide the evidence that I requested. I have also relied on the equitable jurisdiction to which I referred in paragraph [25] above. The result is that I allow the executor's costs of the proceedings as $15,750.
Payment Out of Residue
The final question is whether the costs of the parties to these proceedings should be paid out of the gift of Glengowan or the residue. They are clearly testamentary expenses within the meaning of the Probate and Administration Act 1898 . If the costs were to come out of the gift, they would have to be charged against the property. This would defeat the testator's intention that Mrs Retallack receive Glengowan "free of any mortgage, charge, lien or the like for her own use and benefit absolutely". See Clause 4 of the will.
Section 93(3) of the Trustee Act 1925 and Section 98(1) of the Civil Procedure Act give to the court a discretion. The former permits an order to be made that the costs of proceedings be paid out of such part of the property of the estate as is the real subject matter of the proceedings. The decision in Murdocca v Murdocca (No 2) [2002] NSWSC 505 at [76] confirms that the discretion given by those statutory provisions may displace Section 46C of the Probate and Administration Act and, if necessary, the testator's intention.
In the exercise of my discretion in this case, my objective is to give effect to the testator's intention as closely as I can. Not only did Clause 4 of the will state that Mrs Retallack was to receive Glengowan free of any encumbrance, but Clause 5 stated that testamentary expenses were to be paid out of the residue. The proceedings were not primarily concerned, as the third defendant contends, with the disposition of Glengown. The entitlement to Glengowan was not the real subject matter of the proceedings. More broadly and more accurately, the proceedings were concerned with the consequences that followed, for the operation of the whole of the will, from the fact that the testator did not own Glengown and Sunnyside but his company did. The real focus was on the conundrum which this caused, the fact that the testator did not own all of the shares in the company and that he authorised his executor to manipulate his assets to give effect to the gifts of both Glengowan and Sunnyside. There is force in the first defendant's observation that the drafting of the will by the executor lies at the heart of the dispute. The fairest result therefore, in my view, is that the costs come out of the residue of the estate.
Costs of Administration
Finally, as I foreshadowed in paragraph [56] above, I will return briefly to the question of the costs of the administration. During addresses, I made clear that I did not wish there to be a result where the costs in the proceedings that I have disallowed are wholly picked up subsequently in the administration of the estate. To my mind, that would not be appropriate or reasonable. I accept, of course, that the amount of costs eventually recoverable in the administration of the estate is not a matter for me to determine in these proceedings.
But the essential point of these reasons is that Argyle has made work for itself and others - unnecessarily and without reasonable justification. If uncontrolled, this would be a considerable cost to the estate. It will eventually operate to the disadvantage of the residuary beneficiaries. We see too often in litigation examples in action of Dickens' famous aphorism that "The one great principle of English law is to make business for itself". (Bleak House, cited in Ridehalgh v Horsefield (supra) at 226). This is one of those cases. Although I should hasten to add that it has not been necessary to consider whether Argyle's conduct was intentional.
I should reiterate that none of what I have said is intended to suggest that in the due administration of the estate, appropriate consideration should not be given to the question of how to transfer Glengowan to Mrs Retallack most economically. But the issue has been allowed to get out of hand and insufficient control and circumspection have been displayed. A reasonable person of business looking after his or her own affairs, would not have gone to the lengths, and the expense, to which Argyle and the executor have gone. I do not think that it is appropriate to say anything more on this issue.
Orders
For those reasons, and having regard to the sources of jurisdiction that I explained in paragraphs [44], [54] and [60] above, I make orders allowing the following costs of the proceedings:
(a) Executor's professional costs - $ 15,750
(b) Argyle's professional costs - $ 31,500
(c) Argyle's disbursements:
(i) BRI Ferrier & Moore Stephens - Nil
(ii) Senior and junior counsel - Amount claimed
subject to [23] above
(iii) Fees and other disbursements - $ 6,092
The first and third defendants are entitled to the full amount which they have claimed.
The costs specified in paragraphs [67] and [68] above should be paid out of the residue of the estate.
The costs of all parties of the hearing on 8 September 2011 should be paid out of the residue of the estate on an indemnity basis.
o0o
Decision last updated: 19 September 2011
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