Murray v Lander and Rogers
[2020] VSC 403
•3 July 2020
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COSTS COURT
S CI 2018 02265
IN THE MATTER OF Section 4.3.38 of the Legal Profession Act 2004
BETWEEN
| ANDREA MURRAY (a pseudonym) | Applicant |
| v | |
| A. ABRAHAMS & G. C. COLLINS & J. D. FABIAN & C. D. HENDERSON & D. HUMPHREY-SMITH & A. L. SEYFORT & D.E WHITING & A. J. WILDER t/as LANDER & ROGERS (ABN 58 207 240 529) | Respondents |
---
JUDICIAL REGISTRAR: | Gourlay |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 23 October 2019 |
DATE OF JUDGMENT: | 3 July 2020 |
CASE MAY BE CITED AS: | Murray v Lander & Rogers |
MEDIUM NEUTRAL CITATION: | [2020] VSC 403 |
---
LEGAL COSTS – Associated or non-associated third party payer - Clients right to review costs pursuant to s 3.4.38 (1), (8) and (9) of the Legal Profession Act 2004 – Position of a litigation funder as an associated or non-associated third party payer of legal costs - Tomasevic v Nowicki Carbone Wood AsJ (unreported 12 March 2015)
---
APPEARANCES: | Counsel | Solicitors |
| For the Applicant | Ms S Cherry | ICL Lawyers |
| For the Respondent | Mr TJ Scotter | Lander & Rogers |
NOTE: The publication of these reasons employs a pseudonym for the name of the applicant as the respondent acted for the applicant in Family Court proceedings. Cognizant of the provisions and intention of Section 121 of the Family Law Act (Cth) this was ordered on 4 July 2020 because otherwise this decision would identify or could lead to the identification of a party to a proceeding in the Family Court of Australia.
JUDICIAL REGISTRAR:
On 23 October 2019 I heard argument in respect of a preliminary issue proposed by the parties on the issue of whether the applicant has standing to [bring] a costs dispute and reserved my decision. I now publish my decision and reasons.
The proceeding was filed on 15 June 2019 seeking a costs review of invoices totalling at least $1,960,678.77[1] all of which are paid by either the applicant or IMF Bentham Limited (IMF).
[1] Affidavit of Daniel Kaufman sworn 4 October 2018 states legal costs total $2,152,255.05.
Consideration of the initial preliminary dispute was delayed by the parties seeking to unsuccessfully negotiate a settlement. Both parties raised preliminary issues in respect of the respondent’s costs agreement and the agreement. However, the first issue to be decide is whether the applicant has standing to bring the proceeding. The respondent submits that by reason of a litigation funding agreement dated 19 October 2016 between IMF and the applicant (‘the Agreement’) she does not have standing to review the legal costs paid from the commencement of her retainer of the respondent until 30 March 2017 when the Agreement ceased to apply to legal costs. The respondent does not dispute the applicant’s right to review legal costs incurred after that date.
The relevant documents relied on by the respondent is it’s Notice in Response to the Applicant’s Notification of Preliminary Issues dated 25 January 2019, the statement of Issues to be pressed at preliminary hearing dated 23 July 2019 and the respondent’s Outline of Submissions filed on 23 September 2019. The respondent also relied on two affidavits affirmed by Daniel Kaufman on 4 October 2018 (‘first affidavit’) and 23 July 2019 (‘second affidavit’). The exhibits to the affidavits are contained in two lever arch files and are several hundred pages in total. The applicant has filed a Response to the Respondent’s Notice of Preliminary Issues filed 21 August 2019, and written Submissions on Preliminary Issues that were filed on 16 September 2019.
The dispute concerns a retainer by the applicant of the respondent law firm from about 19 May 2015 until about 21 June 2017 and is governed by the provisions of the Legal Profession Act 2004 (‘the Act’). The disputed legal costs were charged in three separate periods, being:
(a) Legal costs charged in invoices rendered from 19 May 2015 to about 19 October 2016 which were wholly or partly paid on behalf of the applicant. Other legal costs in this period were unpaid as at 19 October 2016 and were paid by IMF. On entering the Agreement paid amounts were refunded to the applicant by IMF and IMF paid the unpaid amounts to the respondent. In addition IMF loaned the applicant an additional sum of money. These payments are defined as the ‘Funded Prior Costs’ in the Agreement.[2]
[2]Clause 1.1 of the Agreement.
(b) All invoices rendered from 19 October 2016 until 30 March 2017[3] were paid by IMF.
(c) On 30 March 2017 IMF and the applicant agreed to end the Agreement and the applicant assumed responsibility to pay the respondent’s future invoices.
(d) All payments referred to in (a) and (b) above comprise part of the ‘Project Costs’ as defined in the Agreement. The applicant agreed to re-pay the total of the Funded Prior Costs, IMF’s costs and expenses to manage the agreement and a multiple of that amount at the conclusion of her litigation whether by a settlement or a Court order. This amount has been paid from any settlement sum she received.
[3]Second affidavit at para 50.
In its Notice of issues to be pressed at the preliminary hearing[4], the respondent submitted that by reason of the Agreement the applicant’s rights to review of legal costs pursuant to s 3.4.38 of the Act were removed and that the applicant did not have standing to apply for a costs review.
[4]Filed on 23 July 2019.
The Agreement required the respondent to sign IMF’s Standard Lawyers Terms (‘the Terms’). In addition to the Agreement preventing the applicant to review legal costs, the respondent submitted that the Terms prevent the applicant from bringing a costs dispute on the basis that the applicant has ceased to be a person who was charged…or is or may become liable to pay to a law practice its legal costs.[5] The respondent submitted that by reason of the Agreement and the Terms IMF became an associated third-party payer[6] of the legal costs.
[5]Section 1.2.1 definition of legal costs.
[6]A third party payer as defined in s 3.4.2A.
The application for a costs assessment is made pursuant to s 3.4.38 of the Act which allows both clients and third party payers to review legal costs charged by law practices. The applicant accepted the respondent’s costs agreement and costs disclosure on 19 May 2015 by signing the agreement. The costs agreement defines the Scope of Work as follows: We confirm we have been instructed to act for you in connection with your family/relationship law matter.[7]
[7] Paragraph 4 of the Respondent’s Costs Agreement.
The applicant’s proceedings related to complex and hard fought Family Court and Supreme Court proceedings. Marital property disputes concerned the value of the asset pool and issues relating to ownership and value of properties, shares and equities held in New South Wales, Europe and the United States of America. The respondent submitted that the costs of the Supreme Court proceedings are not part of the legal costs dispute. The total value of the pool assets was disputed and the adequacy of the husband’s discovery was hard fought. There were, in addition to the wife and husband, a number of corporate parties added to the Family Court application.
The applicant signed the respondent’s costs agreement on 19 May 2015. The respondent signed it on 20 May 2015.[8] The costs agreement included details of the charges for the delivery of legal services. The costs agreement provided charging on the basis of a mixture of fixed fees (charged on a page or quarter page basis for drafting and typing documents, reading and considering or reviewing documents, preparing letters, copying or reproducing documents and sending or receiving facsimile transmissions)[9] and time-based fees to be charged for all work other than the fixed fees ……according to the seniority of the person doing the work unless otherwise agreed in writing[10] including obtaining the necessary instructions or amending or preparing further drafts as a consequence of additional instructions or changed circumstances which will be charged according to time spent in accordance with clause 9 of this Costs Agreement.[11]The times-based charges were calculated recorded 6 minute units and the hourly rate varied, depending on the position of named lawyers, from $750.00 an hour for partners to $280.00 an hour for junior lawyers. Clerks and administrative assistants were charged at $190.00 an hour and graduate clerks were charged at $230.00 an hour. All disclosed rates excluded any GST charge.
[8]A copy of the costs agreement is exhibit “DK_1” to the first affidavit of Daniel Kaufman sworn on 4 October 2018.
[9]Paragraph 8 of the costs agreement.
[10]Paragraph 9 of the costs agreement.
[11]Paragraph 8 (a) (i) and (ii) of the costs agreement.
At all times, both before and after the Agreement was entered into, all the invoices were addressed and sent to the applicant, no matter whether the intended payer was the applicant, her associates or IMF. The respondent submitted nothing turned on this and that the error in addressing the invoices was because the Applicant’s name remained on the invoices as the matter on Elite, as our trust and matter management program, was under her name. Our invoices are automatically generated by the system and invoices were not amended to reflect that IMF Bentham was liable to pay.[12]
[12]The second Kaufman affidavit at Paragraphs 3-5.
By 19 October 2016, the applicant was in arrears of payments of $592,529.65. The respondent advised the applicant that in addition to this sum there was a substantial amount owing for unbilled work in progress and unbilled disbursements. The applicant, accepting that this position could not continue, signed the funding agreement with IMF. The Agreement provided for IMF to pay all unbilled and unpaid legal costs at the time of signing, refund the amount of legal costs already paid, pay an additional sum as a loan and pay all ongoing invoiced costs as rendered by the respondent. Pursuant to the Agreement, IMF agreed to pay Funding components of the proceeding[13] in return for the applicant being prepared to …. pay the Project Costs pursuant to the terms of this IMF Agreement.[14]Project Costs are defined, in the agreement, to include the costs and expenses of the Project, and the reasonable legal costs and disbursements of the Lawyers, together with all Funded Prior Costs.[15] The amount of Funded Prior Costs was $592,529.65 (including GST) in respect of Lander & Rogers legal costs incurred by the Claimant and $140,000 loan to the applicant.
[13]Agreement recital B. The applicant is defined in the agreement as the Claimant.
[14]Agreement recital C.
[15]Clause 6.1.
The Agreement required the applicant to direct the respondent to sign IMF’s Standard Lawyer Terms which were Schedule 1 of the Agreement.[16] On 25 October 2016 the respondent signed the Terms. This document required the respondent to fully comply at all times with each of the Claimant’s instructions,[17] keep IMF fully informed of all matters concerning the Claims and Proceedings,[18] report quarterly to both the Claimant and IMF on significant developments, and on issues relevant to liability and quantum including any changes to the likely success of the proceeding and any changes to the budget.[19]Clause 6 of the Terms required the respondent to charge for any legal work undertaken by reference to time reasonably and properly spent at the hourly rates as notified. Clause 6 also specifies that the respondent was to email monthly invoices to IMF and to the applicant. The invoices were to include a summary of tasks performed including the date of the service, the identity of the solicitor or para-legal who undertook work and the time recorded in six minute units. Disbursements should also be included. This charging method to IMF differed from the respondent’s costs agreement with the applicant as the charges were solely time based. Clause 6.6 allows IMF to refer any of the respondent’s invoices for taxation.
[16]Clause 5.5.1.
[17]Clause 4.1 SLT.
[18]Clause 4.2 SLT.
[19]Clause 4.5 SLT.
Clause 11 of the Agreement acknowledges that the respondent had been retained by the applicant including:
Clause 11.1 - IMF acknowledges the appointment of the Lawyers by the Claimant. The lawyers are to provide the Legal Work to the Claimant on the terms of the Standard Lawyer Terms and any retainer agreement between the Claimant and the Lawyers.
Clause 11.2 - The Claimant agrees that if there is any inconsistency between the terms of any retainer agreement between the lawyers and this IMF Agreement or the Standard Lawyer Terms, the terms of this IMF Agreement or the Standard Lawyer Terms, as applicable, will prevail.
And:
Clause 11.10 - IMF may at its discretion require that the Lawyers submit any one or more of their invoices forming part of the Project Costs to taxation or assessment. The Claimant hereby irrevocably authorises IMF to take all appropriate actions, in the Claimant’s name to tax or assess any of the Lawyer’s invoices. Any costs of the taxation or assessment will be paid by IMF as part of the project Costs.
After signing the Agreement IMF paid the Project Costs and the Funded Prior Costs by depositing them in the respondent’s trust account. Payments were then made to the applicant. On settlement of the Family Court proceedings the total amount paid by IMF was repaid to IMF from the property settlement the applicant reached with her former husband that ended the litigation. An additional sum, calculated as the agreed multiple of the payments made pursuant to the Agreement, was also paid.
The respondent’s submissions
The respondent submitted that all the invoices that were paid by the IMF either directly (‘the IMF invoices’) or as a refund of the charges for legal work undertaken from 19 May 2015 to 19 October 2016 (that is all the invoices referred to in paragraphs 5(a) and (b) above) are not able to be reviewed by the applicant by reason of the application of the Agreement and/or the Terms to the applicant’s right to review legal costs. The respondent concedes that the remaining invoices given after 30 March 2017 and paid by the applicant,[20] are not the subject of these reasons and are able to be reviewed by the applicant.[21]
[20]Totalling $601,977.61.
[21]These reasons do not address the remaining invoices.
The respondent submitted that IMF was an associated third party payer by reason of the Terms and this characterisation is not disputed by the applicant. A third party payer is defined in s 3.4.2A as:
(1) For the purposes of this Part [22]—
[22]Part 3.4.of the Act.
(a)a person is a third party payer, in relation to a client of a law practice, if the person is not the client and—
(i)is under a legal obligation to pay all or any part of the legal costs for legal services provided to the client; or
(ii)being under that obligation, has already paid all or a part of those legal costs; and
(b)a third party payer is an associated third party payer if the legal obligation referred to in paragraph (a) is owed to the law practice, whether or not it is also owed to the client or another person; and
(c)a third party payer is a non-associated third party payer if the legal obligation referred to in paragraph (a) is owed to the client or another person but not the law practice.
(2)The legal obligation referred to in subsection (1) can arise by or under contract or legislation or otherwise.
The respondent’s submission in respect of the legal costs invoiced to IMF and paid by it from 19 October 2016 until 30 March 2017 is that the applicant was never charged these legal costs nor was she ever liable to pay them.[23] Put simply, it was submitted that she never was liable to pay the respondent’s legal costs for this period even though its invoices were addressed to her as the Agreement and Terms required IMF to pay the legal costs and they were in fact paid by IMF.
[23]Transcript p5 line 31 and p6 l1.
The respondent submitted that IMF was an associated third party payer of the respondent as the legal obligation to pay the legal costs was owed to the respondent by virtue of the Agreement and the Terms. The legal obligation to the respondent was that it pay all the legal costs for the duration of the Agreement and IMF did, in fact, pay those invoices. Clauses 6.1 of the Agreement[24] and clause 6 of the Terms require IMF to pay the invoiced amounts to the respondent. The respondent submitted that IMF was an associated third party payer pursuant to the Terms as the Terms were an agreement between IMF and Lander & Rogers to provide legal services to the applicant. The respondent, in its Notice dated 25 January 2019 stated that:
from 25 October 2016 until about 25 October 2017, both the IMF Agreement and the LR Costs Agreement bound the parties, in accordance with clause 11.1.of the IMF Agreement. That clause provided the Respondent was to provide the Legal Work (as defined therein) to the Applicant “on the terms of the Standard Lawyer Terms and any retainer agreement between the Claimant and the Lawyers” (our emphasis added).
Clause 11.2 of the Standard Lawyer Terms provided a mechanism by which any inconsistency between the terms of both agreements would be resolved. It provided:
“The Claimant agrees that if there is any inconsistency between the terms of any retainer agreement between the Claimant and the Lawyers and this IMF Agreement or the Standard Lawyer terms, the terms of this IMF Agreement or the Standard Lawyer Terms, as applicable, will apply”
[24]Clause 6.1 provides that IMF will pay both the Funded Prior Costs and all other Project Costs. Clause 6 of the SLT requires the lawyers to render invoices monthly to IMF in a certain format (6.1), on an hourly rate (6.2), require IMF to pay the reasonable legal costs of the Lawyers and reasonable disbursements (6.3) , if the invoices comply with these Terms, IMF will pay them within 30 days from the end of the month in which they are received (6.4), and that IMF may, at its discretion submit any invoice to taxation (6.6).
The respondent submits that the applicant’s position that she has a right to review pursuant to s 3.4.38(1) as she was the client, whether or not she paid the legal costs charged, is simplistic as it is clear that pursuant to the Agreement and the Terms that the applicant was never charged nor was she ever liable to pay any legal costs incurred during the period of the operation of the Agreement. The only possible obligation she had to pay the legal costs was pursuant to the respondent’s costs agreement signed by the applicant on 19 May 2015. However, the existing obligation to pay was inconsistent with the agreement that IMF pay legal costs.[25] Both the Agreement and the Terms state that if the existing retainer agreement was inconsistent with the Agreement and/or the Terms then the Agreement and/or the Terms prevail. Therefore, pursuant to s 3.4.38 (1), there are no legal costs that that the applicant has paid or is or was ever liable to pay. The respondent submitted that to be otherwise would makes s 3.4.38 (8) otiose. Section 3.4.39(8) states that:
[25]At clause 11.2 of the Agreement and Clause 2.3 of the Terms.
(8) If there is an associated third party payer for a client of a law practice—
(a) nothing in this section prevents—
(i)the client from making one or more applications for review under this section in relation to costs for which the client is solely liable; and
(ii)the associated third party payer from making one or more applications for review under this section in relation to costs for which the associated third party payer is solely liable—
and those applications may be made by them at the same time or at different times and may be dealt with jointly or separately; and
(b) the client or the associated third party payer—
(i)may participate in the costs review process where the other of them makes an application for review under this section in relation to costs for which they are both liable; and
(ii)is taken to be a party to the review and is bound by the review;
The respondent submits[26] that:
Pursuant to the 2004 Act (and also the IMF Agreement ………) only IMF as the associated third-party payer has standing to review the IMF Direct invoices pursuant to section 3.4.38 (8)(a)(ii) 2004 Act.
Again, this conclusion accords with a purposive interpretation of s 3.4.38 of the 2004 Act, namely that the person(s) liable to pay legal costs is the person(s) who has the ability to have those costs assessed.
[26]Written submissions paragraph 58 and 59.
Thus, the respondent submitted that of the legal costs paid directly by IMF the applicant was never solely liable to pay these legal costs and therefore they are not able to be reviewed by her. The fact that the respondent’s invoices for the period of the IMF Agreement were addressed to the applicant and were given to her, the respondent submits was a result of the accounting system in use at the time,[27] and any error in the addressing of the invoices did not impose a liability or obligation on the applicant to pay the invoices. This is because as under the Agreement only IMF was the only party liable to pay the legal costs.
[27]Second Kaufman affidavit at paragraph 4.
The position in respect of the legal costs that were initially paid by or on behalf of the applicant and refunded to the applicant is different. IMF, by reason of the Agreement, had paid an agreed amount as a refund to the applicant. By virtue of that repayment and the Agreement these legal costs then formed part of the agreed Project Costs that were refunded to IMF from the settlement the applicant received. The respondent submitted that the amount paid was a cost of entering the agreement and that any legal costs used to calculate that sum was no longer ‘legal costs’ but an agreed amount and she could not now be charged for them by or become liable to pay them.[28]
[28]Respondent’s written submissions paragraphs 62-66.
The operation of the Agreement meant that the applicant did not retain the respondent to act on her behalf from 19 October 2016 to 30 March 2017 rather IMF retained the respondent. Clause 5.1 of the Agreement required IMF to provide management services to the applicant including:
5.1.2 retention of service providers (including the Lawyers) for the Project other than barristers and expert witnesses, including, where necessary, personnel to assist with Project Management;
Further, clause 2.1 of the Terms states that:
IMF hereby appoints the Lawyers to provide the Legal Work to the Claimant pursuant to these Terms.
And clause 11.10 of the Agreement states that IMF may require the respondent to tax or assess any invoices and the applicant irrevocably authorises IMF to take all appropriate actions in the Claimant’s name, to tax or assess any of the Lawyer’s invoices. By virtue of this clause, the respondent submitted that the applicant has contracted out of any right she may have had to apply, pursuant to s 3.4.38 of the Act or any other legislation, to review of the legal costs paid by IMF.
Only IMF has the right to review all the legal costs paid by it because only IMF paid the legal costs.[29] As IMF has not sought to review any legal costs the applicant’s Summons for Taxation should be dismissed as she does not have standing to review any legal costs she has not paid. The Agreement states that any application to tax legal costs will be made in the name of the applicant and not IMF. So if the applicant retained the right to review legal costs two applications could be brought by different applicants in the same name. However this situation would be a nonsense as the applicant has irrevocably given up her right to review legal costs in favour of IMF. By bringing this application to review legal costs the applicant is acting in breach of the Agreement and this should not be allowed.
[29]Transcript page 25 lines 12-20.
The respondent submitted that the applicant is estopped from applying to review the legal costs as the respondent has entered into this relationship and the standard lawyer terms on the assumption that the applicant was bound by the IMF agreement.[30] Further the respondent has submitted themselves to deal with IMF, including IMF requiring the reduction of some of its bills and things of that nature[31] on the basis that the applicant was bound by the IMF agreement, including 11.10 and that she wouldn't be entitled to simply disregard the terms of the IMF agreement because it would suit her and bring an application for taxation in the place of clause 11.10 and she ought be estopped from doing so.[32] In submitting that the applicant was estopped from making an application to review costs the respondent relied on Pacific Carriers v BNP Paribas.[33] It was submitted that the respondent agreed to the Terms, and the relationship with IMF, on the basis that the applicant was bound by the Agreement including contracting out of any right to review legal cost she may have had. Therefore by now applying to review the legal costs the applicant had induced the respondent to act against its best interests. The applicant must be bound by clause 11.10 of the Agreement which, if properly interpreted, means that only IMF can review the legal costs. Consequently the applicant should be estopped from proceeding with the costs review, particularly so as the respondent is not a party to the Agreement and it cannot rely on the Agreement.
[30]Transcript page 26 line 31 – page 27 line 3.
[31]IMF required the respondent to reduce some charges that were included in invoices contrary to agreed rates in the Terms.
[32]Transcript page 27 line 6 -14.
[33]Pacific Carriers Limited v. BNPParibas [2004] HCA 35; at paragraph 39; and the quote of Dixon J in Thompson v Palmer.
A further issue is that if the applicant succeeded in reviewing legal costs she has not paid and a refund is ordered, then, it was submitted, any refund should be paid to IMF as the payer of the legal costs. The respondent submitted that this was the position adopted by the Court in Tomasevic v Nowicki Carbone[34] where Dixon J found that a refund of barristers’ legal costs that had been paid from a Union fund could not be paid to the solicitor (who was the respondent in that proceeding) as the solicitor had not paid the legal costs. Similarly, if the respondent was ordered to refund to the applicant the legal costs that had been paid by IMF, the applicant would receive a windfall gain [35] and she would obtain more from the litigation in the Matter than she is entitled to.
[34][2016] VSC 501.
[35]Respondent’s written submission paragraph 76.
The Agreement was terminated before the Family Law proceeding was finalised. On 30 March 2017, the applicant and IMF agreed to limit the amount of IMF’s recovery by capping the amount that would be paid to IMF from any settlement amount that would be paid by the applicant’s Husband and the entities associated with him. Following that agreement the respondent continued to act on the applicant’s behalf. The respondent agreed that payment of subsequent invoices would be delayed until after finalisation of the Family Law proceedings. The 30 March 2017 agreement apportioned the settlement sum between the applicant and IMF. The respondent submits that this agreement was a compromise of any right to review of the legal costs as, by reason of the agreement, IMF compromised its right to review the invoices it had paid by fixing the amount it was entitled to receive as payment of the Project Costs. If the costs review were to be allowed to proceed any refund ordered would have to be paid to IMF as the payer of the invoices.
The Applicant’s submissions
The applicant submits that pursuant to s 3.4.38 (1) she is able to review ‘the whole or any part of legal costs’[36] as is she is and always was a ‘client’[37] of the respondent. The applicant submits that whereas s 3.4.38(2) provides that a third party payer may apply to review any legal costs that are payable by the third-party payer,[38] whereas s 3.4.38(1) gives a client the right to review the whole or any part of legal costs whether or not they were paid or are payable by her. The fact that a third party payer is involved in the payment of legal costs does not prevent a client reviewing legal costs. The wording in s 3.4.38(2) allows a third party payer to review the legal costs that have been paid or are payable by the third party payer. The different wording reflects that:
A third-party payer's rights to tax are limited to those costs which the third-party payer – which are payable by the third-party payer. A client's right to tax is not curtailed by the same or any equivalent notation.[39]
[36]Transcript page 46 lines 13-23.
[37]Section 1.2.1 defines a ‘client’ as including ‘a person to or for whom legal services are provided’.
[38]The emphasis is added.
[39]Transcript page 50 line 28 – page 51 line 1.
All the invoices rendered at all times were addressed to and given to the applicant. The respondent’s invoices all included a statement of the client’s right to review legal costs consistent with the applicant’s right under the Act and as stated in the initial costs agreement. Letters accompanied the invoice and in each case detailed the amount that was outstanding. Several of the letters stated that the total amount now outstanding and payable by you is dollar amount. [40]
[40]Exhibit “DK5” first Kaufman affidavit, by way of example, letters accompanying invoices dated 11 June 2015, 5 November 2015, 14 December 2016, 17 January 2017 and 30 January 2017.
The applicant submitted that the Agreement is not a costs agreement. Rather it is a funding agreement between the applicant and another party (IMF) to enable IMF to pay the respondent’s legal costs on the applicant’s behalf in return for a payment made at the conclusion of the litigation from the settlement sum. By reason of the Agreement IMF became a non-associated third-party payer in respect of the respondent and not an associated third party payer. There was no legal obligation owed to the law practice arising from the Agreement or from the Terms to pay some or all of the legal costs. The legal obligation to pay was an obligation owed to the applicant in return for the reward of repayment of all monies paid on her behalf together with an additional agreed sum calculated as a multiple of the amount paid.
The applicant submitted that she has ultimately paid all the legal costs. She paid some of the legal costs up to 19 October 2016. The balance of legal costs paid during the operation of the Agreement, were repaid as part of the Project Costs. Further as all amounts paid by IMF have been repaid to IMF, IMF never had and now has no interest, either past or present, in reviewing the legal costs. Indeed because of the operation on the IMF Agreement and the payment of an additional amount calculated as a multiple of the paid amounts, the higher the legal costs charged the higher the amount that was repaid. Therefore it never was in IMF’s interest to review legal costs that were charged in accordance with the agreed basis of charge.
In respect of the respondent’s submission about the purpose of ss 3.4.38 (8) and (9), the applicant submitted that these sections do not read down the right of a client to review legal costs that have been paid by a third party payer. The applicant submitted that:
For the avoidance of doubt, in interpreting the impact of sub-sections (8) and (9) the Court must place a construction upon their words that would “promote the purpose or object underlying the Act… (whether or not that purpose or object in expressly stated in the Act)” in preference to a construction that would not promote that purpose or object.[41]
Section 3.4.1 states that one of the purposes of Part 3.4 of the Act[42] is to provide a mechanism for review of legal costs and this purpose must be upheld.
[41]S35(a) Interpretation of Legislation Act (Vic) 1984.
[42]Section 3.4.1 states the purposes of Part 3.4-Costs Disclosure and Review.
In respect of the applicant’s ability to contract out of her review rights, the applicant submitted that, s 3.4.48A only allows a sophisticated client of a law practice or an associated third party payer who would be a sophisticated client if the third party payer were a client of the law practice to contract out the right to costs reviews. In this instance the applicant did not contract out of her right to review her legal costs, rather Clause 11.10 of the Agreement and Clause 6.6 of the Terms defines IMF’s rights of review, albeit that the review would be brought in the applicant’s name. These clauses do not amount to either the applicant or IMF contracting out of their right to review legal costs under s 3.4.48A. Further, IMF could not contract out of the applicant’s review rights with either the applicant or the respondent. Neither the Agreement nor the Terms seek to do so. Instead both agreements seek to allow IMF, possibly mistakenly,[43] to review the legal costs if it wanted to do so in the name of the applicant.
[43]As s 3.4.38 (8) and (9) gives a third party payer the right to review the costs it has paid in its name.
In respect of the cases referred to by the respondent the applicant submitted that each one is distinguishable as:
A third-party payer of either category is defined by reference to their obligation to pay legal costs. In one way or another, a third-party payer is always defined in this act by reference to their legal obligations.
An associated third-party payer posed (sic) the obligation to the law practice. A non-associated third-party payer owes the obligation not the client or someone else. But it is always by reference to their legal obligation. A client is defined that absolutely no reference to any obligation to pay. The client is simply a person to whom or for whom legal services are provided, and there's no dispute that (the applicant) is plainly in that category.[44]
[44]Transcript page 56 lines 10-27.
In Legal Services Commissioner v Wright[45] McMurdo J states that apart from the client, the right to review is limited to a third party who has paid the legal costs.
'Apart from the client' is a very significant expression because it is implicit in the Queensland Court of Appeal's determination in LCR v Wright that the client does have a right to tax irrespective of any liability to pay. [46]
[45][2012] 2 QR 360 at paragraph 28.
[46]Transcript page 57 lines 30 – page 58 line 3.
The decision of Richardson & Ors v Johnson[47] concerned the right of beneficiaries of an estate to review the legal costs charged to the executor of the estate. Daly AsJ held that beneficiaries do not have a right to bring a costs review as they are neither a client nor a third-party payer within the meaning of the Act as their interest is in the residue of the funds in the estate, after payment of legal costs and other usual estate expenses.
[47][2018] VSC 85
The decision of Tomasevic v Nowicki Carbone[48] can be distinguished on the basis that the court accepted that Mr Tomasevic was a client of the law firm and as such had a right to review the legal costs.[49] Dixon J dismissed an appeal from a decision of Wood AsJ by finding that the liability for costs was ‘nil’ and that there were no costs that could be reviewed.
26 The Costs Court is limited in what it is able to assess on a taxation. The only costs that became payable in this matter, and were amenable to review, were the invoices rendered by the barristers. It was not in issue that the plaintiff had standing to ask for a review of the barrister’s fees even though they had been paid by a third party (the Union). The defendants had not, and would not, charge the plaintiff any professional costs by reason of the Deed. There were no fees rendered by the defendants that could have been subject to taxation.[50]
[48][2016] VSC 501.
[49][2015] VSC 302 and an unreported decision of Wood AsJ on 12 March 2015 which found that Tomasevic had standing to review the legal costs.
[50]Emphasis added.
Consideration
To bring an application to review legal costs the applicant must fall within one of the categories contained within s 3.4.38 of the Act which allows applications for a costs review by clients or third party payers. Section 3.4.38 (1) allows a client to apply to review the whole or any part of legal costs. Legal costs are defined in the Act as 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 including disbursements but not including interest.[51] The parties do not dispute that the applicant was a ‘client’ within the meaning of the Act.
[51]Section 1.2.1.
Wood AsJ in Tomasevic v Nowicki Carbone (unreported 12 March 2015) states at paragraph 21:
The Legal Profession Act2004 is consumer protection legislation. If possible, it should be construed in such a way as to achieve that purpose. It is intended to enable someone who is potentially liable to pay legal costs to review their quantum. The fact that the third party payer does not review, should not prevent a client from reviewing where they may be liable to pay an amount that is referrable to legal costs incurred for acting for them.
And further on at paragraph 22:
Section 3.4.38(1) of the Act enables a client to review the whole or any part of legal costs. The definition of legal costs refers to ‘a person’ who has been charged, not the client or third party payer. A broad construction of this provision means that the ‘person’ in section 1.2.1 does not have to be the client himself. In other words, the capacity of a third party to review is not exclusive. A client can review costs charged to a person (other than the client) that were incurred while acting for the client.
In this matter the ‘person’ charged with the legal costs for the initial period incurred from 19 May 2015 until 19 October 2016 was the applicant and she has remained the person who had been charged with the legal costs. These costs are described in the Agreement as forming part of ’the funded prior costs’ that were charged to the applicant and were paid by or on her behalf. In my view, the fact that a sum equivalent to the amount of paid legal costs was paid to the applicant by IMF does not change the characterisation of the payments made prior to 19 October 2016 as being legal costs that were paid by the applicant and the costs are capable of being reviewed by her.
By reason of the Agreement, IMF became ‘a person’ who was liable to the applicant to pay the respondent’s legal services for the period legal services from 19 October 2016 until 30 March 2017. The only purpose of the funding agreement was to enable the applicant to pay the respondent’s legal costs and in return the applicant agreed to repay IMF the amount paid together with an additional amount calculated as a multiple of the sum paid.
The respondent did not submit that there was an express agreement that the applicant would not pay or be liable to pay its legal costs from 18 October 2016 until 30 March 2017. During that period IMF paid the legal costs as a result of the Agreement and it was unnecessary for the respondent to look to the applicant for payment. The respondent always acted on the instructions of the applicant and was always entitled to look to her for payment of its legal costs.
As Professor Dal Pont in Law of Costs says:
A lawyer who acts on instructions for a party on record is presumed, aside from an express agreement to the contrary, to be entitled to look to that party for costs, even if the instructions have come from another person.[52]
[52]Second Edition at 2.14.
In Hudgston v Endrust (Australia) Pty Ltd,[53] at 154 Pinsus J said:
The court will hold in the absence of proof of an express agreement to the contrary that a solicitor who acts upon instructions for a party on the record is taken to be entitled to look to that party for costs even if the instructions have come to the solicitor from another party or from some non-party interested in the litigation.[54]
[53](1986) 11 FCR 152.
[54]Quoted with approval in Bolton v Strange [2001] WASCA 34 at [7] and [8].
Whether intentionally or not the respondent continued giving the invoices addressed to the applicant. In my view there is no agreement between IMF and the respondent that IMF pay the invoices. The Terms were intended to regulate the respondent’s charging and billing practices and only the applicant could enforce the Agreement if IMF had failed to make any payment. The Agreement created a liability between the applicant and IMF for IMF to pay respondent’s legal costs.
The Terms required the respondent to act consistently with, and in accordance with, the terms of the IMF Agreement.[55] The Agreement requires IMF to appoint the respondent to provide legal work to the applicant. The Terms were intended to manage the respondent’s obligations to comply with the applicant’s instructions, imposed reporting requirements including reporting on details of settlement discussions, litigation budgets and risks of success or otherwise. The Terms also required the respondent to notify IMF and the applicant of any hourly rates to be charged, any changes to the hourly rates and detailed the method of rendering invoices to IMF.
[55]Recital B of the IMF Agreement.
In my view the Terms are not a Costs Agreement, in any sense as they are not an agreement to provide legal services that was given to a client or to an associated third party payer by the law practice. Section 3.4.26(1)(a) and (d) allows a costs agreement to be made between a law practice and either a client and or an associated third party payer. The Terms are not an agreement between the respondent and IMF for IMF to engage the lawyers to undertake legal work on behalf of the applicant and are not ‘about the payment of legal costs’. [56] Both the Agreement and the Terms state that the existing costs agreement between the applicant and the respondent continues. Section 3.4.26 (3) and (4) states that a costs agreement ‘may consist of a written offer’ by the law practice to enter a costs agreement and detail that the offer must specify a mode of acceptance by the client of any offer made.[57] The Terms do not do this.
[56]Section 3.4.2 definition of costs agreement.
[57]Section 3.4.26.
If I am wrong and the Terms do constitute a costs agreement then in my view that costs agreement is void as the Terms do not clearly state that it is an offer to enter into a costs agreement and that the client may accept it in writing or by other conduct. Section 3.4.31 states that any costs agreement that contravenes, or is entered into in contravention of, any provision of this Division[58] is void.
[58]Being Division 5 of Part 3.4 including s 3.4.26.
On this basis IMF was not in an associated third-party payer relationship with the respondent. The agreement to pay for legal services and the manner of repayment is contained in the Agreement and is only an agreement between the applicant and IMF. IMF is not the client and the legal obligation for IMF to pay legal costs for the legal services of the respondent is only with the applicant. It is clear that the Terms were intended to govern the method of charging for the legal services and giving invoices to IMF. The legal obligation to pay legal costs remained between the applicant and IMF. This is made clear by s 3.4.38 (9) (d) which states that had IMF reviewed the legal costs that review does not affect the amount of legal costs payable by the client of the law practice. Therefore that Act always envisaged that the applicant would always have an obligation to pay the respondent’s legal costs if there was a non-associated third party payer of legal costs.
The Agreement sets out that IMF agreed to pay legal costs as charged in return for the applicant agreeing to repay the total sum paid plus an additional amount calculated based on multiples of the sum paid. The repayment base was calculated to include not only the total of paid invoices rendered for the period of the agreement, it also included the amount of prior paid and unpaid legal costs and the loaned amount. To that total sum was added a multiple of all amounts paid to 30 March 2017.
In this matter the respondent has argued that the applicant did not have the right to bring this application as she had agreed in clause 11.10 of the Agreement and clause 6.6 of the Terms to contract out of her right to review legal costs on the basis that she agreed that if any part of the initial costs agreement was contrary to the Agreement and the Terms then the Agreement and the Terms would prevail. Clause 11.10 is relied on by the respondent to argue that the applicant has contracted out of her right to apply, as a client to review legal costs. The section states that IMF may require the Lawyers to submit any one or more of their invoices forming part of the Project Costs to taxation or assessment and that the applicant authorises IMF to take all appropriate actions, in her name, to tax or assess any of the Lawyers invoices. This clause appears to confuse IMF’s right to tax invoices in its own name[59] as a third party payer and also the respondent’s right to tax costs.[60] Clause 6.6 of the Terms allows IMF to require that the Lawyers submit any one or more of their invoices to taxation, by utilising s 3.4.40.
[59]Section 3.4.38 (2) of the Act.
[60]Section 3.4.40 of the Act.
In my view neither of these clauses prevent the applicant from bringing this proceeding. As stated above she is a client and has the right to review any legal costs charged in the proceeding. The respondent assisted the applicant to find a litigation funder and once IMF was identified as willing to provide funding the respondent conducted negotiations to reach agreed terms between the applicant and IMF. This work is charged for in the legal costs. The Kaufman affidavits exhibit correspondence between the respondent and IMF up to 18 October 2016 negotiating the terms of the agreement, seeking instructions from and giving advice to the applicant about the terms of the funding agreement.[61] The respondent did not advise the applicant that the Agreement and Terms would prevent the applicant from pursuing a review of legal costs. The invoices from 19 October 2016 to 30 March 2017 include a statement that if the applicant disputed the costs she could ‘seek a costs review by the Court under Division 7 of Part 3.4 of the Legal Profession Act 2004 (Vic)’. In my view it is not open to the respondent to submit that by entering in to the Terms the respondent was misled and believed that only IMF had standing to review its legal costs.
[61]Exhibit ‘DK7’.
Nowhere in the Agreement and Terms does the applicant contract out of her right to review the legal costs, if she was ever able to do so. Although the Agreement and the Terms both include clauses relating to IMF reviewing the respondent’s legal costs in my opinion these clauses do not limit the review rights of the applicant. The applicant did not agree, either within or outside the costs agreement, to contract out of an assessment of legal costs. The applicant’s agreement with IMF was to repay the litigation funding based on a multiple of the total of legal cost and prior funded costs paid. The respondent had no part in that agreement. In my view the decision of Beba Enterprises Pty Ltd v Gadens Lawyers[62] relied by the respondent to argue that there was an enforceable ‘accord and satisfaction’ is distinguishable. In that matter the applicant for the costs review was a non-associated third party payer that had settled the amount payable to the client of the law practice with the client. In this matter there has not been a settlement between the respondent and the applicant in respect of legal costs. Rather, pursuant to the Agreement, the respondent’s legal costs have been paid by IMF and those legal costs together with that additional agreed amount has been repaid by the applicant.
[62](2013) 41 VR 590
For the reasons above I conclude that the applicant has standing to review all of the respondent’s legal costs as she is a client of the respondent law firm. The payment of the prior funded costs and the costs from 19 October 2016 to 30 March 2017 by IMF does not prevent these costs from being reviewed. If at the conclusion of the costs review a refund of legal costs is ordered the applicant is entitled to payment of the refund.
The parties are to consult in respect of these reasons and advise if there are any further preliminary points they seek to be heard on within 14 days.
In relation to costs of this preliminary hearing, the usual position is that the successful party is entitled to an order for costs, unless there are circumstances that justify a departure from that position.[63] In this case, it appears that it is appropriate that I make an order that the respondent to pay the applicant’s costs of the preliminary hearing on a standard basis. If any party seeks a different order as to costs of this application the parties should to file and serve brief written submissions in support of the order they seek within 14 days.
[63]Northern Territory v Sangare[2019] HCA 25; (2019) 265 CLR 164, [24]–[25].
---
0
5
0