Mustafa v Velos

[2012] VSC 133

IN THE SUPREME COURT OF VICTORIA Not Restricted

AT MELBOURNE

COSTS COURT

S CI 2011 05677

ENIS MUSTAFA	Applicant
v
BILL VELOS t/as VELOS LAWYERS	Respondent

---

JUDGE:	WHELAN J
WHERE HELD:	Melbourne
DATE OF HEARING:	28, 29 March, 5 April 2012
DATE OF JUDGMENT:	5 April 2012
CASE MAY BE CITED AS:	Mustafa v Velos
MEDIUM NEUTRAL CITATION:	[2012] VSC 133

---

COSTS – Determination under s 3.4.38(6) of the Legal Profession Act 2004. 

---

APPEARANCES:	Counsel	Solicitors
For the Applicant	Mr S Warne	Castra Legal Costing Pty Ltd
For the Respondent	Mr A F Hamlyn-Harris	Velos Lawyers

HIS HONOUR:

1. During 2010 Mr Bill Velos, who is an Australian legal practitioner practising under the name Velos Lawyers, provided legal services at the request of Mr Enis Mustafa.  Those services involved Mr Velos representing companies associated with Mr Mustafa and representing Mr Mustafa himself in legal proceedings.  Mr Velos sent Mr Mustafa eleven bills for legal costs and disbursements, of which $35,926.44 remains unpaid.

1. Mr Velos took proceedings in the Magistrates’ Court to recover the amount of $35,926.44 allegedly due from Mr Mustafa on 4 April 2011.  Mr Mustafa’s then solicitors, MCK Legal, defended those proceedings.  In his defence Mr Mustafa denied requesting legal services for himself, did not admit signing two costs agreements relied upon by Mr Velos, and denied any personal liability on the bills.  It was also alleged by Mr Mustafa that “incorrect advice” was given, and a counterclaim seeking damages of $42,082.55 in relation to that “incorrect advice” was filed.

1. The trial of the Magistrates’ Court proceeding was fixed for 27 October 2011.  On 19 October 2011 MCK Legal wrote to Velos Lawyers raising for the first time the issue of “taxation” of costs and seeking an adjournment of the Magistrates’ Court trial.  On 21 October 2011 a “Summons for taxation” was issued by MCK Legal on behalf of Mr Mustafa seeking “a review of the whole of the legal costs claimed” by Mr Velos.  On 26 October 2011 the Magistrates’ Court trial was adjourned upon Mr Mustafa’s application.

1. Of the eleven bills in controversy all but two bills, each dated 22 December 2010 for $2,015.51 and $2,854.32 respectively, were given to Mr Mustafa more than 12 months prior to 21 October 2011.

1. Under s 3.4.38(5) of the Legal Profession Act 2004 (“the Act”) an application by a client or a third party payer (as that term is defined in the Act) for a costs review must be made within 12 months after the bill was given to the client or third party payer. There is an issue of controversy as to how this 12 month limit operates when interim bills are given. The controversy concerns the interaction of s 3.4.38(5) and s 3.4.37. Section 3.4.37(2) provides that interim bills may be reviewed either at the time of the interim bill or the time of the final bill.

1. Section 3.4.38(6) relevantly provides that an application made out of time may be dealt with by the Costs Court if a Judge “on referral by a Costs Judge or the client or third party payer who made the application for review, determines, after having regard to the delay and the reasons for the delay, that it is just and fair for the application for review to be dealt with after the 12 month period”.

1. There was a purported referral of the application by Mr Mustafa into the Practice Court by a Judicial Registrar. In order to prevent any technical impediment to my consideration of the issue raised in s 3.4.38(6), at the outset of the hearing before me counsel for Mr Mustafa orally applied for referral. On that basis I proceeded with the hearing.

1. Early in the hearing I raised the issue of how Mr Mustafa could seek a costs review when he maintains he is not liable to pay the bills. 

1. The matter was stood down and, upon resumption, counsel for Mr Mustafa handed up a handwritten document signed by Mr Mustafa which I initialled and placed on the Court file.  In that document Mr Mustafa “asserts in this proceeding” that he is either the client or a third party payer in relation to the relevant matters. 

1. I raised with counsel the unsatisfactory limitation of these “assertions” to “this proceeding”.  Counsel then undertook on behalf of Mr Mustafa to amend his defence and if necessary his counterclaim in the Magistrates’ Court proceeding to conform with the signed document handed up.  Later, in the course of submissions, counsel for Mr Mustafa confirmed that, subject only to his counterclaim, Mr Mustafa is liable for whatever sum might be found to be due on the costs review (expressed by counsel as being “after taxation”). 

1. The position as ultimately reached as to Mr Mustafa’s liability represents a significant departure from his defence filed in the Magistrates’ court and from the matters deposed to in his affidavits relied upon on this application.[1]

   [1]See his affidavit affirmed 19 January 2012 at [6] and [12] and his affidavit affirmed 23 March 2012 at [11]-[16] and [26].

1. I have indicated that Mr Mustafa’s counsel made an oral application for referral under s 3.4.38(6), and sought a determination by me that it is just and fair for the application for review to be dealt with after the 12 month period. The affidavits relied upon on behalf of Mr Mustafa proceed on an assumption that the 12 month period has elapsed. This assumption is premised on the construction of the Act adopted by Wood AsJ in this Court in Dromana Estate Ltd v Wilmoth Field Warne.[2]  Whilst I was referred to some decisions in other states which have adopted a different construction of relevantly similar provisions (Retemu Pty Ltd v Ryan,[3] Turner v Mitchells Solicitors and Business Advisors Qld[4] and Golder Associates Pty Ltd v Challen[5]), no submissions were directed to the issue before me.  When I asked counsel for Mr Mustafa if it was accepted that Dromana Estate was correct, he said that it was not.

   [2][2010] VSC 308 (“Dromana Estate”).

   [3](Unreported, District Court of NSW, Coorey DCJ, 16 April 2010).

   [4][2011] QDC 61 (McGill DCJ).

   [5][2012] QDC 11 (Samios DCJ)

1. This raises the unpalatable possibility that having sought a determination under s 3.4.38(6), Mr Mustafa could subsequently contend that no such determination was necessary (subject to any estoppel which might arise), and that the costs review can and should proceed without it. There would then have to be a further hearing to determine whether Dromana Estate is correctly decided. 

1. Section 3.4.38(6) requires that regard be had to the delay and the reasons for the delay.

1. On behalf of Mr Mustafa three affidavits were filed by Ms Carmelli, who acted for Mr Mustafa in relation to the Magistrates’ Court proceeding and the review application until very recently.  Notice of change of practitioner in the review application was filed on 28 March 2012. 

1. An issue of admissibility arose in relation to her three affidavits.  The explanations she gave in her first two affidavits were inconsistent, on one view at least, with that contained in her third.  Counsel on behalf of Mr Mustafa did not “read” the parts of the first two affidavits which contained the inconsistent material and objected to reliance on those parts by counsel for Mr Velos.  I ruled that I could have regard to those parts because in the third affidavit, which was “read”, Ms Carmelli referred to the relevant paragraphs of the earlier affidavits and swore that she had made those paragraphs from her own knowledge. 

1. In paragraph 18 of her first affidavit, Ms Carmelli swears that the application for review of all the bills except the last two “ … is made after the 12 month period required under section 3.4.58(5) …”.  She swears that the delay has not been substantial and continues:

“The reason for the short delay is that I believed the dispute may have been able to have been resolved without recourse to the Costs Court and I only recently received advice that made me aware that the relevant provisions of the Act my client the right to make an application [sic].”

Clearly, a word is missing from that sentence.

1. In Ms Carmelli’s second affidavit she refers to a motor vehicle accident in which she was involved on 15 May 2011, and to her incapacity as a result, which meant she did not return to full time work until 15 August 2011.  Another firm of solicitors took over the conduct of the Magistrates’ Court proceeding for part of that period.  At paragraph 4(e) Ms Carmelli swears:

“I failed to make an application for a costs review within time for the invoice dated 31 August 2010 and 7 September 2010 because I was then unaware that there existed a 12 month time deadline to make application for a costs review following the invoices being rendered.”

1. In her third affidavit sworn 26 March 2012 she refers again to her accident and then swears:

“After I returned to work I was not prioritising any application for taxation because I thought (and I thought everyone else operated on the same basis) that the time for taxing bills was a year from the date of the final bill.  The last bills I knew of in each of the two Supreme Court proceedings to which the Mustafa companies were defendants were dated December 2010.  That had always been my understanding and I was unaware of the Costs Court decision in Dromana Estate Ltd v Wilmoth Field Warne [2010] VSC 308.”

1. If Ms Carmelli really was acting under the understanding she says she had about the time limit in her third affidavit, it seems incredible that she did not explain that in either of her two earlier affidavits.  It is also hard to understand why she would have allowed the Magistrates’ Court proceeding to continue almost until trial without applying for a costs review when, if what she says is true, she believed all the while that her client could seek that review as time had not expired. 

1. Ms Carmelli was not cross-examined.  I will say no more than that in my view her explanations for the delay were not consistent. 

1. Mr Mustafa himself has sworn that he was ignorant of his rights in relation to a costs review.  For the purposes of this application, I accept that.

1. A matter raised for the first time on this application was a contention put on behalf of Mr Mustafa that there had been a failure to make the disclosure required by the Act in relation to counsel’s fees. Having considered what was deposed to on this issue by Mr Mustafa and Mr Velos,[6] it seems to me to be a matter which is arguable.  Further, it seems to me that the disclosure made in relation to the time limits for review was also arguably incorrect or inadequate.  

   [6]Mustafa affidavit affirmed 23 March 2012 at [18] and Velos affidavit sworn 27 March 2012 at [3(g)].

1. If disclosure was not made as required, the Act provides that Mr Mustafa need not pay the costs unless they are reviewed (s 3.4.17(1)), and Mr Velos cannot maintain proceedings to recover them unless they are reviewed (s 3.4.17(2)).

1. I have concluded that I should determine that it is just and fair for the application for review to be dealt with after the 12 month period.  I have reached this conclusion for the following reasons:

(1)I am not positively persuaded that the review cannot proceed even if the determination is not made.  I cannot, and do not, determine whether the construction of the relevant provisions in Dromana Estate is correct as I have heard no submissions on the issue.  It would be most unsatisfactory for there to be another hearing as to whether the costs review can proceed. 

(2)It is arguable that there has been inadequate disclosure.  If that were found to be the case, the Magistrates’ Court proceeding could not continue, and Mr Velos could not recover the costs, without a review.

(3)Given Mr Mustafa’s reversal of his position on liability for the costs, almost all of the contentious issues could be determined on a costs review. Only issues raised in the counterclaim might remain unresolved, although even there the Costs Court has some capacity to address the issues raised (see s 3.4.44(2) of the Act and rule 63.70 of the Supreme Court (General Civil Procedure) Rules 2005). 

(4)The delay, in the sense of delay after expiry of 12 months from the dates of the respective bills, is not substantial.

(5)Mr Velos is a sole practitioner.  There is no suggestion of prejudice caused by factors such as the departure of relevant employees.

(6)Whilst the explanations for the delay by the solicitor are inconsistent, I accept for the purposes of this application that Mr Mustafa was ignorant of his rights.

(7)The prejudice to Mr Velos is really to be found in the time and money he has effectively wasted in the Magistrates’ Court proceeding.  The approach taken on behalf of Mr Mustafa before me constitutes an abandonment of the defence conducted up to now in the Magistrates’ Court proceeding, save for the issues also raised in the counterclaim.  That position can, however, be addressed by appropriate costs orders in the Magistrates’ Court.  I make it clear that on the basis of what has been put on this application, what has occurred up until now in the Magistrates’ Court has been substantially, if not entirely, wasted.

(8)Finally, the sum involved in this dispute is modest.  A costs review seems to me to be the course most likely to economically bring the dispute to finality.

1. Accordingly, I determine under s 3.4.38(6) that it is just and fair for the application for review to be dealt with after the 12 month period provided for in s 3.4.38(5).

1. I will hear the parties on the question of costs. 

1. I direct that the document signed by Mr Mustafa remain on the Court file.