Peter Szabo Family Law Pty Ltd (In Liq) as Trustee for The George Peter Szabo Family Trust (ABN 68 103 907 416) vs Anh Nguyen (a pseudonym)
[2024] VSC 79
•1 March 2024
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COSTS COURT
COSTS COURT LIST
S ECI 2023 02494
BETWEEN:
| PETER SZABO FAMILY LAW PTY LTD (IN LIQUIDATION) AS TRUSTEE FOR THE GEORGE PETER SZABO FAMILY TRUST (ABN 68 103 907 416) | Applicant |
| v | |
| ANH NGUYEN (A PSEUDONYM) | Respondent |
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JUDGE: | Irving AsJ |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 25 January 2024 |
DATE OF JUDGMENT: | 1 March 2024 |
CASE MAY BE CITED AS: | Peter Szabo Family Law Pty Ltd (in liq) as Trustee for The George Peter Szabo Family Trust v Nguyen (a pseudonym) |
MEDIUM NEUTRAL CITATION: | [2024] VSC 79 (revised 4 March 2024) |
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PRACTICE AND PROCEDURE – Costs – Order 63 – Taxation of costs - Order 63.43 (2)(b) - Requirements of undertaking - Application for declaration dismissed.
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APPEARANCES: | Counsel | Solicitors |
| For the Applicant | Mr S Buchanan of counsel | Mr S Sizenko of VLCA as agent for Livaditis & Co |
| For the Respondent | Ms S Cherry of counsel | Mr A O’Bryan |
TABLE OF CONTENTS
Introduction................................................................................................................................... 1
Materials relied upon................................................................................................................... 1
The undertaking............................................................................................................................ 2
The respondent’s submissions.................................................................................................... 2
Analysis.......................................................................................................................................... 3
Conclusion.................................................................................................................................... 11
HIS HONOUR:
Introduction
The applicant in this proceeding is a law practice in liquidation. The respondent was a client of that law practice. The applicant seeks an assessment (taxation) of its costs, including unpaid invoices for counsels’ fees, of representing the respondent by retainer in relation to family law proceedings.
In accordance with Order 63 of the Supreme Court (General Civil Procedure) Rules 2015 (Rules), a Costs Registrar of the Court has been allocated the task of conducting the taxation. A preliminary issue has arisen that the Costs Registrar has referred to this Court for determination.
The issue is whether the unpaid invoices for counsel’s fees are disbursements which may be allowed on the taxation. That issue turns on an undertaking given to the Court by the Liquidator of the applicant and the construction of r 63.43(2)(b) of the Rules (the subrule). That subrule provides that an unpaid disbursement may be allowed if ‘an undertaking to the Court, satisfactory to the Costs Court, is given that it will be paid within a time specified in the undertaking’.
The respondent seeks a declaration that the Liquidator’s undertaking is not satisfactory to the Court because it does not comply with the requirements of the subrule, and because if the undertaking were acceptable to the Court, irreparable prejudice would flow to the respondent.
For the reasons that follow I have decided that the Liquidator’s undertaking is satisfactory to the Court.
Materials relied upon
The respondent relied on written submissions dated 16 November 2023. The applicant relied on written submissions dated 8 December 2023. During the course of the hearing, the applicant sought to rely on an informal proof of debt form naming Jill Rivers, one of the counsel whose fees are said to be a disbursement, as creditor. The respondent did not object to the Court receiving the document but argued the Court should not give the document any weight. Both parties supplemented their written submissions with oral submissions at the hearing.
The undertaking
The undertaking given by the Liquidator is in the following terms:
[The Liquidator], hereby undertake[s] to pay all unpaid counsel’s fees incurred by [the law firm] on behalf of [the respondent] in Family Court of Australia/Federal Circuit and Family Court of Australia proceeding[s]… upon monies being received from [the respondent] on account of same pursuant to orders of the Costs Court or pursuant to an agreement being reached with [the respondent] in relation thereto, with the timing for the payment of same to be within 30 days of receipt of the said monies, subject to the provisions of the Corporations Act 2001 (Cth).
The respondent’s submissions
The respondent raised several arguments why the Court should not be satisfied by the Liquidator’s undertaking. In summary, those arguments were as follows.
First, the undertaking does not meet the bare requirement of the rule because it is conditional on the provisions of the Corporations Act 2001 (Cth) (Corporations Act), in circumstances where those provisions prevent the payment because the relevant counsel have not submitted proofs of their debts in the liquidation.
Second, the payment component of the undertaking is not capable of performance. It is unknown whether unsecured creditors in the liquidation will receive any distribution at all and the Court should accept that counsel will not be paid the full amount of the invoices.
Third, the undertaking does not contain the mandatory timeframe within which the disbursements will be paid because the timeframe provided is contingent and circular.
Fourth, acceptance of the undertaking and allowance of unpaid counsel’s fees is likely to result in a breach of the indemnity principle as the Liquidator has not demonstrated any liability to pay the amounts in question (as opposed to some lesser sum on a distribution in the liquidation).
Fifth, an unpaid disbursement is not a ‘disbursement’ as that term is understood at law. In this regard the respondent relied on the case of Equuscorp Pty Ltd v Wilmoth Field Warne (No. 4)[1] (Equuscorp).
[1][2006] VSC 28 [56].
Sixth, acceptance of the undertaking would be contrary to the interests of justice and will cause serious prejudice to the respondent because, while she is the beneficiary of an inter partes costs order in the family law proceeding, the Federal Circuit and Family Court of Australia (FCFCA) has indicated an unwillingness to tax and allow any unpaid disbursements, including counsel’s fees. If the Court accepts the undertaking as an assurance that counsel’s fees will be paid, the two Courts will be taking inconsistent positions on their respective costs assessments.
At the hearing, the respondent also argued that because the law practice had contravened its disclosure obligations, pursuant to s 178 of the Legal Profession Uniform Law Application Act 2014 (LPUL), the respondent was not required to pay the legal costs until they were assessed or any costs dispute determined by the Victorian Legal Services Board and Commissioner (the s 178(1)(b) argument).
Analysis
The approach to the interpretation of the Court’s Rules is not materially different to the interpretation of legislation and accordingly the same rules apply. Accordingly the text of the subrule is to be given its ordinary meaning in its context and having regard to the purpose of the Rules.
Subrule 63.43 falls within Part 5 of Order 63 of the Rules, being Procedure on taxation. The subrule provides:
(1)A disbursement may be included in a bill notwithstanding that it has not been paid if the bill states that fact.
(2)On the taxation, the disbursement may be allowed if –
(a) it is paid before taxation; or
(b)an undertaking to the Court, satisfactory to the Costs Court, is given that it will be paid within a time specified in the undertaking.
The Court’s power to make Rules of Court is found in s 25 of the Supreme Court Act 1986 (Vic). That power extends to making rules about the practice and procedure of the Costs Court, including, but not limited to generally providing for matters in respect of the assessment, settling, taxation and review of costs by the Costs Court.[2] Order 63 of the Rules has been made under s 25 of the Supreme Court Act 1986 (Vic) and ‘all other enabling powers’.[3] Those other enabling powers include s 50 of the Interpretation of Legislation Act 1984 (Vic) which permits the Court to make such rules ‘including rules or orders with respect to costs’ as appear to the Court to be necessary for regulating the practice and procedure of the Court in the exercise of its jurisdiction.
[2]Supreme Court Act 1986 (Vic) s 25(1)(da)-(dd).
[3]Supreme Court (General Civil Procedure) Rules2015 (‘Rules’) r 1.02.
Section 35 of the Interpretation of Legislation Act 1984 (Vic) provides guidance about the principles of and aids to interpretation of the Court’s Rules. That section provides that in the interpretation of a subordinate instrument, which includes the Rules of the Court, a construction that would promote the purpose or object underlying the subordinate instrument (whether or not that purpose is expressly stated) shall be preferred to a construction that would not promote that purpose or object.
Section 17D(3) of the Supreme Court Act 1986 (Vic) provides that the Costs Court must exercise its jurisdiction with as little formality and technicality, and with as much expedition, as the requirements of the Supreme Court Act, the Rules and the proper consideration of the matters before the Court permit.
Order 63 of the Rules deals with costs. The Order is divided into nine parts. Part 1 deals with preliminary matters including that costs in proceedings are to be taxed in the Costs Court by a Costs Judge or, if a Costs Judge so directs, by a judicial registrar, a Costs Registrar, a Deputy Costs Registrar, the Prothonotary or a Deputy Prothonotary, as the case requires.[4] Part 2 deals with entitlement to costs. This Part provides guidance, subject to the Court ordering otherwise, as to the liability to pay costs in particular circumstances. Part 3 sets out the various bases upon which costs may be allowed and taxed, including the standard and indemnity bases. Part 3A deals with costs for pro bono representation. Part 4 sets out the powers of the Costs Court and makes provision for the costs of a taxation. Part 5 is entitled Procedure on taxation. The subrule relevant to this ruling falls within Part 5. I will return to the provisions of Part 5 below. Part 6 deals with costs payable to a solicitor by the solicitor’s client and provides for such costs to be taxed by the Costs Court. Part 7 is entitled Allowances on taxation generally. Importantly, r 63.70(1) provides that the Costs Court on a taxation may disallow the costs of any work which is not necessary or is done without due care. Part 8 provides for an alternative assessment procedure involving the Costs Court providing an estimate of the approximate total for which, if a bill were to be taxed, an order on taxation would likely be made which may obviate the need for a taxation. Part 9 provides for review, reconsideration and appeals of the judicial registrar and Costs Judge’s determinations.
[4]Rules (n 3) r 63.05.
Part 5 sets out the procedure on taxation. It applies to the taxation of costs payable to a solicitor by the solicitor’s client.[5] In broad brush, the procedure set out in Part 5 requires the party applying for costs to be taxed to file a bill of costs in a prescribed form with a summons. The Costs Court will not tax costs unless the party entitled to costs has served the bill of costs on the party liable for the costs before or at the time of serving the summons for taxation. The bill of costs must set out the charges and disbursements in separate columns and include the amount claimed for each item.
[5]Rules (n 3) r 63.37(2).
It was common ground between the parties that r 63.43(2)(b) had been introduced into the Rules to remedy the hardship caused by Sadd v Griffin [1908] 2 KB 510. That case held that payments not actually made before a bill of costs was delivered were not disbursements and could not be allowed on taxation. Williams Civil Procedure Victoria notes[6] that r 63.43 is based on the former Order 63 r 27(29A) which applied only to the taxation of a solicitor’s bill of costs at the request of the client. The reason for the requirement that counsel’s fees be paid before taxation was the need to protect the client on the taxation of the solicitor’s bill.[7] The current rule is not restricted to solicitor and own client taxations, applying to both inter-partes taxations as well as taxations between a solicitor and client.[8]
[6]Neil J Williams, Lexis Nexis Butterworths, Civil Procedure Victoria (3rd ed, 2012) (online at 27 February 2024) [I 63.43.0].
[7]Re National Safety Council of Australia (Vic Div) (in liq) (No 2) [1992] 1 VR 485, 528.
[8]Ibid 527.
In Angor Pty Ltd v Illich Motor Co Pty Ltd [9] (Angor v Illich) French J considered a case where Angor was awarded its costs but was the subject of a winding up order before its costs were taxed. Illich contended that Angor’s solicitors were now unsecured creditors who only had a right to prove in the liquidation.[10] Illich argued that, applying the indemnity principle, because of the statutory limits on the solicitor’s rights of recovery against their former client, Illich should not be liable to pay Angor any part of the taxed costs.[11]
[9](1992) 37 FCR 65.
[10]Ibid 66.
[11]Ibid 66.
French J considered the meaning of the relevant provisions of the Federal Court Rules.[12] Those provisions provided that disbursements shall not be allowed which have not been actually paid before the delivery of the bill of costs except where the bill expressly states that to be the fact and sets out the unpaid items of disbursements under a separate heading.[13] If that requirement is met, the disbursements may be allowed by the taxing officer if they have been actually paid before the giving of the certificate of taxation and are paid in discharge of an antecedent liability of the solicitor, including counsel’s fees, properly incurred on behalf of the client.[14]
[12]Ibid 68-74.
[13]Ibid 69.
[14]Ibid 69.
In his consideration French J noted that the power to award costs in proceedings in the Federal Court is conferred by s 43 of the Federal Court of Australia Act.[15] He considered that the content of that power ‘depends upon the meaning to be given to the word “costs” in its statutory context.[16] That is to be assessed by reference to the principles and practices which have governed the power to award costs in the courts of the common law world.’[17] French J noted that the principle that costs are awarded by way of indemnity was well entrenched.[18] After considering the authorities, French J found that the indemnity principle is satisfied where there is shown to be a liability in existence as between solicitor and client though the prospect of payment is remote, including where the prospect of the client being called upon to pay those costs is remote because an arrangement was in place under which someone else would pay the costs.[19] Relevantly, his Honour noted that what is proved in the liquidation is the existence of the liability and that the statutory mechanism of rateable distribution of the company’s assets does not affect that.[20]
[15]Ibid 70.
[16]Ibid.
[17]Ibid.
[18]Ibid.
[19]Ibid 72.
[20]Ibid 73.
Counsel for Ms Nguyen argued that Angor v Illich was to be distinguished from the facts of the case before the Court for the following reasons:
(a) in that case it was the client who had been wound up in insolvency and the debt had been proven in the liquidation;
(b) here it is disbursements that are in question, not professional costs, and professional costs are not required to be paid before taxation;
(c) Angor v Illich considered inter-partes costs and not solicitor-client costs;
(d) The taxation had already occurred; and
(e) The case considered a different statutory scheme.
In my view, Angor v Illich examined the nature and content of the indemnity principle in order to determine the meaning of the word ‘costs’ in its statutory context. While the statutory context is necessarily different from the statutory context involved in this case, in examining the authorities relevant to the indemnity principle, French J considered ‘principles and practices which have governed the power to award costs in the courts of the common law world.’[21] In considering costs, the authorities considered by French J did not distinguish between professional costs and disbursements. Those authorities remain relevant to content of the indemnity principle to be considered in this case. I do not accept that the meaning of the indemnity principle, as articulated in Angor v Illich, is distinguishable to its meaning for the purposes of the case before this Court.
[21]Ibid 70.
Counsel for Ms Nguyen referred the Court to Byrne J’s statement in Equuscorp that ‘[a] feature of the ordinary meaning of “disbursement” is that it is a payment made.’[22] So much may be accepted. I note however that Byrne J, in the same paragraph, proceeded to say:
Contrary to the ordinary non-technical meaning of the word, an expense which otherwise falls within a cl.7 category may be a disbursement incurred for the purpose of the deed of costs, notwithstanding that no payment has in fact been made in respect of it. I conclude, therefore, that an expense may be a disbursement…where there exists an obligation in Equus to pay it.[23]
[22]Equuscorp (n 1) [56].
[23]Ibid.
In other words, while the ordinary meaning of the word disbursement may be accepted, the actual meaning must be understood in the context of the terms of circumstances of the particular case. I also note that Equuscorp was decided before the amendment of the Court’s rules that inserted the subrule at the centre of the issue before the Court. Properly understood the rule 63.43(2)(b) provides an exception to the requirement that a disbursement must always be paid. It appears to me that reliance on Equuscorp does not really assist to resolve the dispute between the parties.
It is convenient to deal with the s 178(1)(b) argument first. Counsel for the respondent submitted that the applicant’s contraventions of its disclosure obligations were not in dispute. Accordingly, counsel did not refer to any finding of contravention made by the Costs Court. Counsel for the applicant, however, did not concede that the applicant had contravened its disclosure obligations. I note that the Costs Registrar’s orders, made 19 December 2023, included directions that the respondent file and serve a notice of objections ‘including any issues the respondent wishes to raise with respect to the costs agreement(s) and disclosure statement(s) and any other matters relevant to the summons for taxation’. Under the Costs Registrar’s order, the respondent was required to file the notice of objections by 16 February 2024, some three weeks after the hearing before me.
In the absence of any concession, finding or proper articulation of the applicant’s alleged contraventions of its disclosure obligations, I am unable to accept that the applicant law practice has contravened its disclosure obligations or that s 178(1)(b) of the LPUL applies with a consequence that the respondent is not currently liable to pay the legal costs.
The applicant law firm’s liability to pay the unpaid counsel’s fees arises from counsel’s invoices. The ability of counsel to recover the full amount of those invoices is dependent on the Liquidator’s ability to recover monies in the liquidation. It seems to me to be wrong in principle to say that the Liquidator has no liability to pay the invoices. Liability is not uncertain, recovery is. This was the distinction made by French J in Angor v Ilich[24], albeit in relation to the application of the relevant provision of the Federal Court Rules which is worded differently to the subrule in this case. In that case French J noted that the indemnity principle is satisfied where there is shown to be a liability in existence as between solicitor and client though the prospect of payment be remote.[25]
[24]Angor v Illich (n 9) .
[25]Ibid 71.
I am prepared to accept the document provided by the applicant during the course of the hearing is evidence that Ms Rivers has sought to prove her outstanding counsel’s fees in the liquidation. I also accept that it is open to the other two counsel involved to seek to prove their outstanding fees. There seems to be no suggestion that the counsel involved did not represent Ms Nguyen in the family law proceedings. Similarly there seemed to be no question that all counsel had provided invoices for their services to the applicant law firm.[26] What is proved in the liquidation however is the existence of the liability and it will be necessary for the Liquidator to establish the extent of the liability that has been proven. On a plain reading of the text of the subrule it is the undertaking to the Court that must be satisfactory to the Costs Court. Counsel for the applicant submitted that the subrule requires the undertaking to be that the unpaid disbursement will be paid in full and requires that the ‘time specified’ be a time certain. Counsel’s submission raises two issues. First the meaning of ‘paid’ and second the meaning of ‘time specified’.
[26]The amounts claimed in those invoices did remain in contest.
Does the word ‘paid’ in r 63.43(2)(b) require the undertaking to provide that the disbursement will be paid in full? In my view the rule does not require full payment but does require the undertaking to be expressed with enough specificity for the Costs Court to understand what is to be paid. Such an interpretation allows enough flexibility to accommodate the myriad of factual scenarios in the Costs Court while still allowing enough specificity to allow the taxing officer to determine whether the claimed disbursement should be allowed.
The rule does not require that a date for payment be specified in the undertaking. No doubt the wording of the rule could have been expressed as requiring a date. It does not. Reading in such a requirement seems to me to take an unnecessarily inflexible approach. The undertaking must provide that the debt will be paid ‘within a time specified’. In my view that wording is plainly broad enough to include a period capable of calculation or understanding by reference to events. In each case the Court must assess whether the timeframe, however expressed, is satisfactory. Within the circumstances of this matter, the timeframe of 30 days after receipt, subject to the provisions of the Corporations Act, is capable of being understood.
I do not accept the respondent’s argument that the undertaking should be rejected because it is expressed as conditional on the terms of the Corporations Act. It is an implied term of all undertakings given to the Court that they are subject to the law. This undertaking is no different. The Liquidator is bound by the terms of the Corporations Act and it is appropriate that the undertaking make that clear.
I do not accept that the undertaking is incapable of performance because it is unknown whether there will be a distribution in the liquidation and, if so, the amount of that distribution. The fact that the amount of any final distribution is currently unknown seems to me to be a very different concept to saying the undertaking is incapable of performance.
Whether counsel’s fees claimed in this matter are allowed as a disbursement will be a matter for the taxing officer, to be decided by reference to the Rules of this Court and the relevant authorities. Similarly, any taxation in the FCFCA will no doubt be conducted in accordance with the rules of that court and the relevant authorities. Neither taxation has yet occurred (on the information available to this Court). The ‘very real and serious prejudice’ that the respondent complains of is necessarily speculative at this point in time. It would be wrong for this Court to place much weight in gauging its satisfaction with the Liquidator’s undertaking on the basis that there may be inconsistent approaches taken by two courts applying different rules at some point in the future.
At the hearing the applicant’s counsel asked the Court, if it found the undertaking did not comply with the subrule, to dispense with the need for compliance. The respondent’s counsel opposed any dispensation with the requirement of the subrule and questioned whether recourse to r 2.04 of the Rules was available in this proceeding. As I am satisfied that the undertaking complies with the subrule it is unnecessary for me to consider the parties’ arguments about dispensation with compliance.
Conclusion
From the above it follows that I am not persuaded by the respondent’s arguments that this Court could or should not be satisfied with the Liquidator’s undertaking provided pursuant to r 63.43(2)(b) of the Rules. On the contrary, I am satisfied with the undertaking.
I will dismiss the respondent’s application for the declaration.
I request that the parties confer on the question of costs of the Judicial Registrar’s reference to this Court. If the parties are not able to reach agreement within seven days of the date of this judgment the proceeding will be relisted for oral submissions on the costs of the reference.
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