Konstandopoulos v Giammaria

[2004] NSWSC 1010

CITATION:	Konstandopoulos v Giammaria [2004] NSWSC 1010
HEARING DATE(S):	19 October 2004
JUDGMENT DATE:	12 November 2004
JURISDICTION:	Equity Division
JUDGMENT OF:	Windeyer J at 1
DECISION:	Declaration as to entitlement to future set off.
CATCHWORDS:	Practice and Procedure - costs - ownership of costs in Compensation Court proceedings - where solicitors claim proprietary right in judgment for costs in place of claimant - whether solicitors entitled to an equitable charge over judgment for costs - Practice and Procedure - costs - set off- entitlement of plaintiffs to set off amount of costs as assessed against judgment obtained against defendant in Local Court - whether entitlement to an equitable charge operates to defeat plaintiffs' right to set off - Statutory interpretation - Workplace Injury Management and Workers Compensation Act 1998 - ss 105(1), 112(2)(b) and 116
LEGISLATION CITED:	Workplace Injury Management and Workers Compensation Act 1998 Compensation Court Repeal Act 2002
CASES CITED:	Akki Pty Ltd v Martin Hall Pty Ltd (1994) 35 NSWLR 470 Ex Parte Patience; Makinson v The Minister (1940) 40 SR (NSW) 96 Miller v Director of Public Prosecutions (No 2) [2004] NSWCA 249 Public Trustee v A M Hoipo Pty Limited (1999) 19 NSWCCR 215 Puddephatt v Leith (No 2) [1916] 2 Ch 168 Re A Debtor, No 21 of 1950 (No 2); Ex parte Petitioning Creditors v The Debtor [1951] Ch 612 Reid v Cuppa [1915] 2 KB 147 Wentworth v Wentworth (Young J 12 December, 2000 unreported)
PARTIES :	Nickolas Konstandopoulos and Vanessa Konstandopoulos (Plaintiffs) Robert Vito Giammaria (First Defendant) Russell Keddie, Tony Barakat and Scott Ralston trading as Keddies Litigation Lawyers (Second Defendant)
FILE NUMBER(S):	SC 4724 of 2004
COUNSEL:	Mr B Donovan QC with him Mr T Hall (Plaintiffs) No appearance (First Defendant) Mr Paul Barnes (Second Defendant)
SOLICITORS:	HAL Lawyers (Plaintiffs) No appearance (First Defendant) Keddies (Second Defendant)

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IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

WINDEYER J

FRIDAY 12 NOVEMBER 2004

4724/04 NICKOLAS KONSTANDOPOULOS & ANOR V GIAMMARIA & ANOR

JUDGMENT

1 This is an application by the plaintiffs, Mr and Mrs Konstandopoulos, seeking an order – (but really a declaration) - that they are entitled to set off against the costs they are liable to pay Mr Giammaria pursuant to an order in the Compensation Court, the amount of a judgment entered against Mr Giammaria, in Kogarah Local Court as a result of orders made by the Consumer Trader and Tenancy Tribunal (CTTT).

Background to the Current Proceedings

2 The circumstances of this case are unfortunate. The plaintiffs, Mr and Mrs Konstandopoulos engaged the first defendant, Mr Giammaria, to undertake renovations on their home at Arncliffe. The completed work was unsatisfactory and it further appears that Mr Giammaria did not hold a valid building licence.

3 Mr Giammaria sustained injuries while working on the home of the plaintiffs. Proceedings were commenced against Mr and Mrs Konstandopoulos, who had no Workers Compensation Insurance, in the Compensation Court (proceedings no. 52557/01). Mr Giammaria instructed Keddies Litigation Lawyers to act for him in that claim. The proceedings were settled on 2 December 2002. The consent orders provided that Mr and Mrs Konstandopoulos pay a sum of $22,500 compensation to Mr Giammaria, plus costs as agreed or assessed. The compensation amount of $22,500 has been paid by Mr and Mrs Konstandopoulos. The costs are in the process of being assessed. The assessment proceedings are No.91940/03 in this Court.

4 Mr Konstandopoulos commenced proceedings in the CTTT for compensation for the defective renovation works carried out by Mr Giammaria (proceedings no. HB 01/76341). On 12 March 2003, the CTTT ordered Mr Giammaria to pay to Mr Konstandopoulos the sum of $39,146.60. The order was registered as a judgment against Mr Giammaria in the Kogarah Local Court on 12 March 2003 (proceedings no. 383/03). It is accepted that the judgment is held for the benefit of both plaintiffs. A writ of execution issued against Mr Giammaria was returned unsatisfied on 16 May 2003.

5 On 9 January 2004, the CTTT made further orders providing that Mr Giammaria should pay the costs of Mr Konstandopoulos – as agreed or assessed – from the time the CTTT proceedings were commenced to the start of the hearing on 11 March 2003 on a party/party basis, and thereafter on a solicitor/client basis. No action has been taken to have those costs assessed.

Issues in the Current Proceedings

6 The current proceedings are really between Mr and Mrs Konstandopoulos and Mr Russell Keddie, Mr Tony Barakat, and Mr Scott Roulstone – solicitors trading as Keddies Litigation Lawyers (Keddies) (the second defendants). Mr Giammaria, the first defendant, has been served but has not appeared. He is in gaol.

7 The court must determine the following issues: (a) To whom do the costs in the Workers Compensation court belong – to Mr Giammaria or to Keddies? (b) can the judgment obtained by the plaintiffs in the Kogarah Local Court be set-off against any costs they will be liable to pay pursuant to the assessment of the costs of the Compensation Court proceedings; and (c) should the matter be left to the Workers Compensation Commission?

Question 1: Costs in the New South Wales Compensation Court

8 It is the plaintiffs’ case that any amount for which they are found to be liable pursuant to the assessment of the Compensation Court costs, is a debt due and payable by them to Mr Giammaria, so that they are entitled to set it off against the judgment sum obtained in Kogarah Local Court.

9 Keddies claim in written submissions is that the Compensation Court – though it has the power to order costs to be paid by the unsuccessful respondent – has no mechanism available to “award direct monetary value of costs to the applicant, nor a mechanism for the applicant’s solicitor to recover costs from his or her client” and, “the applicant’s solicitor must therefore recover from the respondent”. What they seek to claim is not merely a so-called lien over the amount due to Mr Giammaria, but is, in essence, a proprietary right in the judgment for costs in the place of Mr Giammaria. Counsel for Keddies stated that it “has never been the case that the value of legal costs in workers compensation proceedings would ever vest in an applicant in person”. The costs payable are a debt clear and payable subject to the Legal Profession Act 1987 by the respondent to the applicant’s solicitors.

10 Section 116 of the Workplace Injury Management and Workers Compensation Act 1998 (the Act) provides:

116 Solicitor/client costs in compensation proceedings
(1) The legal representative or agent of a person claiming compensation under this Act is not entitled:

(a) to recover from the person any costs in respect of the claim, or
(b) to claim a lien in respect of those costs on, or deduct those costs from, the sum awarded, ordered or agreed as compensation , (my emphasis)
unless those costs are awarded by the Compensation Court.


(2) Any such award may be made on the application either of the person claiming compensation or the person’s legal representative or agent.

(3) Any sum so awarded is subject to assessment in accordance with Division 6 of Part 11 of the Legal Profession Act 1987.

(4) This section prevails to the extent of any inconsistency with Part 11 of the Legal Profession Act 1987.

(5) A person must not:
(a) claim a lien that the person is not entitled to claim because of subsection (1), or
(b) deduct costs from a sum awarded, ordered or agreed as compensation that the person is not entitled to deduct because of subsection (1)...

11 The intent of this section is I consider to ensure that costs which are not party and party costs recoverable from the other side are not payable by the applicant for compensation unless pursuant to an award of the court. The normal procedure is for the costs as assessed or agreed to be paid by the insurer to the applicant’s solicitor. No additional costs can be recovered from the client in the absence of orders.

12 It is generally the case that a court cannot order payment of costs to a non-party. Under s112(2)(b) of the Act the Compensation Court has “full power to determine by whom, to whom and to what extent costs are to be paid in or in relation to any proceedings”. There is some suggestion that this provision would enable that Court to order payment of costs by the plaintiffs to Keddies although they are not a party. I doubt if that is so but it is not necessary to go into this because the Compensation Court did not order payment to Keddies.

13 The parties to the costs assessment proceedings are Mr Giammaria and Mr and Mrs Konstandopoulos. The Assessor was asked to determine the question of set-off but understandably refused to do so. He has gone some distance with the assessment. It is accepted that the assessed costs will be less than the judgment sum secured as a result of the CTTT proceedings.

14 I can see no basis for holding the costs are the property of Keddies. The right of the solicitors is to have their costs paid out of a fund which results from the fruits of their labour, often called “a so-called lien”. This entitlement was referred to in Ex Parte Patience; Makinson v The Minister (1940) 40 SR (NSW) 96 per Jordan CJ at 100:

A solicitor has no lien for his costs over any property which has not come into his possession. If, however, as a result of legal proceedings in which the solicitor has acted for the client, the client obtains a judgment or award or compromise for the payment of money, although the solicitor acquires no common law title to his client’s right to receive the money or to any part of that right, he acquires a right to have his costs paid out of the money, which is analogous to the right which would be created by equitable assignment of a corresponding part of the money by the client to the solicitor. That is to say, the solicitor has an equitable right to be paid his costs out of the money.

15 In Akki Pty Ltd v Martin Hall Pty Ltd (1994) 35 NSWLR 470, in which a solicitor claimed a lien over costs payable to the claimant under an order, I held that the solicitor, “having been responsible for obtaining the order for costs and having no chance of otherwise obtaining payment is entitled to a declaration that he is entitled to an equitable charge over that property comprised in the order for costs as security for his costs” (at 474-475).

16 Mr Giammaria is in gaol. If the costs were paid to him it is unlikely Keddies will get paid back. Subject to the question of set off, Keddies would be entitled to a declaration of an equitable charge over the property being the amount of the assessed costs to secure their costs which will of course amount to the total sum assessed.

Question 2: Is set-off available?

17 Had the defendants succeeded in their claim for a proprietary right in the judgment for costs in the place of Mr Giammaria, set off would not have been possible. The necessity for mutuality requires that the amounts intended to be set off must be debts owing between the same parties. The question is whether the existence of a “lien” operates to defeat the plaintiffs’ entitlement to set-off. The purpose of a lien and charge is to prevent the client from deflecting moneys away from his or her solicitor. Further it is a claim against the client of the solicitor – not a claim against the party ordered to pay costs unless the party with notice of the charge acts contrary to it.

18 The case for Keddies was argued on the basis the costs were theirs, namely, their property. As I have said I consider that to be incorrect. The question then is how the “lien” impacts on a right of set off which I consider, and which is accepted, would otherwise arise once the costs of Keddies have been determined. It is sensible to determine this matter now because if set off is available there is no purpose or benefit for Keddies in proceeding to final assessment.

19 I discussed the question at considerable length in Akki at 479 et seq. I will not repeat here what is set out there. In general a party entitled to a sum of money on set off should not be required to pay the costs of the party owing them money. Nevertheless I accept there remains some discretion in the court to prefer the claim of the solicitors: Reid v Cupper [1915] 2 KB 147. In two of the cases I relied on in Akki – Puddephatt v Leith (No 2) [1916] 2 Ch 168 and Re A Debtor, No 21 of 1950 (No 2); Ex parte Petitioning Creditors v The Debtor [1951] Ch 612 - the trial judge indicated that a solicitor would not be at risk of a claim for costs being defeated by set off if he secured himself against this eventuality by having himself put in funds. That was not of course available to Keddies here. All they can do is to apply for solicitor/client costs against their client, but whether or not Mr Giammaria would be good for this is not known, although it can be accepted as unlikely.

20 The Act specifically prohibits set off against compensation. It does not do so against costs which is significant. It is likely and almost certain the solicitors will be disadvantaged if set off is allowed; it is certain the plaintiffs will be disadvantaged if it is not. But, in the long run, it is fairness between the parties to which most attention should be directed. It was that consideration to which the decisions in Wentworth v Wentworth (Young J 12 December, 2000 unreported) and Miller v Director of Public Prosecutions (No 2) [2004] NSWCA 249 was directed. Mr Giammaria will not be disadvantaged if the plaintiffs succeed. The solicitors were not one of the parties in the Compensation Court, but nevertheless it is reasonable to give consideration to their position. It is unfortunate but the circumstances are unusual. The balance on the hardship scale favours the plaintiffs. They have lost over $39,000 and their costs. I consider set off would be available upon the costs of the Compensation Court proceedings being assessed and judgment entered for those costs. It is appropriate to make a declaration accordingly, as neither party should have to expend further money on the assessment which can bring no benefit to Keddies – at least unless they wish to apply for solicitor/client costs against their own client.

21 I have of course considered the case of Public Trustee v A M Hoipo Pty Ltd [1999] 19 NSWCCR 215 here relied upon by the solicitors, but it has no bearing on the question.

Question 3: Jurisdiction

22 I have taken into consideration the argument that this Court should not exercise jurisdiction but should leave matters to the Commission because under s112(2)(b) of the Act “the Court has full power to determine by whom, to whom and to what extent costs are to be paid in or in relation to any proceedings.” However, it is not an existing claim matter under s105(4) of the Act. The claim has been determined. Neither is it a pending matter under s7(1) of the Compensation Court Repeal Act 2002. In any event the determination has been made. Counsel for Keddies also relied on s105(1) of the Act. The mode of enforcing an order for costs is to proceed to enter judgment for the amount in the certificate of the assessor in any court of competent jurisdiction. It is probably in that court that any question of set off would be determined. I do not consider it to be a matter arising under the Act subject to exclusive jurisdiction when the enforcement provisions are taken into account.

Orders

23 Declare that the plaintiffs are entitled to set off against any judgment in favour of the first defendant for the amount of costs to be assessed pursuant to orders of the Compensation Court 52557 of 2001, the amount of the judgment entered in the Local Court at Kogarah 383 of 2003 pursuant to order of the Consumer Trader and Tenancy Tribunal in proceedings No HB 01-76341.

24 Declare that such right of set off prevails over any equitable claim of the second defendants over such costs.

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Last Modified: 12/15/2004