Pederick Lawyers P/L v Pomeroy - [2019] SASC 81

SUPREME COURT OF SOUTH AUSTRALIA
(Applications Under Various Acts or Rules: Civil)
PEDERICK LAWYERS P/L v POMEROY
[2019] SASC 81
Judgment of The Honourable Justice Stanley
23 May 2019
PROCEDURE - CIVIL PROCEEDINGS IN STATE AND TERRITORY COURTS - MOTIONS, INTERLOCUTORY APPLICATIONS AND OTHER PRE-TRIAL MATTERS
Application for an adjudication of costs pursuant to clause 37(5) of Schedule 3 to the Legal Practitioners Act 1981 (SA).
In 2013 the plaintiff brought proceedings in this Court against the defendant for recovery of moneys it alleges are owed for legal costs. The Public Trustee was appointed as litigation guardian for the defendant on 18 November 2015. The defendant’s litigation guardian admitted liability for legal costs on 2 October 2018. The dispute between the parties is now confined to the quantum of those costs. The defendant brought an application for an adjudication of costs on 5 December 2018. It is not in dispute that the application is out of time.
Held:
1. The issue of the quantum of costs only became relevant in late 2018 when the Crown Solicitor commenced acting for the litigation guardian and the liability for costs was admitted. The defendant then acted promptly in applying for an adjudication. This provides a satisfactory explanation for the delay.
2. The application for adjudication of legal costs is granted.
Legal Practitioners Act 1981 (SA) Schedule 3, clause 37(4)(a) and 37(5); Supreme Court Civil Rules 2006 (SA) r 4, r 79(3), referred to.
Frigger v Murfett Legal Pty Ltd [2012] WASC 447; Golden Destiny Investments Pty Ltd v McCrohan Bergseng Partners Trading as MBP Legal [2016] NSWSC 1639; Harvey v Goodman Law Pty Ltd [2011] NSWSC 340; Iloski v Boutique Lawyers Pty Ltd [2016] VSC 349, applied.
Hollidge v Pomeroy & Ors [2014] SASC 45, discussed.
Commercial Union Assurance Co of Australia Ltd v Ferrcom Pty Ltd (1991) 22 NSWLR 389; Jones v Dunkel (1959) 101 CLR 298; Milliman v Rochester Railway Company 39 NYS 274 (1896); Renshaw v Queensland Mining Corp Ltd (No. 2) [2016] FCA 1482, considered.

PEDERICK LAWYERS P/L v POMEROY
[2019] SASC 81
Civil
STANLEY J.
Introduction

This is an application by the defendant pursuant to clause 37(5) to Schedule 3 of the Legal Practitioners Act 1981 (SA) (the Act) for a determination that it is just and fair for an application for adjudication of legal costs be dealt with by the Court, notwithstanding that it is made out of time. The application was made on 5 December 2018.
Pursuant to clause 37(4)(a) of Schedule 3 to the Act, applications for adjudication must be made within six months after the bill was given or the request for payment made.
The plaintiff conducted an incorporated legal practice. In 2011 and 2012 it acted for the defendant in a dispute over his father’s estate. The plaintiff was retained pursuant to a retainer agreement dated 14 July 2011. Invoices for legal costs were rendered during the period from mid-July 2011 until early December 2012. Those invoices are the subject of the application. There is no dispute that invoices were provided. The invoices total $335,493.24. The defendant has paid somewhere in excess of $40,000.
In 2013 the plaintiff brought proceedings in this Court against the defendant for recovery of moneys it alleges are owed for legal costs. The defence to those proceedings for some time has been conducted by the defendant’s litigation guardian, the Public Trustee. The Public Trustee was appointed as litigation guardian for the purpose of these proceedings by order of a Master of this Court on 18 November 2015.
The defendant’s litigation guardian admitted liability for legal costs on 2 October 2018. The dispute between the parties is now confined to the quantum of those costs.
There is no dispute that the application for an adjudication of legal costs is out of time.
Clause 37(5) of Schedule 3 to the Act
Clause 37(5) confers a discretion on the Court to deal with an application for adjudication of costs brought out of time where the Court is satisfied that it is just and fair to do so, after having regard to the delay and the reasons for the delay.
The discretion is to be exercised judicially. The authorities have developed a body of organising principles pursuant to which the discretion is to be exercised. They are:
1.The applicant bears the onus of establishing that it is just and fair for the application to be dealt with after the expiry of the six-month period prescribed by clause 37(4)(a) of Schedule 3 to the Act.[1]
2.The relevant test is whether it is “just and fair” for the application for adjudication to be dealt with after the six-month period “having regard to the delay and the reasons for the delay”.[2] The length of the delay is relevant: whether it is short or significant.[3] Further, the delay in bringing the application must be satisfactorily explained.[4]
3.Fairness and justice require a consideration of the interests of both the applicant and the respondent, not merely the interests of the applicant.[5]
4.Actual prejudice occasioned to the practitioner if the application were granted is relevant. In addition, there is presumed prejudice to a practitioner if there is delay in, or postponement of, the payment of anything which the practitioner may become or remain entitled to be paid as costs by a client in accordance with the bill of costs.[6] In addition, there is other presumptive prejudice occasioned by the effluxion of time due to the loss of evidence and the oppressive nature of proceedings brought out of time. Further, legal practitioners are entitled to assume that applications for adjudication will not be brought after six months, and that they can proceed to arrange their affairs accordingly. It is possible that a delay in seeking an assessment may prejudice a legal practice because memories may fade and the relevant legal personnel may move on to other positions.[7]
5.Whether or not there is any evidence clearly showing overcharging.[8]
6.Knowledge of an applicant’s rights to apply for an adjudication, including knowledge of the limitation period, is a relevant consideration, as is absence of such knowledge.[9]
7.Whether the applicant has been represented by other solicitors after the bills the subject of the proposed adjudication were rendered and whether or not the applicant sought or was given advice about applying for an adjudication of costs.[10]
[1]    Harvey v Goodman Law Pty Ltd [2011] NSWSC 340 at [13].
[2]    Harvey v Goodman Law Pty Ltd [2011] NSWSC 340 at [13].
[3]    Frigger v Murfett Legal Pty Ltd [2012] WASC 447 at [32].
[4]    Golden Destiny Investments Pty Ltd v McCrohan Bergseng Partners Trading as MBP Legal [2016] NSWSC 1639 at [35], [37] and [46].
[5]    Iloski v Boutique Lawyers Pty Ltd [2016] VSC 349 at [13].
[6]    Harvey v Goodman Law Pty Ltd [2011] NSWSC 340 at [13].
[7]    Golden Destiny Investments Pty Ltd v McCrohan Bergseng Partners Trading as MBP Legal [2016] NSWSC 1639 at [44]; Iloski v Boutique Lawyers Pty Ltd [2016] VSC 349 at [14]; Frigger v Murfett Legal Pty Ltd [2012] WASC 447 at [26].
[8]    Golden Destiny Investments Pty Ltd v McCrohan Bergseng Partners Trading as MBP Legal [2016] NSWSC 1639 at [42]; Frigger v Murfett Legal Pty Ltd [2012] WASC 447 at [30] and [32].
[9]    Golden Destiny Investments Pty Ltd v McCrohan Bergseng Partners Trading as MBP Legal [2016] NSWSC 1639 at [32] and [46].
[10] Golden Destiny Investments Pty Ltd v McCrohan Bergseng Partners Trading as MBP Legal [2016] NSWSC 1639 at [34]; Iloski v Boutique Lawyers Pty Ltd [2016] VSC 349 at [13].
The evidence
The defendant relies upon an affidavit of Rebecca Jane Field. Ms Field is a legal officer employed within the office of the Public Trustee. As part of her role, she provides instructions on behalf of persons for whom the Public Trustee has been appointed as litigation guardian. Ms Field assumed responsibility for this matter as litigation guardian for the defendant in September 2017. Her researches indicate that in March 2015 enquiries had been made regarding the engagement of solicitors to represent the defendant on a pro bono basis, as the Public Trustee held no funds on the defendant’s behalf with which to pay for legal representation in relation to the claim brought against him by the plaintiff for recovery of legal costs.
As a result, other solicitors were instructed by the Public Trustee to act. When Ms Field took over the matter in September 2017, the action was being defended on the basis there was a real issue as to the defendant’s capacity to have entered into the retainer agreement with the plaintiff for the provision of legal services. By September 2018 those solicitors were no longer able to act in the matter and, on Ms Field’s instructions, the Crown Solicitor’s Office within Public Trustee filed a notice of acting on behalf of the defendant.
Subsequently, the defendant made it clear to Ms Field that he did not wish the action to be defended on the basis that he lacked capacity to enter into contractual relations with the plaintiff at the time of the retainer agreement. As a result, Ms Field formed the view that the most appropriate course of action would be to apply for an adjudication. She considered this would be the least expensive and most efficient course to determine the appropriateness of the charges rendered by the plaintiff. To that end, Ms Field gave instructions to Mr Lawton of the Crown Solicitor’s Office within Public Trustee to engage Mr Tim Cogan, a solicitor with extensive experience in costs, to represent the defendant at adjudication.
The plaintiff relies on two affidavits of Dimitra Pederick. Ms Pederick is the sole director of the incorporated legal practice, Pederick Lawyers, which acted for the defendant pursuant to the retainer agreement. That retainer agreement provided cost disclosures which explained, inter alia, the client’s right to an adjudication of costs, a copy of the terms of engagement, schedule of fees and charges and scale of costs. The schedule of fees provided that Ms Pederick’s hourly rate at the time was $300 per hour (exclusive of GST), which was in accordance with the applicable scale of costs. That retainer agreement was provided to the defendant’s other solicitors. Those solicitors inspected the plaintiff’s files relating to the defendant in July 2016. Ms Pederick arranged for the files to be assessed by Mr Graeme Arnold of Arnold Costs Solicitors, a firm specialising in the assessment of legal costs, in June 2016. That report was exhibited to Ms Pederick’s affidavit sworn 25 July 2016. That report was provided to the defendant’s other solicitors in 2016. The report assessed the reasonable value of the work done would be $312,000, representing a global reduction of seven per cent.
Ms Pederick swore an affidavit of 19 March 2019. She deposes that a Master of this Court, in September 2014, asked the defendant whether he wished to have the files taxed. The defendant said he did not. In a subsequent judgment delivered on 18 November 2015, the master noted that no application to tax the costs had been made.
Ms Pederick deposed to a number of matters which she contends constitute actual prejudice which would result from any order permitting adjudication to occur. First, she has retired from legal practice over three and a half years ago. The files in relation to this matter, which are voluminous, have been placed in storage. Second, the practice no longer employs any staff, apart from Mr John Pederick, a solicitor whose role now is to conduct this litigation and to attend to incidental matters with respect to winding up the practice. Third, the employees of the plaintiff who were involved at the time and had knowledge of the defendant’s estate matter are no longer available, having long since moved on to other employment, or overseas. Ms Pederick says the plaintiff would need to employ staff to assist Mr Pederick on any adjudication. Fourth, the delay in resolution of this matter causes Ms Pederick considerable anxiety and stress. The work the plaintiff would have to perform in an adjudication so long after the work was done would be costly and time consuming, as Ms Pederick’s recollection of events has faded. This is aggravated by the absence of other employees who assisted her during the relevant period of 2011 and 2012. There would be a great deal of work required to go through numerous archive boxes and hundreds of pages of old files for the purposes of an adjudication. That would not be avoided even if a cost expert was engaged to assist and represent the plaintiff in any adjudication. Fifth, Ms Pederick cares for her aged and infirm mother. Her capacity to do so would be reduced by the work required if any adjudication was ordered. Sixth, an award of costs or interest would not adequately compensate Ms Pederick for the prejudice which an order for adjudication would occasion.
Consideration
Whether to grant an extension of time is a discretionary decision. It requires the consideration and weighing of the principles identified above. Ultimately, it is a question of determining whether it is fair and just in the particular circumstances of the case for the application for adjudication to be dealt with notwithstanding the expiry of the six-month period. It is for the defendant to persuade the Court it should do so. The principal considerations are the delay and the reasons for the delay.
In this case the delay is significant. It is at least five years and four months and up to six years and eight months since the expiry of the six-month period. The length of the delay is to be assessed by reference to the period permitted for the bringing of an application for adjudication of legal costs i.e. six months. On any view, the delay is very substantial. That is plainly a factor weighing heavily against the exercise of the discretion in the defendant’s favour.
The plaintiff submits that the defendant has failed to provide a satisfactory explanation for the length of the delay. It says there are a number of matters relevant to the failure of the defendant to provide a satisfactory explanation for the length of the delay. The plaintiff submits that the retainer agreement between the parties disclosed the defendant’s right to an adjudication of costs. However, there is no evidence that the defendant was given notice of the period within which an application for adjudication had to be made. While in 2014 a Master of this Court raised the question of taxation of costs with the defendant, this was at a time before the appointment of a litigation guardian. New solicitors commenced acting for the defendant in mid-2015 and remained on file until September 2018. The plaintiff submits that those solicitors were aware that no application for an adjudication or taxation had been made. That may be accepted but at that time the basis of the dispute was the anterior and fundamental question of whether there was any liability for those costs rather than the quantum of those costs. In those circumstances it would have been illogical and inconsistent for an application to be made for an adjudication.
The plaintiff submits that there is no evidence from the solicitors explaining what advice was given to the defendant concerning his rights to make an application for an adjudication. The plaintiff contends that there is a failure by the defendant to explain why no adjudication was sought in 2011 and 2012; why no adjudication was sought in the within proceedings since they commenced in 2013; why the master was told in 2014 that the defendant did not want a taxation; why the defendant has now changed his position; what advice the defendant’s then solicitors gave concerning his right to seek an adjudication from 2015 to 2018; why no adjudication was sought promptly following the setting aside of the default judgment in December 2015; and why no adjudication was promptly sought following the inspection of the files by the defendant’s then solicitors or the provision of the Arnold costs report in July 2016.
The plaintiff submits that the Court should draw an inference adverse to the defendant from the failure to adduce evidence explaining these matters in accordance with the principle in Milliman v Rochester Railway Company[11] subsequently applied by a member of the Court of Appeal of New South Wales in Commercial Union Assurance Co of Australia Ltd v Ferrcom Pty Ltd,[12] and a single judge of the Federal Court of Australia in Renshaw v Queensland Mining Corp Ltd (No. 2).[13]The principle in Milliman v Rochester is an extension of the principle in Jones v Dunkel.[14] The principle is that a failure to ask a witness, called by a party, questions upon which the witness would be expected to give evidence leaves open an inference that the witness could say nothing in response which would have assisted the party’s case.
[11] 3 App Div 109; 39 NYS 274 (1896).
[12] (1991) 22 NSWLR 389 per Handley JA at 419.
[13] [2016] FCA 1482 at [100].
[14] (1959) 101 CLR 298.
The plaintiff submits that the failure to call evidence from the defendant’s solicitors who were acting during the period from 2015 to 2018 permits an inference to be drawn that their evidence would not have assisted the defendant’s case. In particular, it should be inferred that there was nothing that arose as a result of the solicitor’s inspection of the files in 2016 which suggested an application for adjudication should be made.
I accept that last inference is open. The drawing of that inference, however, does not lead to the conclusion that no satisfactory explanation for the delay has been provided. The basis of the defence being propounded at that time did not provide any reason or need to consider an adjudication of costs. It was only when the liability for costs was admitted that the issue of the quantum of costs became relevant. That only occurred when the Crown Solicitor commenced acting for the litigation guardian in late 2018.
The dispute over the defendant’s father’s estate began as a probate action commenced by the executor of the estate in November 2011. The defendant had already retained the plaintiff by this time. On 31 March 2014 a Master of this Court found the defendant to be a person under a disability within the meaning of r 4 of the Supreme Court Rules and appointed the Public Trustee as his litigation guardian pursuant to r 79(3) of the Rules.[15] That order was made for the purpose of the probate action. Nonetheless, I am satisfied that since that time the defendant has been a person under a disability. The order was made on the basis of a finding by the master that the defendant suffers from post-traumatic stress disorder with delusional beliefs.[16] The Public Trustee was later appointed as his litigation guardian for the purpose of these proceedings on 18 November 2015.
[15] Hollidge v Pomeroy & Ors [2014] SASC 45.
[16] Hollidge v Pomeroy & Ors [2014] SASC 45 at [92].
The evidence establishes that until late in 2018 the defence to the plaintiff’s claim was being conducted on the sole basis that the retainer agreement was unenforceable as the defendant lacked the legal capacity to enter into it. For that reason no consideration was given to seeking an adjudication of costs until late in 2018 when that defence was abandoned and liability for costs was admitted, with the quantum of costs put in issue. Until then, there was no reason to undertake an adjudication of costs. Once the forensic decision was made to admit liability for costs, the application for adjudication was made relatively promptly on 5 December 2018. In the circumstances this is a satisfactory explanation for the length of the delay.

I accept that the plaintiff has suffered some prejudice as a result of the delay. It can be accepted that memories of the detail of the matter are likely to have deteriorated with the effluxion of time. I accept that employees of the plaintiff’s firm have moved on and that Ms Pederick has retired. No doubt the continuation of this matter has been a source of stress and anxiety to Ms Pederick and to have to retrieve the files from storage and assemble and organise them for the purposes of an adjudication will require some time and effort. Nonetheless, I accept the submission of the defendant that the conduct of the adjudication can be expected to be overwhelmingly document based. Much of the work can be undertaken by a costs expert.
I accept that there is no evidence clearly showing overcharging. Nonetheless, Mr Arnold in his report accepted that it is likely that there would be a reduction in the costs charged upon an adjudication. He allowed a sum of over $23,000. While this was a relatively small percentage of the overall charges, it is nonetheless a substantial sum. I consider it is likely that the defendant would succeed in an adjudication to the extent of obtaining a reduction of at least this amount.
Conclusion
This application is finely balanced. The length of the delay is a significant factor weighing against allowing the application. However, that is only one factor that the Court must weigh in the exercise of the discretion. This is an unusual situation where the defendant is and has been for a long period of time under a disability. While the order appointing a litigation guardian in the probate action was not made until March 2014, I note that the application was brought on 25 October 2012.[17] I am prepared to infer that the defendant was under a disability from that time. The nature of that disability is a serious psychiatric illness. I accept that disability impaired the defendant’s capacity to make decisions about this action prior to the appointment of the litigation guardian on 18 November 2015.
[17] Hollidge v Pomeroy & Ors [2014] SASC 45 at [15].
Thereafter, the defence of the action was conducted on the sole basis that the retainer agreement was unenforceable because of the defendant’s lack of capacity to have entered into it. That remained the position until late 2018 when liability for costs was admitted. The defendant then acted promptly in applying for an adjudication. As I have indicated, I consider this provides a satisfactory explanation for the delay.
Notwithstanding the absence of clear evidence of overcharging, the costs charged are very high, and there is evidence that it is likely the defendant will succeed on an adjudication in having those costs reduced by at least $23,000. In my view that supports granting the application.
While I accept that allowing the application to be dealt with will occasion some prejudice to the plaintiff, the adjudication will be largely document based. While an adjudication will prolong the stress and anxiety experienced by Ms Pederick, that will be ameliorated by the engagement of a costs expert. In the end, however, I consider granting the application to be just and fair. In these circumstances, that is the price to be paid by the plaintiff so that justice can be done. However, the position of the plaintiff is protected to some extent by the power of the Court on an adjudication to award interest.[18]
[18] Clause 49 of Schedule 3 to the Act.
Accordingly, I would grant the application for an adjudication of legal costs.