Lujerdean v G C Corrigan and Co Pty Ltd
[2014] VSC 682
•4 April 2014
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COSTS COURT
S CI 2013 00779
| LIVIU LUJERDEAN | Plaintiff |
| v | |
| G C CORRIGAN & CO PTY LTD | Defendant |
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JUDGE: | Associate Justice Wood |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 27 March 2014 |
DATE OF JUDGMENT: | 4 April 2014 |
CASE MAY BE CITED AS: | Lujerdean v G C Corrigan & Co Pty Ltd |
MEDIUM NEUTRAL CITATION: | [2014] VSC 682 |
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APPEARANCES: | Counsel | Solicitors |
| For the Applicant | Mr P Wood | Patrick Robinson & Associates |
| For the Respondent | Mr M La Pirow | Minter Ellison |
HIS HONOUR:
Background
The Applicant has an entitlement to costs arising from an order of the County Court made on 17 September 2007. The proceedings related to an application for leave to issue proceedings for common law damages for both pain and suffering and pecuniary loss pursuant to s 134AB of the Accident Compensation Act 2004.
The bill of costs filed with the Summons claimed $33,800.09. Items 1 to 184 in the bill relate to scale items claimable for work performed in 2006 and 2007. Items 185 to 203 relate to work performed in 2013 in relation to the taxation of costs only. With the exception of item 195 they are items drawn on the basis of scale. Item 195 is the filing fee for the summons and the only disbursement within this range of item numbers.
In relation to all the scale items from 185 onwards the Applicant claimed an additional 10% added to the scale rate to reflect the addition of GST.
The initial taxation occurred before a Costs Registrar who ruled in part that:
There is no taxable supply between parties in a legal proceeding such as this and it is not proper for the claimant to add GST to scale items or for the respondent to be responsible for its payment.
Although solicitors are required to charge their clients GST and there is clearly a taxable supply between them does not effect claims for costs being taxed pursuant to an order of a Court.
The result was that the GST component claimed in addition to the allowed items was disallowed. The Applicant sought a review of that ruling and a Judicial Registrar affirmed the decision of the Costs Registrar on 17 December 2013. The Applicant now seeks a review of the decision of the Judicial Registrar. It is uncontroversial that a clear error needs to be demonstrated by the Applicant in order to succeed. The pertinent sections of that decision of the Judicial Registrar are reproduced below:
14. It is necessary to look at the difference between the costs payable by a client as remuneration to his solicitor and those costs payable pursuant to an order for the costs. The second of these payments is considered part of the damages awarded to the successful party to litigation and is intended to be an indemnity or partial indemnity for costs paid to the solicitor for the successful party.
15.A review of various texts on Legal Costs deal with the differentiation as follows:
In relation to Solicitor and Client costs
·Professor Dal Pont in his Law of Costs at [1.5] defines ‘Solicitor client’ costs as:
The term ‘costs’ can refer to ‘the remuneration of a solicitor for professional services rendered to a client’ (The young Sid [1929] P 190 per Sankey L.J) … They represent the amount a client is obliged to pay his or her solicitor as the price for professional work, the solicitor’s entitlement thereto having its genesis in the retainer agreement between solicitor and client. (Re Dibbs v Farrel (1941) 41 SR (NSW) 249 at 251 per Jordan C.J.
·Similarly Legal Costs Victoria at [1010] refers to two distinct spheres of costs. Solicitor client costs are those costs that are ‘the costs to which a solicitor is entitled, being remuneration for legal professional services rendered on behalf of a client, together with disbursements’.
In relation to Party Party costs
·Dal Pont at [1.6] refers to ‘Party and party’ costs as:
the amount which the person to whom the order is directed must pay to some party to the litigation as partial indemnity for professional fees and expenses incurred by that party in the course of litigation’ (Re JJT (1998) 195 CLR 184 at 219 per Hayne J.
·Dal Pont goes on the say that ‘Party and party costs are ‘ordinarily sourced not from a contract but from as (sic) order of a court or tribunal.
·In this respect the term ‘costs’ relates not to the relationship between a client and his or her lawyer, but to a relationship between a client and another person who is customarily another party to the proceedings in which the costs have been awarded, that represent an indemnity against the costs the client has incurred in those proceedings.
·Legal Costs Victoria at [1010] refers to party party costs as being ‘the property of the client, having been ordered, ... to be paid by another party. … Such costs are awarded to the client as an indemnity or partial indemnity against the costs incurred in the proceedings’.
·In a similar manner Oliver’s Law Of Costs in Chapter 1 page 1 differentiates between costs payable by a client to his solicitor and costs payable by a party to litigation pursuant to a Court order as:
In its primary sense, the word ‘costs’ means the remuneration of a solicitor for professional services rendered to a client and such payments made in connection with those services as are sanctioned as professional payments by general and established custom and practice of the profession. But where a judgement or order provides for the payment of costs to a party by another party … , the word is used in a different sense; such costs do not belong to the solicitor; they are the property of the client and are given to him as an indemnity or partial indemnity against the costs he has incurred in the proceedings.
16.In my view, a distinction is drawn between the costs that the applicant is required to pay to his solicitor pursuant to his retainer of the solicitor and the costs that the respondent has been ordered by the court to pay. The second definition of costs is intended to be an indemnity or a partial indemnity to the client for ‘the price paid for professional services rendered by his qualified lawyer in the litigation’. Dal Pont [1.6]
17. As Master Wood, as he then was, in Merringtons says at para 15:
The taxed sum is a partial indemnity in relation to costs actually incurred by the successful party (see Russo v Russo.[1] The order for costs indemnifies in respect of liability for professional fees necessarily and reasonably incurred (see Latoudis v Casey).[2]’
[1](1953) VR 57.
[2][1990] HCA 59; (1901) 170 CLR 534).
18.The reliance of the applicant on the definition of legal costs in the Legal Profession Act 2004 (LPA) is a reference to the first meaning of costs. Clearly, the LPA is not concerned with costs payable pursuant to orders made by the Court and is intended to govern only issues of costs between a legal practitioner and his client. Thus, all references to legal costs within the Act reside within the sections relating to costs disclosure, costs review, costs agreements, billing relating to the legal practice or in relation to disputes between the legal practitioner and his client.
19.It is the ‘costs’ that are payable pursuant to a judgement that is the subject of the taxation in this matter. I must therefore look at whether these costs, quantified on the applicable scale of costs, attract GST as argued by the applicant and whether the applicable Rules of Court and the scale of costs allow additional sums to be added to the scale items to reflect GST payable as between solicitor and client.
20.The review relates to costs claimed in items 187 – 190, 192 - 194, 196, 198, 201 and 203 in the applicant’s bill of costs. In preparing the bill of costs the applicant’s costs consultant has increased the items by 110%(sic) to reflect a GST addition to the scale charge. The County Court amended its scale of costs on 1 September 2011. The scale preamble provides that charges are ‘exclusive of any GST chargeable’. The effect of this change is that if a solicitor agrees with the client that charges for work done are on the County Court scale of costs then the solicitor is required by the A New Tax System (Goods andServices Tax) Act 1999 (Cth) (GST Act) to add GST to the scale charges. The applicant here relies on the fact that the scale is GST exclusive to add GST to scale items on the party party bill of costs in this matter. No evidence of the costs agreement between the solicitor and the applicant has been put to the Court.
21.The applicant relies on the definition of legal costs in the Legal Profession Act 2004 (Vic) at section 1.2.1 to the effect that legal costs are the amounts payable for legal services rendered that a client is liable to pay for the provision of legal services pursuant to the contract between the solicitor and client. In my view the pertinent definition in relation to Court ordered costs, as in this matter, is the definition of legal costs in the Rule 63A.01 (1) of the County Court Civil Procedure Rules, which defines costs as including disbursements, and taxed costs means costs taxed in accordance with this order.
22.Both parties agree that the ATO ruling 2001/4 on GST payable by a successful party to litigation that there is no taxable supply between a party paying costs pursuant to a court order and the successful party as follows:
147.For the purposes of this Ruling, we are concerned with the subsequent stage when the successful party is able to recover costs wholly or partly through a court order for costs or by negotiation of an amount in a settlement.
148.As we have seen for a supply to be a taxable supply the conditions under section 9-5 of the GST Act must be met. In the instance of the payment of costs under the court order or settlement there is no supply for consideration from the successful party to the unsuccessful party. This is essentially paying compensation for costs or losses incurred in the dispute and will be treated in the same manner as damages under paragraphs 110 and 111.
149.Accordingly, the payment of court ordered costs or costs negotiated in a settlement in the circumstances described will not be consideration for an earlier or current supply. It does not matter that the payment of the costs order or settled amount is made by an entity other than the unsuccessful party.
23.Each of the cases referred to by the applicant of Merringtons, Thornton and Keen are distinguishable this (sic) matter as each decision turns on the relevant rules of court applicable to that matter. In Merringtons, the issue was whether the Supreme Court (General Civil Procedure) Rules 2005 (Victoria) allowed the taxing officer to reduce the scale allowances in Appendix A of the Rules applicable to the taxed costs by a component for GST. The successful party was registered for GST and could receive an input tax credit for legal costs paid to its legal practitioner for work done. Master Wood, as he then was, ruled that the Rules did not allow any reduction of any scale item on taxation.
24.In Thornton the Supreme Court Rules 2000, r.859(a) (Tasmania) provided that "on taxation, the taxing officer is to allow all costs, charges and expenses as were necessary or proper for the attainment of justice or for maintaining or defending the rights of any party". In support of the GST items, Thornton had submitted a private ruling provided by the Commissioner of Taxation to the effect that GST was payable as claimed in the items. Justice Evans found that :
any liability for GST payable in respect of the provision of those services that is passed on to the appellant is also a cost or expense that was necessary or proper for the attainment of justice or for maintaining or defending the rights of the appellant. Rule 837A provides that a bill of costs for taxation may include an amount referable to GST paid or to be paid and that the taxing officer may make an allowance for the same. There is accordingly no basis for any suggestion that a GST expense is for some reason or other an expense that is beyond the range of expenses that are recognised by r859.
25.It is not clear from the decision whether the costs claimed were claimed on scale and also whether the review related to both costs and disbursements. It is however clear that r.859 (a) is a much broader rule than the County Court definition of party party costs.
26.In Keen, the plaintiff sought an additional sum, as a disbursement, for GST payable to her legal practitioner for legal services provided to her. Justice Rares found that the Order 62.r.12(1) of the Federal Court Rules provided that the only amounts allowable on taxation of costs were those amounts allowable on the scale of costs in the second schedule to the rules and no additional sum or disbursement could be allowed.
27.The decision of Wadley concerned an application for the Supreme Court to fix the brief fees for Counsel pursuant to r 63.07 of the Supreme Court (General Civil Procedure) Rules 2005. As Justice Beach says:
The current Appendix A to the Rules setting out the Supreme Court scale of costs provides in Item 19(a) that, subject to Items 19(j) and 19(k), the fees to be allowed to junior counsel and senior counsel for appearances on trial are to be allowed up to a maximum daily fee of $5,000 and $7,500 respectively. These amounts are exclusive of GST.
11 Item 19(j) of Appendix A requires regard to be had to the criteria referred to therein in allowing a fee to counsel. Those criteria include the complexity of the matter, the difficulty or novelty of the question involved in the matter, the skill, responsibility and time and labour expended by the legal practitioner, the amount or value of money involved and the standing of counsel. Item 19(k) provides for a discretion to allow fees in excess of scale.
28.Wadley was a matter where Section 134AB (29) of the Accident Compensation Act 1985 reduced the scale of costs by 20%. However, Counsel had applied to Justice Beach to allow a higher amount than the reduced scale item would be allowed on taxation. His Honour applied Item 19 (k) of the scale to allow amounts in excess of the reduced scale item. He did not order that the scale in general, other than Counsel’s fees, be increased to reflect GST payable. Here no order was made by Judge Bowman to allow increases in scale items over and above those to be applied at the time the work was done.
29.The Rules of the County Court applying to this taxation are as follows:
63A.34A Costs and fees
(1)Subject to the provisions of these Rules, all costs taxed by the Costs Court shall be taxed as follows—
(a)as to all business done on or after the commencement of these Rules, according to the Scale of Costs contained in Appendix A as in force at the time the costs were incurred;
63A.29 Party and party basis
On a taxation on a party and party basis all costs necessary or proper for the attainment of justice or for enforcing or defending the rights of the party whose costs are being taxed shall be allowed.
63A.48 Discretionary costs
(1)Except where these Rules or any order of the Court otherwise provides, the fees and allowances which are discretionary that are referred to in Appendix A shall be allowed at the discretion of the Registrar or the Costs Court.
(2)In exercising the discretion under paragraph (1) the Registrar or the Costs Court shall have regard to—
(a)the complexity of the item or of the proceeding in which it arose and the difficulty or novelty of the questions involved;
(b) the nature and importance of the proceeding;
(c)the skill, specialised knowledge and responsibility involved;
(d)the number and importance of the documents prepared or perused, without regard to length;
(e)the place where and the circumstances in which the business involved was transacted;
(f)the labour involved and the time spent by the solicitor or counsel;
(g) the amount or value of any money or property involved;
(h)any other fees and allowances payable to the solicitor or counsel in respect of other items in the same proceeding;
(i) any other relevant circumstances.
63A.72 Increased allowance
The Registrar or the Costs Court may increase the amount of value of any allowance or expense in Appendix A as the Registrar or the Costs Court thinks fit.
30.The Costs Court, pursuant to Order 63A.72 may increase items in the scale if thought fit. In addition the preamble to the scale allows the Costs Court to allow amounts of less than or more than the scale allowance. However, these increases do not relate to GST payable by the plaintiff on his solicitors legal costs. As Master Wood said in Merringtons ‘the Scale is the Scale’ and it does not now include GST as detailed in the preamble.
31.The actual scale items that the review relates to, being scale items 3, 26, 27, 28, 29, 30(c), 31(d), 33, and 41 (d) do not within the description of the item include a discretion to allow a higher amount. Therefore, the ruling of the Costs Registrar to reduce these items by the increases amount claimed by the applicant is a proper reduction.
Result
32.The question the review raises is:
Whether the order of the Court for the respondent to pay the applicant’s costs to be paid on County Court scale applicable at the time the work was done attracts GST on the scale items claimed in the bill of costs.
The answer to the question is NO.
The rules of the County Court provide that costs ordered to be paid are to be allowed on taxation on scale. GST is not included in the rules definition of costs. “
On 15 January 2014 the applicant lodged a Notice of Review of the decision of the Judicial Registrar made 17 December 2013.
The grounds of Review stated that the errors in the decision were as follows :
1.determining that a distinction is properly to be drawn between the quantum of fees chargeable pursuant to the prescribed scale of costs for the provision of a professional service as between solicitor and own client and the amount recoverable pursuant to an order of the court whether or not the provided professional service satisfies the requirements of County Court Civil Procedure Rules 2008 (Vic) r 63A.29.
2.failing to determine that where legal costs are chargeable pursuant to the prescribed scale of costs that for the same work there must be the same remuneration regardless of the basis of taxation.
3.construing the nature of the party/party costs indemnity as a partial indemnity of the ‘price paid for services rendered’ rather appreciating (sic) that the difference which may result in a partial indemnity lies in the work that is capable of being recognised in the costs allowed on a party and party basis.
4. determining that the definition of legal costs contained in Legal Profession Act 2004 (Vic) s 1.2.1 applies only to the costs payable by a client as remuneration to his solicitor and does not govern the scope of recoverable costs pursuant to an order of the court subject to County Court Civil Procedure Rules 2008 (Vic) r 63A.29.
5.determining that the GST payable by the Applicant to his solicitor is not a party and party cost within the meaning of County Court Civil Procedure Rules 2008 (Vic) r 63A.29.
6.construing the definition of “costs” contained in County Court Civil Procedure Rules2008 (Vic) r 63A.01 as an exhaustive and/or exclusive definition rather than as an inclusive definition.
7.taking into account the fact that no evidence of a costs agreement between the solicitor and the Applicant had been put to the Court, which is an irrelevant consideration in this matter.
8.placing excessive weight on the provisions of the Commissioner of Taxation's public ruling GSTR 2001/4 paragraphs 147-149
9.failing to give any or sufficient weight to the provisions of GSTR 2001/4 paragraphs 150-152 or to the opinion of Evans J expressed in Thornton v Apollo Nominees PtyLtd [2005] TASSC 38 at [6] (Thornton) as approved in Merringtons Pty Limited vLuxottica Retail Australia Pty Ltd & Anor [2006] VSC 525 at [32] (Merringtons).
10.failing to correctly identify the general legal principles to be discerned from Thornton and Merringtons and to correctly apply the relevant legal principles to the facts of this case in a proper exercise of discretion.
11.failing to correctly distinguish the outcome in Keen v Telstra Corporation Limited [2006] FCA 834 (Keen) on its facts as in Keen the relevant Federal Court Scale of costs was not expressed to be “exclusive of any GST chargeable” and was considered to be GST inclusive.
12.determining that the power of the Costs Court pursuant to County Court CivilProcedure Rules 2008 (Vic) r 63A.72 to increase “the amount or value of any allowance or expense in Appendix A” does not extend to making allowance for the GST payable by the Applicant to his solicitor and specifically not otherwise provided for within Appendix A allowance.
13.determining that because the descriptions of the scale items relevant to this review do not include a discretion to allow a higher amount that the Costs Court is not empowered to allow a higher amount.
14.failing to correctly interpret and apply the reasoning of Beach J in Wadley v RonFinemore Bulk Haulage(No 3) [2013] VSC 181 (Wadley).
On 11 March 2014 written submissions were filed on behalf of the Applicant as follows:
Interpretation of the meaning of the term ‘costs’
1The definition of the terms “costs” or “legal costs” carry the same meaning regardless of whether the context pertains to the changes that a person may be compelled to pay to their legal practitioner or to costs payable pursuant to a judgment and an order for payment of costs inter partes.
1.1The common law has never recognised a distinction as to the type of charges that constitute legal costs depending upon the basis of taxation but rather only as to the extent to which such costs are to be allowed on taxation depending upon the basis that costs are taxed.
1.2The statutory definition of ‘Legal Costs’ contained in Legal Profession Act 2004 (Vic) s 1.2.1 does not extend or limit the scope of the definition of legal costs, it merely confirms the previously accepted common law definition of costs.
1.3No distinction is properly to be drawn between the meaning of costs as payable by a client to their legal practitioner and costs as payable pursuant to an inter partes costs order.
2The Judicial Registrar interpreted the provisions of Rule 63A.01(1) as exhaustive rather than inclusive and therefore exclusionary of GST.
2.1It is usual to find the expressions ‘means’ and ‘includes’ where a word or phrase is being defined in legislation. The orthodox and, it will be submitted, the correct approach to the understanding of the effect of these expressions that ‘means’ is used if the definition is intended to be exhaustive, as in the definition of ‘legal costs’ contained in Legal Profession Act 2004 (Vic) s 1.2.1, while ‘includes’ is used if it is intended to enlarge the ordinary meaning of the word, as in County Court Civil Procedure Rules2008 (Vic) (CCR) r 63A.01(1).
2.2That the definition of costs contained in CCR r 63A.01 is correctly to be interpreted as an inclusive provision and not as an exhaustive definition.
The nature of party and party costs as a partial indemnity
3As disclosed in the reasons for decision in paragraph [16], the Judicial Registrar relied upon an incorrect interpretation of a definition of party and party costs and drew a distinction between the quantum of fees chargeable pursuant to the prescribed scale of costs for the provision of a professional service as between solicitor and own client and the amount recoverable pursuant to an order of the court.
3.1That no distinction is properly to be drawn between the quantum of a fee chargeable pursuant to the prescribed scale of costs depending on the basis upon which costs are being taxed.
3.2That for the same work there must be the same remuneration regardless of the basis of taxation.
3.3That the difference which may result in only a partial indemnity of the ‘price paid for services rendered’ lies in the work that is capable of being recognised in the costs allowed on a party and party basis, being that which satisfies the requirements of CCR r 63A.29.
Interpretation of the preamble to the Appendix A Scale of Costs
4As a general principle of statutory interpretation the courts have pointed out that they are not at liberty to consider any word or sentence as superfluous or insignificant. All words must prima facie be given some meaning and effect. What meaning or significance is then to be placed upon the word “chargeable”, which concludes the preamble?
4.1The term chargeable is not defined and has no recognised accepted legal meaning and is therefore to be given its plain and ordinary meaning. The Macquarie Concise Dictionary 4th Edition defines the word charge as meaning, inter alia, ‘to hold liable for payment; enter a debit against; to list or record as a debt or obligation; to impose or ask as a price.’
4.2It will be submitted that inclusion of the word “chargeable” in the preamble is an acknowledgement that an obligation to impose GST may exist in addition to the fees prescribed in the Schedule and indeed, absent the existence of a lawful GST exemption, is imposed by A New Tax System (Goods and Services Tax) Act 1999 (Cth) (GST Act).
4.3The preamble also clearly provides that the scale is the scale of fees and charges to be paid to legal practitioners, including Counsel between party and party and between legal practitioners and clients. Consequently, if it is proper to allow charges referable to GST in addition to the prescribed fee on a taxation between practitioner and client it is not permissible to disallow such GST charges on a taxation between party and party unless such allowance offends the indemnity principle.
4.4The reasons for decision disclose at paragraph [20], that the Judicial Registrar determined the effect of the preamble to Appendix A applicable since 1 September 2011 to be that when a valid costs agreement is entered into between a solicitor and client a solicitor is required by the GST Act to add GST to the scale charges but placed significance upon the fact that no evidence of a costs agreement between the applicant and his solicitor had been put before the Court.
4.5The existence or otherwise of a valid costs agreement is an irrelevant consideration and should not have been taken into account by the Judicial Registrar as the existence of a costs agreement was not in issue and in any event, absent satisfactory evidence of the existence of a valid costs agreement the default provision contained in Legal ProfessionAct 2004 (Vic) s 3.4.19(b) is that legal costs are recoverable in accordance with the applicable scale of costs.
The Judicial Registrar’s treatment of the relevant authorities
5In distinguishing the decision of Evans J, in Thornton v Apollo Nominees Pty Ltd [2005] TASSC 38 (Thornton) from this matter the Judicial Registrar determined that the decision in Thornton turned on the relevant rule of court applicable to that matter, being SupremeCourt Rules 2000 (Tas) (TSCR) r.859(a).
5.1At paragraph 25 of her reasons she noted that “...r.859 (a) is a much broader rule than the County Court definition of party party costs.” (Emphasis added)
5.2The County Court definition to which the Judicial Registrar compared to the provisions of TSCR r.859(a) is that contained in CCR r 63A.01(1) however it will be submitted that is not the relevant rule for comparison; the equivalent Victorian rule is to be found in CCR r 63A.29, which is in substantially the same terms as TSCR r.859(a).
6In distinguishing the matter of Merringtons Pty Limited v Luxottica Retail Australia PtyLtd & Anor [2006] VSC 525 (Merringtons) The Judicial Registrar focussed only on the outcome of the matter and to the issue relevant to the outcome of that decision and failed to identify the relevant general legal principle to be discerned from the decision.
6.1The facts in Merringtons are not analogous to the facts of this case. In Merringtons the party entitled to the benefit of the costs order was a registered entity for the purpose of GST, was entitled to, and had received, an input tax credit for the GST component of its legal costs. In this case the applicant is an individual, not a registered entity for the purpose of GST and has not received, nor does he have an entitlement to receive, a GST input tax credit. Moreover the scale of costs applicable at that time Merringtons was decided was considered to have made allowance for the impact of the GST whereas the relevant scale of costs in this case is expressed to be exclusive of any GST chargeable. Consequently it is not the outcome or reasons for the decision in Merringtons that the Judicial Registrar was required to apply to the determination of this matter but rather only the relevant general legal principles to be discerned from the decision.
6.2In focussing on the outcome and reasons for the decision the Judicial Registrar failed to correctly identify and apply the relevant general legal principle, most cogently expressed in Merringtons at paragraph [32], to the determination of this matter.
7The Judicial Registrar distinguished the matter of Keen v Telstra Corporation Limited [2006] FCA 834 (Keen) by again focussed only on the outcome of the decision being that an additional sum for GST was not allowed as a disbursement claim.
7.1In so doing the Judicial Registrar failed to appreciate that the relevant Federal Court Scale of Costs at the time was already inclusive of an amount in respect of GST and that, as said by Rares J at paragraph [46] “... when costs are recovered they include a recovery in respect of GST to indemnify the successful party for his, her or its liability to their solicitor for GST ...”, whereas the relevant scale of costs in Appendix A is now expressed to be exclusive of any GST chargeable.
7.2The Judicial Registrar also failed to appreciate that the provisions of Order 62 r.12(1) of the Federal Court Rules were much more restrictive than the relevant Victorian County Court Rules in that it expressly provided
(1)Except as otherwise ordered in all proceedings commenced on and after the date these Rules came into operation, solicitors are, subject to these Rules, entitled to charge and be allowed the fees set forth in the Second Schedule in respect of the matters referred to in that Schedule and higher fees shall not be allowed in any case except such as are by this Order otherwise provided for.
whereas CCR 63A.34(1) contains no such restrictive prohibition against allowance of a fee higher than those prescribed in Appendix A and indeed CCR 63A.72 expressly authorises the Registrar or the Costs Court to increase the amount of value of any allowance in Appendix A as is thought fit to make.
Reasoning of Beach J in Wadley v Ron Finemore Bulk Haulage (No 3) [2013] VSC 181 (Wadley):
8The reasons for decision at paragraph [27] quote the statement of Beach J that Item 19(k) provides for a discretion to allow fees in excess of scale and subsequently at paragraph [28] the Judicial Registrar states that “His Honour applied Item 19(k) of the scale to allow amounts in excess of the reduced scale item.”
8.1With respect Beach J did not exercise the discretion conferred by Item 19(k) to allow amounts in excess of the reduced scale item. It is clear from the decision at paragraph [13] that Beach J determined that the maximum allowances prescribed in Item 19(a) of Appendix A, being subject to the reduction imposed by Accident Compensation Act 1985 (Vic) s 134AB(20) were $4,000 for junior counsel and $6,000 for senior counsel respectively however he said that as the preamble to Appendix A notes those maximum allowances are exclusive of any GST chargeable.
8.2At paragraph [15] Beach J said that he was not satisfied that he should fix brief fees for counsel in an amount in excess of the amounts in item 19(a) of Appendix A as reduced by the operation of Accident Compensation Act 1985 s 134AB(29) and went on to say “On a party and party basis ... , having regard to all of the matters identified in Items 17 and 19(j) of Appendix A, I would fix senior counsel’s fee on brief in the sum of $6,000 plus GST (making a total of $6,600) and junior counsel’s fee on brief in the sum of $3,000 plus GST (making a total of $3,300).”
8.3The applicant will submit that the Judicial Registrar incorrectly discerned the reasoning of Beach J in Wadley and failed to apply the correct reasoning to the determination of this matter as she was bound to do.”
The Respondent filed written submissions. In brief, the Respondent submits that the Applicant’s reliance on the definition of legal costs in the Legal Profession Act2004 is mistaken. Further, that the Judicial Registrar correctly analysed the cases referred to in her decision, correctly distinguished Thornton and correctly applied the ratio in Merrington.
At the hearing on 27 March 2014 the Applicant sought to rely on additional authorities not referred to in their written submission, and which were not relied upon before the Judicial Registrar. The Applicant did not provide the Court (or the Respondent) with copies. The Respondent took issue with this conduct and submitted that they formed the basis of a different argument and one not raised in the Notice of Review or before the Judicial Registrar. Having reviewed the authorities I have come to the conclusion that they do not raise a different argument but do not add to the merits of the Applicant’s position.
The relevant passage in Cachia v Hanes[3] made reference to the common law definition of costs as being ‘costs awarded by way of indemnity (or more accurately, partial indemnity) for professional legal costs actually incurred in the conduct of litigation’. This was merely a passing reference in a case that was considering the recoverability of time spent on a case by a self‑represented litigant. The case examined the definition of legal costs arising from the Supreme Court Act1970 (NSW) and Supreme Court Rules1970 (NSW) and not the NSW equivalent to the Legal Practice Act1996 (Vic) or Legal Profession Act2004 (Vic). The case actually assists the Respondent’s argument in that regard.
[3](1994) 179 CLR 403 at para 11.
Another case relied upon was CGU Workers Compensation (Vic) Ltd v Rees;[4] in particular paragraphs 9 to 12. Again, a consideration of whether travelling expenses fell within ‘costs’ or ‘disbursements’ involved an examination of the County Court Rules. The definition appearing in the applicable Legal Practice Act1996 was not examined.
[4][2003] VSCA 18.
In oral argument the Applicant sought to characterise the Tasmanian rules in Thornton as narrow and disagreed with the Judicial Registrar’s conclusion they were wider than the Victorian provisions. What is worth noting however is that there was a specific rule considered in Thornton which actually stated that ‘a bill of costs may include as a disbursement an amount referable to tax paid or to be paid ... and the taxing officer is to make such allowance as is appropriate for the impact of the GST … on the bill of costs’.[5] This is clearly wider than the Victorian provisions and recovery of GST was specifically provided for. There is no such provision in Victoria and the case is clearly distinguishable.
[5]Supreme Court Rules 2000 (Tas) - Rule 837A.
The Applicant argued that the decision in Wadley was binding. The Respondent made the point in oral argument that the Court in Wadley was not addressed on the impact of GST when the Judge provided for it when fixing an amount for counsel fees.
The Respondent also reiterated the position that the issue of costs in relation to litigated matters before Courts are governed by the Courts, the specific legislation in relation to the particular Court and their respective Rules.
Decision
The Applicant’s written submissions are premised on a number of misconceptions. For example, the definition of legal costs in the Legal Profession Act2004[6] is clearly expressed to be in relation to what someone can be charged for the provision of legal services. The Act, in so far as it relates to legal costs, is devoted solely to the solicitor client relationship. Where section 3.4.19 refers to recoverable legal costs on scale it is in that context, and in the absence of a costs agreement, the Act provides a basis for charging the client.
[6]Section 1.2.1 (‘..amounts that a person has been or may be charged by, or is or may become liable to pay, to a law practice for the provision of legal services…’).
An order of a Court for one party to pay another’s costs in the context of litigation is a separate concept and not covered by that Act. The costs order in this matter does not give the Applicant an entitlement to recover what they are charged by their own practitioner. This would require an order that was expressed in such a way to give the recovering party a complete indemnity in respect of all costs even if they were unreasonable in amount. The costs order entitles the applicant to recover costs assessed on the basis of the scale subject to the exercise of discretions at taxation.
Adding GST to an item in the scale that may not represent what was charged potentially results in recovery of an amount of GST that does not equate with the amount actually payable to the solicitor by the applicant. In theory it could actually be more than the GST charged to the Applicant by his own lawyer for the work represented by those items.
It is clear from the ATO Ruling that GST is not payable in a party party recovery and this means that the applicant would potentially be collecting GST from the respondent and then have no liability to pass it on to the ATO. The Applicant argues that any GST recovered would be by way of partial indemnity. However, as noted in the paragraph above it might be more than the GST actually paid.
The words of the Preamble and rationale for them are issues worth spending a little time on.
It is of note that the new County Court scale effective from 1 September 2011 excluded GST. Prior to then the scale included GST. The Preamble to the new County Court scale states there is a ‘full discretion to allow any fee, costs or disbursement in full or in part’. Importantly it also states ‘Scale of fees and charges to be paid to legal practitioners…..between party and party and between legal practitioners and clients’. In addition it also states the ‘The charges in this scale are exclusive of any GST chargeable’(my emphasis). All these words are important. The Preamble to the scale obviously describes two scenarios where the scale is applicable. The words ‘any GST chargeable’ contemplates that there might be circumstances where it is not chargeable. The use of the word ‘chargeable’ is used because the scale is intended to cover the situation where a client owes money (and therefore GST as well) to their own solicitor for the provision or services. For the scale to work in the way the Applicant contends then the word ‘recoverable’ would have been used, that is GST can be recoverable in addition to the scale amount when you are favoured by a costs order in litigation.
In the first scenario the scale can form the basis of charging a client if the solicitor agrees or (in the absence of a costs agreement charging on any other basis) represents the default liability for work performed for the client. In those circumstances GST would be chargeable in addition to the scale sums.
The second scenario contemplates a situation where the scale forms the basis of costs recovery on a party party basis, and in those circumstances GST is not ‘chargeable’ as there is no service provided as between the applicant’s solicitor and the respondent who is only liable to pay anything at all as a result of a Court order.
The decision to change the scale to exclude GST was obviously taken for good reason. If the Applicant’s position is correct then GST would be claimable on the scale items irrespective of whether it was applied as between solicitor and client or between parties in a party party scenario. In other words, on either scenario. If that is so then there would have been be little reason to change the scale to exclude GST as GST would be relevant in all circumstances.
The change in the scale makes sense if it was undertaken to address some issue or vice. As a matter of logic the change is understandable if adding GST in one scenario was correct (that is, between practitioner and client) but not in another scenario (that is between parties pursuant to an order). The latter scenario accords with the ATO position referred to in paragraph 22 of the Judicial Registrar’s decision reproduced above.
Drawing on the experience of the Costs Court there has certainly been some confusion in the profession about this GST issue. Bills of costs drawn on scale reviewed pursuant to the Legal Profession Act2004 as between client and solicitor have often claimed GST in addition to the scale which had at that time GST included. Hence GST on GST was claimed. It is worth noting that the Supreme Court also moved to adopt a scale that excluded GST from 1 April 2013. This was in part based on the recommendation of the Law Institute.
I note that Beach J in Wadley made a gross sum for counsel fees and that included GST. The issue of GST does not appear from the brief judgment to have been argued or in contention. I do not regard the decision in Wadley as binding as there have been occasions where other Supreme Court judges have not seen it as appropriate to even mention GST when fixing figures for counsel fees.[7]
[7]E.g. Ristevski v SSX Services Pty Ltd (S CI 2011 05881) Forrest J (20 September 2013) and Warren v Boral Resources (Vic) Pty Ltd (S CI 2010 06113) Williams J (19 September 2013)
I can find no fault in the reasoning of the Judicial Registrar. The interpretation and application of the principles are correct. The cases that have been distinguished have been approached on a sound basis.
As a final comment it can be said that the only reason this issue has arisen is that the Applicant has waited until after 1 November 2011 to tax the costs that arose from an order giving an entitlement in 2007. The Summons was not in fact issued until 15 February 2013. The delay has enabled this argument to be made in relation to GST. On the assumption that the arguments of the Applicant were accepted without question at taxation it may have been appropriate to exercise a discretion to reduce the 2013 scale allowances by more than the GST component and only allow a lesser scale that was applicable at a time period referable to when the taxation should have occurred (say 2009 or 2010) on the basis of there being no explanation proffered for the delay from 2007.
The Notice of Review is dismissed and the decision of the Judicial Registrar confirmed pursuant to Rule 63.56.4(7)(b) of the Supreme Court(General Civil Procedure) Rules2005. The parties are granted liberty to apply in the event that the issue of costs cannot be agreed.
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