O'Brien v Doherty

[2008] NSWSC 205

CITATION:	O'Brien v Doherty & Ors [2008] NSWSC 205
HEARING DATE(S):	4 March 2008
JURISDICTION:	Equity Division Expedition List
JUDGMENT OF:	Brereton J
EX TEMPORE JUDGMENT DATE:	4 March 2008
DECISION:	Time to apply for leave to appeal extended, leave granted, appeal allowed, certificate set aside. No order as to costs.
CATCHWORDS:	LEGAL PRACTITIONERS – Costs Assessment – Practitioner-client assessment – Appeal and review – extension of time – leave to appeal – from default assessment – where gross default by client in responding to application for assessment and bankruptcy notice – where strong prima facie case that client not liable or entitled to substantial reduction – effect of natural person client signing costs agreement personally as well as his corporation – where no guarantee clause – where legal practitioner also a joint venturer with client – whether work done qua solicitor or qua joint venturer – whether legal practitioner entitled to recover whole of costs or only so much as exceeds his own proportionate share – Costs – where applicant for extension of time guilty of gross defaults but has strong case on merits
LEGISLATION CITED:	(NSW) Legal Profession Act 2004, ss 368, 384, 385, 389 (NSW) Uniform Civil Procedure Rules, r 50.3
CATEGORY:	Principal judgment
CASES CITED:	Anthony v Chris Savage Pty Ltd [2003] NSWSC 698 Currabulla Holdings Pty Limited v State Bank of New South Wales [2000] NSWSC 232 DCL Constructions v Di Lizio [2007] NSWSC 653 Doyle v Hall Chadwick [2007] NSWCA 159 Muriniti v Lyons [2004] NSWSC 135
PARTIES:	Douglas Ashley O'Brien (plaintiff) Peter Doherty (first defendant) Lloyd Lancaster Lawyers (second defendant) Geoffrey Rafter (third defendant) Law Society of NSW (fourth defendant)
FILE NUMBER(S):	SC 1358/08
COUNSEL:	Douglas O'Brien (in person) Peter Doherty (first defendant) (sol) (in person)
SOLICITORS:	Douglas O'Brien (in person) Lloyd Lancaster Lawyers (first & second defendants)

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION
EXPEDITION LIST

BRERETON J

Tuesday, 4 March 2008

1358/08 Douglas Ashley O’Brien v Peter Doherty & Ors

JUDGMENT (ex tempore)

1 HIS HONOUR: By summons filed in this Court on 5 February 2008, the plaintiff Douglas Ashley O'Brien claims, primarily, an order to the effect that a costs assessment certificate issued under (NSW) Legal Profession Act 2004, s 368, by costs assessor G A Salier Esq on 16 July 2007 in costs assessment proceedings 124 of 2007, be set aside. Mr O'Brien also claims an order setting aside a judgment of the Kogarah Local Court in proceedings 856 of 2007, which was obtained by registration of the certificate. Whether that judgment should be set aside is a matter for the Kogarah Local Court and not for this Court; however, it would seem practically inevitable that if the costs certificate were set aside that judgment would have to be regarded as being of no effect, since it depends for its validity and effect on the certificate which underlies it [see Legal Profession Act, s 368(5)].

2 The certificate of assessment was obtained as the result of an application for practitioner/client costs assessment by the present first defendant, Peter Doherty, a solicitor, who is the principal of the firm Lloyd Lancaster Lawyers, which has unnecessarily been joined as second defendant. At an earlier stage of the proceedings I ordered that the third defendant Geoff Rafter, who was an unnecessary party, be removed as a party, and Mr O’Brien discontinued against the fourth defendant Law Society of New South Wales, which was also an unnecessary party.

3 This Court is given jurisdiction to hear appeals against decisions of cost assessors by Legal Profession Act, s 384, which provides for an appeal as of right by a party to an application for costs assessment who is dissatisfied with a decision of a costs assessor as to a matter of law, and s 385, which provides for an appeal by leave of the Court against the determination of an application for costs assessment, that is to say on matters other than a question of law. The effect of the rules – in particular, UCPR r 50.3(1)(a) – is to require that any such appeal be brought within 28 days of the material date. In this case, the material date was 16 July 2007. However, the Court can extend the time within which such an appeal or application may be brought, under UCPR r 50.3(1)(c), including in an appeal against a costs assessor’s determination [cf Currabulla Holdings Pty Limited v State Bank of New South Wales [2000] NSWSC 232, [87], [88]]. On application for such an extension of time, the fundamental consideration is whether the strict application of the time limitation will or may occasion injustice [Anthony v Chris Savage Pty Ltd] 2003 NSWSC 698; DCL Constructions v Di Lizio [2007] NSWSC 653]. I propose to treat the present application as one for an extension of time within which to seek leave to appeal from the determination of a costs assessor; if that extension be granted, an application for that leave; and if that leave be granted, then an appeal from the determination of the costs assessor.

4 Legal Profession Act, s 385, provides that an appeal is to be by way of a new hearing and fresh evidence, or evidence in addition to or in substitution for the evidence received at the original proceedings, may be given, and that after deciding the questions the subject of the appeal the Supreme Court may, unless it confirms the costs assessor's decision, make such determination in relation to the application as in its opinion should have been made by the costs assessor. In other words, the Court can, if minded to do so, substitute its own decision on the application for assessment for that of the costs assessor. However, under s 389, it can also refer the matter to a costs assessment review panel.

5 As I will come to explain, the present matter has come on very speedily – at least in one sense – and the ability of the parties – particularly of Mr Doherty – to prepare and adduce evidence on and in answer to the application has been necessarily constrained. For that reason, I think it would be unfair to reach a final determination as to substituting this Court's decision for that of the costs assessor without affording the parties a further opportunity to be heard. Accordingly, if I come to the conclusion that the appeal should succeed, I propose to defer the question of what, if any, determination should be substituted for that of the costs assessor – until the parties have had an opportunity, if they wish to avail themselves of it, of a further hearing, or to address whether the matter should be remitted to a review panel.

6 Following a meeting between Mr O'Brien, Mr Rafter and Mr Doherty on or about 18 September 2006, their respective corporate vehicles Education Cultural Sanctuary Pty Ltd (a corporation controlled by Mr O’Brien) as first party, Lloyd Lancaster Pty Ltd as second party and Geoff Rafter as third party, executed a deed of agreement for joint venture on 21 September 2006 for the acquisition of interests in land on the far north coast of New South Wales, and later another similar agreement for the acquisition of land at Hill End, the effect of which was that Eco Tourist would have a 40% equity, Lloyd Lancaster a 50% equity and Mr Rafter a 10% equity in the joint venture. There is a dispute as to whether part of the consideration for Lloyd Lancaster's interest was that Mr Doherty would perform the legal work associated with the joint venture. On 28 September 2006, Eco Tourist and Mr O'Brien signed a costs agreement with Lloyd Lancaster Lawyers, specifying the rate at which legal costs would be charged. The relationship between the parties soon broke down and was terminated on or about 20 October 2006 when Mr Doherty expressed dissatisfaction with the manner in which the venture was proceeding and said that he no longer wished to be associated with it. On 2 November 2006 he sent to Mr O'Brien and Eco Tourist a letter alleging numerous breaches on their part of the joint venture agreement and purporting formally to terminate the joint venture.

7 On 7 November 2006 Mr Doherty emailed a bill of costs to Mr O'Brien, claiming a sum totalling $40,489.72. On 12 December, Mr Rafter sent a letter to Mr O'Brien demanding repayment of a sum that Mr Rafter claims to have contributed to the joint venture. On 25 January 2007, Mr Doherty filed an application for assessment of his bill of costs, together with a notice to lodge objections. Notices were duly forwarded to the costs-respondent, Mr O'Brien, requiring that any response to the application be filed by 15 February. On 19 February, Mr O'Brien wrote to the Manager Costs Assessment, requesting an extension of a further 14 days. That request was referred to the appointed costs assessor, Mr Salier, who on 5 March 2007 sent a notice to Mr O'Brien requesting a response within 21 days. None was forthcoming, and on 15 May 2007 the assessor sent a further notice to Mr O'Brien, in mandatory terms, requiring a response within a further 14 days. In the absence of any such response, the assessor assessed the bills essentially on a default basis and on 16 July 2007 issued the certificate in a sum of $39,079.62. The Manager Costs Assessment notified Mr O’Brien of the issue of the certificate of assessment. Mr Doherty caused that certificate, as he was entitled so to do, to be registered in the Local Court at Kogarah on 26 July, whereupon judgement was entered for $39,148.62.

8 On 13 August 2007, Mr Doherty procured the issue of a bankruptcy notice, which was served on Mr O'Brien on 9 September 2007. So far as the evidence discloses, there was no application for an extension of time to comply with, or to set aside, the bankruptcy notice. Mr Doherty then issued a creditor's petition in the Federal Magistrate's Court of Australia on 3 October 2007. It appears that difficulty was encountered in service of the petition, since on 15 November 2007 an order for substituted service was obtained from the Federal Magistrates Court. On 12 December a letter giving notice of the order for substituted service and enclosing an amended creditor’s petition was forwarded to Mr O'Brien. The petition came before the Federal Magistrates Court on 21 December 2007, on which occasion Mr O'Brien appeared and sought an adjournment. The registrar adjourned the hearing of the petition to 5 February 2008 and made orders that Mr O'Brien file any notice of opposition and supporting affidavit by 25 January.

9 On 4 February 2008, the day before the adjourned hearing of the petition, Mr O'Brien attended the registry of this Court and was, at his request, provided with a copy of documents in the costs assessment file. On 5 February, he filed the summons in the present proceedings, which was made returnable on 25 March 2008, and also filed an affidavit in the Federal Magistrates Court. He sought a further adjournment of the petition in the Federal Magistrates Court, and the registrar adjourned the hearing of the petition until 26 February 2008 and directed that Mr O'Brien seek an expedited hearing of his application in this Court. Mr O'Brien waited another three weeks until, on 25 February 2008 – again, the day before the adjourned hearing of the petition – he approached the duty judge for an expedited hearing of his application in this Court. Barrett J adjourned that application to the expedition list on 29 February, when it came before me as expedition judge. As the proceedings in the Federal Magistrates Court were adjourned on 26 February until 4 March, I fixed the matter for hearing before me on the next working day, 29 February 2008. The hearing occupied the Court, with some interruptions, until 5:30 p.m. yesterday, and, again with some interruptions, continued this morning until about 12:30 p.m. when I commenced to deliver this judgment.

10 On an application for an extension of time in a context such as the present, an applicant, as well as being required to show an arguable case on the merits, is usually required to offer some explanation for the failure to take within time those steps that ought to have been taken. In this case, the history of default, as will be apparent from the chronology I have already recited, is gross. The explanation offered is not impressive. Essentially it boils down to two matters. First, Mr O'Brien says that he has been affected by a psychiatric condition, said to be depression, which has inhibited him from responding. The evidence of this and its impact on him is very slight. Other than his bare assertion, two medical certificates were tendered at the very last minute of the proceedings – in the course of Mr Doherty's submissions – the effect of which is to suggest that Mr O'Brien has been suffering from depression, perhaps since early 2007, and that he experiences difficulties in his day to day life and in completing tasks and is having ongoing treatment, medication and counselling. The certificates are so general and lacking in detail as to be entitled to little weight, particularly in the light of the time at which they emerged, which deprived Mr Doherty of any real opportunity to test or contradict them. Moreover, it is not uncommon for litigants to be, to a greater or lesser extent, depressed and to experience difficulties in attending to their obligations within time. I do not think that any medical explanation makes much of a case of explanation for the delay.

11 Secondly, Mr O'Brien also explains his failure to challenge the costs assessment any earlier on the basis of a conversation which he claims to have had with the costs assessor – but more likely the Manager Costs Assessment – in which he attributes to the costs assessor or manager statements to the effect that the costs assessment process was concerned only with the arithmetical correctness of and quantum charged by the solicitor, and not the underlying entitlement to charge. Although there is no corroborating evidence of any such conversation, I can well understand how, in early 2007, a costs practitioner might have said something to that effect, or at least be understood by a lay litigant to have done so. Prior to the decision of the Court of Appeal in Doyle v Hall Chadwick [2007] NSWCA 159, which was delivered on 9 July 2007, the prevailing view was that of Dunford J in Muriniti v Lyons [2004] NSWSC 135, [56], to the effect that the powers of costs assessors were limited to determining the value of the work done or services rendered in circumstances where there was no dispute that costs were payable and the only issue was as to the amount. In light of that dictum – which is set out in Hodgson JA’s judgment in Doyle v Hall Chadwick (at [60]) and then disapproved by the Court of Appeal in that decision – Mr O'Brien's protestation that what he was told left him of the opinion that there was nothing he could really do to challenge the assessment process on the basis on which he wished to do so is inherently credible, and I can well understand in those circumstances how at least a self-represented litigant might have gained the impression he claims.

12 Nonetheless, in the face of the gross defaults and the less than satisfactory explanation for the failure to take action any earlier, it would require a strong case on the merits to justify permitting the matter to be reopened now. In this case – although the evidence has ranged far and wide over issues in respect of which I have more than once indicated that I had difficulty in understanding the relevance, and although the submissions similarly range widely – the real question on the merits is whether there is a sufficiently arguable case that Mr Doherty's bill would be materially reduced if properly assessed. In those circumstances, as it seems to me at present, issues about the bouncing of cheques and the application of the bank cheque for $35,000 are peripheral.

13 The essential basis of Mr O'Brien's argument is that the bill charges him for work that was never authorised by him nor performed for his benefit.

14 It needs to be appreciated that a costs agreement of the type in question is a creature of statute – an agreement as to the basis upon which a solicitor is entitled to charge for work done pursuant to a relevant retainer. Sometimes, the retainer may be included in the same document, but it is not necessarily so. In this case, Mr Doherty invokes the joint venture agreement as the prime source of his authority to act on behalf of the joint venture. However, the parties to the joint-venture agreement were Eco Tourist, Lloyd Lancaster and Mr Rafter. It is those parties who, by cl 14 under the heading Legal Costs, agreed that Mr Doherty's firm should be the solicitors who act on behalf of the joint venture, the three vehicle companies, and in respect of any business associated with the joint venture or any of those companies. While it is true that the agreement provides (by cl 16) that the directors – which include Mr O'Brien, Mr Doherty and Mr Rafter – acknowledge that they would be required to enter into a costs agreement with Mr Doherty’s firm, it stipulates that they will do so as "in their capacity as directors of the companies to be formed". The directors personally are not parties to the joint venture agreement. Thus, as it seems to me, while it was contemplated that Mr Doherty’s firm would act on behalf of the joint venture and the three companies, there is nothing in the joint venture agreement that would make any individual – other than potentially Mr Rafter, who was a party himself to the joint venture agreement – personally liable for the costs of Mr Doherty’s firm so acting. Although Mr O'Brien personally has signed the costs agreement – as has Mr Doherty, as a client as well as on behalf of his law firm – there is nothing in that costs agreement in the form or to the effect of a guarantee of the work done on behalf of the joint venture companies or on behalf of Eco Tourist. It seems to me that in so far as work was done on behalf of Mr O'Brien personally or on his instructions, then he would be bound by the costs agreement as to the amount that could be charged in respect of such work, but his execution of the costs agreement does not make him liable as a guarantor for work done on behalf of Eco Tourist, let alone work done on behalf of the joint venture. The joint venture agreement reinforces this conclusion by its reference to execution of the costs agreement as being in the partners’ capacity as directors.

15 Next, even if work done on behalf of the joint venture were chargeable against Mr O'Brien, it is very difficult to see why the letter of 2 November 2006 – for which Mr Doherty charged three hours time or $1200 – falls within that category. This was self-evidently a letter written on behalf of Mr Doherty as one of the joint venture partners and possibly Mr Rafter as another of those partners, making complaints against Mr O’Brien and Eco Tourist. It was not part of acting for the joint venture, but a contentious dispute between partners to the joint venture. I do not see how on any view it could be chargeable against Mr O'Brien.

16 Thirdly, the bills charge for work which at least arguably was performed by Mr Doherty, not as a solicitor retained by the joint venture to give legal advice to it, but in his capacity as one of the three joint venture partners. One example of this is his attendance at a board meeting of the joint venture company on the afternoon of 28 September 2006, which is recorded in the bill as an attendance on Mr Sharp and Mr Rafter for conference, but which is also recorded in board minutes of the same date – for the preparation of which a further charge was made – as a board meeting of the same duration as the claimed conference. It seems to me at least strongly arguable that Mr Doherty's attendance at the board meeting was part of his role as the director of one of the three joint venture companies, and not qua solicitor for the joint venture. Similarly, it seems to me at least strongly arguable that his visit to the Gold Coast on 14 October 2006 for a day – for which he charged a total of $4640, plus airfares – was undertaken in his capacity as a joint venturer rather than as a solicitor. It is at first sight difficult to see why, as well as being a joint venturer with an interest in the venture which he was no doubt advancing by participating in board meetings and visits of this sort, he should also be entitled to charge all his time for doing so against the joint venture – let alone against one only of the joint venture partners (Eco Tourist), let alone against the natural person who controlled Eco Tourist.

17 Fourthly, the bill charges the whole liability for all of Mr Doherty's costs against Mr O’Brien who, even if he was somehow personally liable, was the director of but one of the three joint venture partners. It emerged that Mr Doherty has also given a bill for the same costs to Mr Rafter, who has sought to have it assessed, which process has apparently been deferred pending the outcome of these proceedings. But what does not emerge at all is that Mr Doherty does not appear to have taken into account or charged against himself one-third of the liability. Accepting for the sake of argument that all three joint venture partners were jointly and severally liable to Mr Doherty’s firm for its costs, in circumstances where Mr Doherty's own company Lloyd Lancaster Pty Limited was one of the joint venture partners so liable, and Mr Doherty signed the costs agreement personally as a client, just as Mr O’Brien did, Mr Doherty could be no less liable than Mr O’Brien. If all three joint venture partners (and their natural person principals) were jointly and severally liable for Mr Doherty’s costs, then it may be that if the creditor were not one of those liable, it could recover from any one or more of them, who would then have a right of contribution against the others. But where the creditor is also one of three jointly and severally liable debtors, it seems to me that it cannot recover more than two-thirds of the debt from either of the other two.

18 Mr Doherty's response, as I understand it, is that he is entitled to throw the whole liability onto Mr O'Brien, because it is said that Eco Tourist is in breach of the joint venture agreement. Once again, assuming that the Mr O’Brien can somehow be personally liable despite the absence of a guarantee, I do not see how Mr Doherty's firm has a right to do anything but recover its costs in accordance with the joint venture agreement and the costs agreement, from which the entitlement to charge and recover costs is derived. There is nothing in the retainer or the costs agreement that authorises the law firm to require a party in breach of the joint venture agreement to pay a greater share than it would otherwise be liable to pay, nor to exonerate the innocent party from any liability for costs. If there has been a breach of the joint venture agreement, then the remedy of the innocent joint venture partner is not to throw the whole costs liability on the other partner, but to claim damages – not, in effect, to decide unilaterally that it is entitled to recover all the costs from one party to the exclusion of the others on the basis of some breach of agreement.

19 Fifthly, Mr O'Brien contends that the true agreement between the parties was that Mr Doherty was given equity in the joint venture in return for his contribution of capital and his agreement to perform legal work, to the intent that he would not be entitled to charge for legal work. The evidence of Mr O’Brien and Mr Sharp supports that claim. It suffices to say on this application that I did not find their evidence incredible. Mr Doherty challenged Mr Sharp's version in cross-examination only when prompted to do so, and Mr Sharp was unshaken. Nor was his version contradicted in sworn testimony by Mr Doherty, but bearing in mind the late notice of Mr Sharp's evidence and the short time available to Mr Doherty to deal with it and the speed with which the case came on, I would not determine this issue finally against Mr Doherty on that basis at this stage. But there is at least a serious argument to the effect for which Mr O'Brien contends, although the documentary evidence – in particular the joint venture agreement itself and an e-mail from Mr Doherty to Mr Sharp of 27 September 2006 – suggests that it was contemplated that Mr Doherty’s firm would be entitled to charge legal costs, but that they were to be recoverable only out of joint venture profits. In the joint venture agreement, clause 11 provides for the application of proceeds upon the realization of profit including the sale of any property, and includes as the second matter in priority payment of proper legal expenses arising from the sale and the fourth other legal expenses of Mr Doherty’s firm acting on behalf of the joint venture or any of the three companies; clause 12 provides for the event that there is no sale of property and is silent as to payment of legal expenses; and clause 17 under the heading “Legal Costs” provided that the costs of and incidental to the preparation and execution of the Deed and any other legal work undertaken in respect of either the Joint Venture, the Companies or business should be paid prior to the distribution of any profits. The e-mail, which submitted the costs agreement for execution, stated that the costs would be paid out of any profits. In my view there is a very strongly arguable case that Mr Doherty’s firm was to be entitled to recover legal costs only in the event that there were profits – which event, it is common ground, has not eventuated.

20 There are, therefore, multitude grounds on which it seems to me that Mr O'Brien has good prospects of establishing either that he is not liable for the costs that Mr Doherty has claimed at all, or if he is that his liability is very significantly reduced. The prima facie strength of his case is such that it seems to me that, despite his gross procedural defaults, failing to set aside the certificate of assessment would involve a high degree of risk of a serious injustice.

21 Accordingly, I make the following orders:

(1) Extend time for filing an application for leave to appeal from the certificate of assessment in costs assessment proceedings 124 of 2007 dated 16 July 2007 up to and including 5 February 2008, upon which date the summons herein was filed;

(2) Grant to the plaintiff, Douglas Ashley O’Brien, leave pursuant to Legal Profession Act , s 385(1), to appeal to the Court against the determination made by the costs assessor in the said costs assessment proceedings;

(3) Allow the appeal;

(4) Order that the certificate of costs assessment dated 16 July 2007 in proceedings 124 of 2007 be set aside.

22 Normally on an application to set aside a default judgement, or to be let in to defend proceedings that have proceeded in a defendant’s absence, the successful applicant is required to pay the unsuccessful respondent's costs on the basis that it requires an indulgence in a situation in which it has occasioned its own misfortune and put the other party to unnecessary costs and inconvenience. This case is analogous to that situation. The relevant considerations are, it seems to me, first, that not only is this a case in which Mr O'Brien has needed an indulgence from the Court to be permitted to bring his appeal at this stage, but in addition the history of default is a very considerable one, involving the assessment proceedings and the bankruptcy proceedings. Mr Doherty has no doubt been put to unnecessary inconvenience and costs.

23 The next relevant consideration – which points in the other direction – is that prima facie, and as I have said on such material as is currently before the Court, there seems to be strong reason to say that Mr O'Brien ought never have been held personally liable. On an application to set aside a default judgement, while the usual position is that the successful applicant is required to pay the costs of and thrown away by the application, that does not extend to the remainder of the rest of the case; if ultimately successful, the applicant/defendant will ordinarily be awarded the other costs of the proceedings generally.

24 Contrary to his submissions, I do not think I should take Mr O'Brien's financial circumstances into account on this application. Insofar as inconvenience to the Court is concerned, that is by-the-by so far as costs are concerned; the courts are here to hear cases and in order to achieve justice this case had to be heard urgently.

25 The present application has involved the hearing of the appeal on the merits (although not to final resolution of what if any order should be substituted), as well as of the application for an extension of time. On the hearing on the merits, Mr O'Brien would ordinarily be entitled to a costs order in his favour – although, as a self represented litigant, that would really amount only to his out of pocket disbursements.

26 Bearing in mind, first, Mr O'Brien's need for indulgence, secondly the history of default, thirdly, the strength of his case on the merits and, fourthly, that he ultimately succeeded in the appeal, it seems to me that the just result is that there should be no order as to costs, to the intent that each party bear its own costs of the proceedings to this point. I so order.

27 I adjourn the proceedings to Friday, 28 March 2008 at 11 a.m. before me, to follow the expedition list that day, for further directions. If Mr Doherty decides that he does not wish to pursue further the application for assessment, he may notify my associate in writing with a copy to Mr O'Brien of such determination, and I will substitute a nil assessment. Otherwise, on that day I will consider what, if anything, further needs to be done to finalise the matter for hearing, including whether the matter should be remitted to a review panel.

28 The documents produced in answer to the subpoena will remain in Court until further order. Either party may have access to them, by arrangement with my associate or the exhibits office, under the supervision of an officer of the Court.

29 I direct that the orders made today be entered forthwith.

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