Smoel and Wooster v Piper Alderman; Smoel and Wooster v DLA Piper
[2015] VSC 256
•5 June 2015
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COSTS COURT
S CI 2014 01696
| KERRYN LINDA SMOEL and SUSAN CAROLYN WOOSTER (in their capacity as trustees of the Morris Family Superannuation Fund) | Applicants |
| v | |
| PIPER ALDERMAN | Respondent |
AND
| IN THE SUPREME COURT OF VICTORIA |
AT MELBOURNE
COSTS COURT
S CI 2014 00867
| KERRYN LINDA SMOEL and SUSAN CAROLYN WOOSTER (in their capacity as trustees of the Morris Family Superannuation Fund) | Applicants |
| v | |
| DLA PIPER AUSTRALIA (A FIRM) | Respondent |
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JUDGE: | McMillan J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 10 April 2015 |
DATE OF JUDGMENT: | 5 June 2015 |
CASE MAY BE CITED AS: | Smoel & Wooster v Piper Alderman; Smoel & Wooster v DLA Piper |
MEDIUM NEUTRAL CITATION: | [2015] VSC 256 |
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COSTS ‑ Application to review costs – Standing of applicants to bring application to review ‑ Enforceability and effect of judgment in proceeding ‑ Jurisdiction of Costs Court ‑ Legal Profession Act2004, s 3.4.38 ‑ Supreme Court Act 1986, ss 3(1), 17D ‑ Supreme Court (General Civil Procedure) Rules 2005, r 59.02
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APPEARANCES: | Counsel | Solicitors |
| For the Applicants | Mr P Lovell | Castra Legal Costing Pty Ltd |
| For the Respondent Piper Alderman | Solicitor Ms P Van Den Berg | Piper Alderman |
| For the Respondent DLA Piper Australia (A Firm) | Solicitor Ms P Van Den Berg | DLA Piper Australia |
HER HONOUR:
The applications in these proceedings
In these two proceedings, the applicants, pursuant to s 3.4.38 of the Legal Profession Act 2004 (‘the LPA’), seek to review the costs of:
(a) Piper Alderman, in the sum of $346,128.60;
(b) DLA Piper, in the sum of $41,530.00.
One of the many disputes between the parties is whether the Costs Court has the jurisdiction to make the orders sought by the applicants under the Supreme Court Act 1986 (‘the SCA’). This question has been referred by Associate Justice Wood to a judge for directions under O 63 r 51 of the Supreme Court (General Civil Procedure)Rules2005 (‘the Rules’).
Background to the applications
These two proceedings arise out of the judgment made in Wooster v Morris (‘the Superannuation proceeding’).[1] The Superannuation proceeding concerned disputes over a binding death benefit nomination (‘BDBN’) executed by Maxwell Vernon Morris deceased on 18 March 2008 in favour of his two daughters in respect of all of his interest in the Morris Family Superannuation Fund (‘MFSF’).
[1] [2013] VSC 594 (1 November 2013).
Since the date of death of Maxwell Morris on 27 February 2010, the trustees of the MFSF were his wife, Mrs Morris, and her son, Mr Ashman, until 18 August 2011 when Upper Swan Nominees Pty Ltd (‘Upper Swan’) replaced them as trustee. Mrs Morris was the sole director of Upper Swan.[2]
[2] Mrs Morris died on 24 September 2013, after the trial of the Superannuation proceeding and before judgment was handed down.
In the Superannuation proceeding, the deceased’s two daughters were the plaintiffs and the defendants were Mrs Morris, Mr Ashman and Upper Swan.
On 27 September 2012, the parties agreed to refer the following matters for determination by a Special Referee, Mr Stewart Anderson SC (‘the Special Referee’):
(a) whether the BDBN was a binding document for the purposes of the MFSF; and
(b) if so, were any of the plaintiffs in the Superannuation proceeding entitled to be paid a certain sum of money.
On 13 December 2013, the Special Referee was directed to include a recommendation as to the award of costs arising out of the conduct of the reference.
The findings of the special reference and the subsequent orders made as a result of the Special Referee’s report were summarised in the judgment in the Superannuation proceeding as follows:
In his report dated 7 March 2013, the Special Referee found that the BDBN was valid and binding and that the plaintiffs [in the Superannuation proceeding] were entitled to be paid the value of the deceased’s interest in the MFSF, namely $924,509, together with statutory interest accruing on that sum from 30 June 2010.
By a subsequent report dated 12 March 2013, the Special Referee recommended that the defendants [in the Superannuation proceeding] pay the whole of the plaintiffs’ costs of the Special Reference.
By consent orders made on 10 April 2013, the Court:
(a) adopted the Special Referee’s report;
(b)entered interim judgment for the plaintiffs [in the Superannuation proceeding] in the sum of $600,664.87;
(c)ordered that the sum of $600,664.87 be paid to the plaintiffs [in the Superannuation proceeding] by Upper Swan by 16 April 2013 from the funds held in the MFSF in the name of the deceased;
(d)otherwise adjourned the proceedings for directions as to the determination of the remaining issues in the proceeding.
The defendants [in the Superannuation proceeding] did not pay all of the interim judgment on time. Orders by consent were made on 1 May 2013 whereby the defendants were ordered to pay interest pursuant to the Penalty Interest Rate Act 1983 on any amount overdue as from 16 April 2013 until such amount was paid. Pursuant to the consent orders, penalty interest of $219.20 was paid to the plaintiffs [in the Superannuation proceeding] on 4 June 2013.[3]
[3]Wooster v Morris, above n 1, [5]-[8].
On 1 May 2013, further orders were made in the Superannuation proceeding concerning the hearing and determination of the remaining disputes between the parties, including:
(a)the accounts(s) in the MFSF from which final judgment was to be paid;
(b) the quantum of any final judgment; and
(c)the liability of the defendants [in the Superannuation proceeding] for the parties’ costs in the proceeding.
The remaining disputes in the Superannuation proceeding were determined in the judgment delivered on 1 November 2013 with the result, amongst other matters, that:
(a) the BDBN executed by Maxwell Vernon Morris deceased in favour of his two daughters in respect of all of his interest in the MFSF was valid;
(b) the defendants in the Superannuation proceeding acted in breach of their obligations;
(c) the defendants in the Superannuation proceeding pay the costs of the plaintiffs; and
(d) the defendants in the Superannuation proceeding were not entitled to an indemnity from the MFSF in respect of the costs rendered with respect to the Superannuation proceedings.
Orders were made on 11 November 2013, including that Upper Swan, the then trustee of the MFSF, be replaced by the deceased’s two daughters, who are the applicants in these two proceedings.
In relation to the question of whether Upper Swan or Mrs Morris could claim a right of indemnity for its costs out of the MFSF, the following conclusions were made in the judgment:
There is no doubt that the defendants had a right of indemnity out of the MFSF: Upper Swan as trustee, Mrs Morris and Mr Ashman as former trustees, and Mrs Morris as the director of Upper Swan. This is according to both general law and the terms of the trust deed.
As a consequence of the decisions of Mrs Morris, if the defendants claimed an indemnity from the MFSF, they would bear only a small portion of the financial consequences of the litigation, despite being entirely unsuccessful. Rather, the loss would be borne almost entirely by the plaintiffs in the depletion of their interest in the MFSF, which both parties agree does not contain enough money to cover the plaintiffs’ award and the plaintiffs’ and the defendants’ costs.
In my view, the defendants have lost their right for indemnity by acting a manner designed to benefit Mrs Morris as trustee, co-trustee and sole director and shareholder of Upper Swan. The right of indemnity does not apply to both their own costs and the costs of the plaintiffs for this proceeding. Upper Swan, and Mrs Morris as its director, have failed to act impartially in the administration of the trust and are, therefore, in breach of their obligations as trustees. As Dal Pont explains:
The duty of impartiality prohibits a trustee acting to favour one class of beneficiaries at the expense of another.
There are two decisions made by Mrs Morris that, given that she did not seek the advice of the Court, amount to a breach of her obligations to the trust: first, when she made the decision that the BDBN was not binding on the MFSF; and secondly, when she (through her control of Upper Swan) made the decision to defend the proceedings brought by the plaintiffs. In making both decisions, she failed to act impartially, putting her interests ahead of the other beneficiaries in the MFSF. She should have recognised her conflict of interest and sought the advice of the Court before making either decision.
It is clear that in making the decision to deny the validity of the BDBN and to defend the proceedings brought by the plaintiffs, the trustee, and Mrs Morris, favoured Mrs Morris’ own interests over the other beneficiaries. This is perhaps unsurprising: Upper Swan, the trustee, is controlled by her. She stood to benefit from defending the plaintiffs’ claim. The fact that it is a risk ‘inherent’, as the defendant submits, to these kinds of superannuation funds does not excuse the failure on the part of the trustee. In fact, it should serve to put the trustee on notice that a trustee must be very careful to treat all the beneficiaries equally.
Mrs Morris, through Upper Swan as trustee, made the decision to defend the proceeding in circumstances where she had a substantial conflict of interest. Furthermore, the Special Referee found that Mrs Morris had already formed a view on the validity of the BDBN prior to receiving legal advice: DLA Piper were instructed that the requirements for a valid BDBN were not met. Her financial stake in defending the BDBN should have put her and her lawyers on notice that Upper Swan should have sought the advice of a Court before deciding that the BDBN was invalid and then deciding to defend the proceedings. Given this conflict, the advice of DLA Piper that the BDBN was ineffective was not enough to fulfil Upper Swan’s duty to the trust to act impartially and in the absence of a conflict of interest.
Compounding the problem was her decision, through Upper Swan, to pay legal and accounting fees for the wrong-headed defence exclusively from the funds that should have been in the deceased’s account in the MFSF and have been found to be for the benefit of the plaintiffs. After all, the advice she received turned out to be incorrect: the Special Referee found wholly in the plaintiffs’ favour. He found that the defendants should pay the whole of the plaintiffs’ costs of the Special Reference. If Mrs Morris and Upper Swan were permitted to claim an indemnity, the costs of their wrong-headed defence will be borne by the trust fund. Instead, the defendants should pay the costs consequent upon the decision to defend the proceeding.[4]
[4]Wooster v Morris, above n 1, [89]-[95].
Role of Piper Alderman in the Superannuation Proceeding
Piper Alderman were the solicitors for the former trustees of the MFSF (Mrs Morris, Mr Ashman and Upper Swan) in the Superannuation proceeding. Piper Alderman, as the solicitors acting for the former trustees, charged a total of $346,128.60 in legal fees over the course of those proceedings. This amount has since been reduced by Piper Alderman as it informed the Court that an invoice for $16,523.38 was included in the summons that was not rendered to any person or entity in their or its capacity as trustee of the MFSF and, therefore, cannot be the subject of review by the applicants. As a result, Piper Alderman submits the total cost of the invoices encompassed by the review is reduced to $329,605.22.[5] This amount has been paid from the deceased’s share of the MSFS.[6]
[5] This figure is the difference between the amount originally sought to be reviewed, namely, $346,128.60 less the $16,523.38 leaving the amount of $329,605.22.
[6]Ibid [95].
After the applicants issued the summons in the proceedings, Piper Alderman informed the solicitors for the applicants of a matter that it said the applicants would be aware, that is, after the hearing before the Special Referee, it did not render any further professional fees to the MFSF and it would now seek to recover those fees of approximately $160,000 calculated on a time basis.[7] This unbilled amount would make a total of $489,605.22 for Piper Alderman’s legal fees.
[7]Letter dated 24 November 2014 from Piper Alderman to the applicants’ solicitors.
Role of DLA Piper in the Superannuation proceeding
DLA Piper completed work for the former trustees on behalf of the MFSF in the Superannuation proceeding. It was retained to provide specialist advice on the binding nature of the death benefit nomination – a key issue in the Superannuation proceeding. It was also retained by the former trustees of the MFSF (or Piper Alderman) to prepare an expert report for the Special Referee and to provide technical assistance on superannuation law during the hearing of the special reference, rendering accounts totalling $41,530. These costs are thought by the applicants to have been paid by the former trustees from funds in the MFSF.
The applicant’s claims
Claims against Piper Alderman
Against Piper Alderman, the applicants contend:
(a) Piper Alderman has rendered costs to (or paid by) the MFSF that do not concern the MFSF;
(b) the former trustees were found not to be entitled to an indemnity from the MFSF and should personally bear the burden of the legal costs rendered by Piper Alderman with respect to the Superannuation proceedings;
(c) because of the former trustees’ disentitlement to indemnity out of the MFSF, Piper Alderman is not entitled to render further accounts for legal costs representing alleged “unbilled” costs of around $160,000; and
(d) the legal costs of Piper Alderman are excessive in any event.
Claims against DLA Piper
As against DLA Piper, the applicants contend:
(a) As best as they can ascertain, the costs of DLA Piper were paid by the former trustees from the funds of the MFSF and principally related to matters that were the subject of the Special Referee’s report dated 7 March 2013;
(b) DLA Piper acted for the former trustees of the MFSF before 27 September 2012, when Associate Justice Zammit made orders by consent for the matters to be determined by a Special Referee. The Special Referee found that DLA Piper was conflicted to the extent that an expert report from Mr Philip Broderick of DLA Piper was inadmissible for the purposes of the special reference;[8] and
(c) The Costs Court has jurisdiction to hear, determine and assess the costs of DLA Piper and to determine the amount, if any, that is not subject to an indemnity from the MFSF or the amounts, if any, that are prima facie recoverable from the MFSF.
[8] Ibid [64]-[68].
Applicants’ submissions
The applicants adopted virtually identical submissions in relation to both Piper Alderman and DLA Piper. In summary, they submit that the Costs Court has the power to review the costs rendered by the respondents to MFSF pursuant to s 3.4.38 of the LPA. This is for a number of reasons.
First, because s 17D(2) of the SCA provides that the Costs Court ‘has such powers of the Court as are necessary to enable it to exercise its jurisdiction’, the applicants submit that the Costs Court has the power to review the costs, as a result of the determination of the substantive issues in the Superannuation proceedings (including the indemnity issues).[9] The applicants also refer to s 17D(3) of the SCA that provide for the Costs Court to exercise its jurisdiction ‘with as little formality and technicality, and with as much expedition, as the Act, the Rules and the proper consideration of the matters before the Court permit’.
[9]Wooster v Morris, above n 1, [82]-[95].
Secondly, the applicants submit there is no need for this determination to be embodied in an order of the court in order for it to have full effect and be binding on the former trustees. Rather, they submit that the judgment was operative and binding on the parties from the moment it was published and that it could, if need be, have been the subject of an appeal.[10] In addition, they point out that the respondent published a summary of the Superannuation proceeding on its website, which specifically noted that the former trustees had been held to be disentitled from recovering their costs out of the trust fund. Thus, they contend that Piper Alderman was aware of the decision and its effect on the parties and cannot now argue that such a decision was not made in the Superannuation proceeding.
[10] Keramianakis v Regional Publishers Pty Ltd (2009) 237 CLR 268, [40]; Rojo Building Pty Ltd v Jillcris Pty Ltd [2007] NSWCA 68, [15]-[19] referring to Landsal Pty Ltd v Rei Building Society (1993) 41 FCR 121.
Alternatively, in the event that the applicants are wrong about the decision in the Superannuation proceeding being operative and binding on the parties from 1 November 2013, they submit the Costs Court would be empowered to make a factual finding that the former trustee(s) are personally liable for the respondent’s costs. They contend that submissions were made on the question of the former trustees’ indemnity out of the MFSF and conclusions were made on this issue in the Superannuation proceeding. Thus, the Costs Court could merely note these decisions in finding that the former trustees had no indemnity out of the MFSF, as part of the review of the respondents’ costs.
On the basis of the above, the applicants seek an assessment from the Costs Court of the extent (if any) to which the respondents has been overpaid for its work in the Superannuation proceeding. The applicants also submit that the total amount assessed by the Costs Court as having been properly billed by the respondents for its legal costs in the Superannuation proceeding will be recoverable from either the respondents or the former trustees.
The applicants do not seek any orders from the Costs Court with respect to the person or entity that is liable to reimburse the MFSF for these costs, or with respect to the apportionment of liability (if any) between the respondents and the former trustees. They submit these issues are more appropriately determined in the Superannuation proceeding after the costs have been reviewed in the Costs Court.
Piper Alderman’s submissions
In respect of the indemnity issue, Piper Alderman submits that the solicitors for the applicants in the Superannuation proceeding consented to them representing the former trustees in that proceeding, and consented to their costs being paid out of the MFSF. It also submits that the former trustees have no remaining funds or assets from which they can pay personally the legal costs.
In respect of the applicants’ contention that the former trustees should be denied their indemnity out of the MFSF for costs incurred in the Superannuation proceeding on the basis that they should have sought the advice of the Court, Piper Alderman submits that this issue was not pursued in accordance with the law in that it was not asserted in either the pleadings or the points of claim. Piper Alderman submits that if this issue had been raised, it would have been defended on the basis that the applicants’ then solicitors expressly consented to the appointment of Piper Alderman and expressly consented to payment out of the funds of the MFSF. Furthermore, the applicants would have had to make submissions as to when advice should have been sought from the Court, which the respondent submits was not possible given the way the Superannuation proceeding unfolded.
Piper Alderman also submits its legal costs were proportional to those incurred by the applicants in the Superannuation proceeding and that, at all times, it acted in a manner intended to ensure that its legal costs were minimised. Piper Alderman claims that it requested the applicants’ solicitors in the Superannuation proceeding to act in a similar manner with a view to reducing costs but, in its view, this was unsuccessful.
In respect of the jurisdiction of the Costs Court, Piper Alderman contends that the summons for review requires the Costs Court to make a number of orders and findings that it does not have the jurisdiction to make, namely that:
(a) the former trustees breached their obligations to the MFSF;
(b) the former trustees are not entitled to an indemnity for their legal costs out of the funds of MFSF;
(c) Upper Swan, rather than its former director, should bear liability for payment of Piper Alderman’s costs; and
(d) Piper Alderman could be held liable for any moneys unrecoverable from the former trustee(s) in respect of the legal costs paid out of the funds of the MFSF.
It submits these issues are outside the scope of s 3.4.38 of the LPA, pursuant to which the summons for taxation was filed, as they are inter partes issues rather than issues as between a practitioner and client. In particular, Piper Alderman submits that the determination of these issues will impact on the former trustees, and cannot be determined without the former trustees being represented or heard on the application.
Piper Alderman does not dispute that the Costs Court has jurisdiction to assess its bills rendered to Upper Swan, in its capacity as trustee of the MFSF. Rather, it disputes the Costs Court’s jurisdiction to determine that Upper Swan, rather than its director, should be liable for the costs of Piper Alderman or to determine that the applicants can seek recovery of these costs from Piper Alderman.
In this respect, it submits that the jurisdiction to review any such costs would not be pursuant to s 3.4.38 of the LPA but must be based on an effective order of the Court. Piper Alderman submits there is no effective order of the Court in relation to the former trustees’ indemnity. As such, Piper Alderman infers that the intention of the judgment dated 1 November 2013 and the orders made 11 November 2013 in the Superannuation proceeding is, when combined, the payment ordered to be made to the applicants should fully compensate them in respect of the funds improperly taken out of the MFSF.
Alternatively, Piper Alderman submits that, if the applicants are correct in submitting that the finding in the Superannuation proceeding was that the former trustees are disentitled from an indemnity for their legal costs from the MFSF, then the legal costs of Piper Alderman would be payable by Upper Swan in its personal capacity. This means the applicants have no standing to issue or maintain a summons for review pursuant to s 3.4.38 of the LPA. The reason this is so is because Piper Alderman’s client would be Upper Swan and not the MFSF, and the applicants’ remedy to recoup misappropriated funds from the former trustees would be a proceeding against Upper Swan.
DLA Piper’s submissions
DLA Piper adopts in their entirety – with necessary modifications – the submissions made by Piper Alderman in relation to the jurisdiction of the Costs Court, the trustees’ standing to pursue a taxation of their costs and the former trustees’ indemnity.
DLA Piper states that pursuant to orders made in this proceeding on 25 November 2014, it filed and served its costs agreement and disclosure documents. It submits these documents related to work done by it in 2011 when it was retained as another law practice to provide specialist advice on the BDBN.
In October 2012, DLA Piper was again retained by Upper Swan. It acted as an expert witness to provide an expert report for the special reference. It also provided technical assistance on superannuation during the hearing before the Special Referee. It submits that it was retained as the report was required urgently and it was already familiar with the issues pertaining to the BDBN. Although the report was ruled inadmissible, no orders were made by the Court in respect of the costs of its report.
DLA Piper submits the fact that the expert report was inadmissible does not affect the nature of its retainer and DLA Piper is left in the position of any other expert witness where the report is not admissible.
DLA Piper submits that the MFSF and, by extension, the applicants as trustees of the MFSF, has no standing to seek a review of their costs under s 3.4.38 of the LPA. Critically, DLA Piper contends that it was retained as an expert witness, not as a legal practitioner, and this means that the work done by it does not fall within the scope of the section as the requisite relationship between practitioner and client did not exist in relation to the work encompassed by the applicants’ summons.
DLA Piper also submits that the trustees cannot have any rights beyond those of the former trustees and, given that the former trustees would not have had standing under s 3.4.38 of the LPA, neither can the applicants as the current trustees of the MFSF.
Enforceability and effect of judgment in the Superannuation proceeding
In relation to the enforceability of the judgment with respect to the former trustees’ indemnity in the Superannuation proceeding, a key distinction is drawn between a judgment/order of the Court and a statement of reasons for such a judgment/order. There is no definition of the terms ‘order’ or ‘reasons’ in the SCA; however, s 3(1) of the SCA defines the term ‘judgment’ to include ‘order’.
On the other hand, this distinction between a judgment or order and the reasons for judgment is made explicit in the Rules. In particular, r 59.04 states as follows:
Where the Court gives any judgment or makes any order the reasons for which have been reduced to writing, it shall be sufficient to state the result orally without reasons, but the written reasons shall then and there be published by delivery to the Associate.
Rule 59.02(1) states that “[a] judgment given or order made by the Court shall bear the date of and shall take effect on and from the day it is given or made, unless the Court otherwise orders.” In addition, r 60.01 states that:
(1)Unless the Court otherwise orders, a judgment or an order shall not be enforced under any one of these Rules and an appeal which has been instituted from a judgment or an order shall not be heard until the judgment or order has been authenticated in accordance with this Order or Rule 28A.11 and filed.
(2) Except where the Court otherwise orders—
(a) no judgment shall be entered or other step taken; and
(b) no judgment shall be given—
pursuant to an order or in consequence of the failure of a party to comply with an order unless beforehand the order is authenticated in accordance with this Order or Rule 28A.11 and filed.
The mode of authentication of a judgment or order under the Rules is prescribed by r 60.02(1), which states that:
Subject to paragraph (4) and to Rule 28A.11, a judgment or order is authenticated when a form of the judgment or a form of the order, as the case requires—
(a)drawn up and settled in accordance with this Order, is sealed by the Prothonotary with the seal of the Court; or
(b)is signed by the Judge of the Court or the Associate Judge giving the judgment or making the order.
Rule 60.02(4) provides an exception for orders obtained by consent. Rule 28A.11 provides for the authentication of orders in RedCrest. Neither of these exceptions are relevant in these proceedings. Thus while there is a distinction drawn between a judgment or order of the Court and the statement of reasons for the judgment or order, a judgment or order does not have to be settled and authenticated in order to have effect under 59.02(1).
The question then is what force and effect is to be given to the findings in the Superannuation proceeding that the former trustees were not entitled to an indemnity for their costs out of the MFSF.
The issue of substance put forward by the respondents is whether the conclusion reached in the Superannuation proceeding – that is, that the former trustees were not entitled to an indemnity from the MFSF – was binding and effective from 1 November 2013. The judgment delivered on 1 November 2013 states that to be the case, as detailed above.[11] Specifically, it was determined that the former trustees ‘have lost their right for indemnity’ from the MFSF[12] and that the former trustees ‘should pay the costs consequent upon the decision to defend the [Superannuation] proceeding’.[13]
[11]Wooster v Morris, above n 1, [89]-[95].
[12]Wooster v Morris, above n 1, [91].
[13]Wooster v Morris, above n 1, [95].
The judgment contained both orders and the reasons for those orders, in accordance with r 59.04 of the Rules. Whilst r 60.01(1) clearly states that an order is neither enforceable nor appellable until it has been authenticated, its wording anticipates that an order can be made or given prior to it being authenticated. The orders made comply with the requirement in r 59.02(1) in that they bear the date on which they were made and, as such, that rule states that they take effect immediately on 1 November 2013, in spite of the fact that this day is prior to any authentication of the orders under r 60.02.
Whilst it is also true that no appeal can be heard and no step can be taken in enforcing the order until an order is authenticated, in my view, the summons for review of the costs by the Costs Court under the LPA cannot be considered a step in enforcement. Rather, it is merely a means by which the amount paid pursuant to the indemnity can be accurately assessed, a necessary first step before any enforcement proceedings could be instituted.
In my view, there is an effective order of the Court in relation to the findings of the former trustees’ indemnity for their legal costs. It is operative and binding on the parties and it has not been the subject of an appeal. In a review of costs, the Costs Court would be bound by the findings made in the Superannuation proceeding in relation to the former trustees’ indemnity for their legal costs.
The respondents made many submissions that were not relevant or appropriate to the issues that require determination in these proceedings. Their submissions attempt to go behind and effectively re-litigate findings that have already been made in the Superannuation proceeding. It is inappropriate in these proceedings to make any finding that might conflict with findings already made in the Superannuation proceeding, particularly given that the former trustees are not parties to these proceedings, as pointed out by the respondents themselves.
The respondents’ submissions as to there being consent between the solicitors for the applicants in the Superannuation proceeding and the former trustees that the respondents’ costs would be paid out of the MFSF is a matter that the former trustees should have, if they wished to do so, raised when the issue of the indemnity of the former trustees was heard and determined in the Superannuation proceeding. The same can be said with any issue that the former trustees might have had with the issue of the indemnity being improperly pleaded.
In making the submission that it was not feasible in the circumstances for the former trustees to seek the advice of the Court, Piper Alderman has possibly misunderstood the process for when a trustee should seek the advice of the Court. It is not necessarily the role of the plaintiffs in the Superannuation proceeding to raise this issue and for the former trustees to defend their failure to seek advice. Specifically, it was found in the Superannuation proceeding that by reason of the financial stake of Mrs Morris in defending the BDBN, this should have put her and her lawyers on notice of the conflict in her doing this.[14] In my view, this submission by Piper Alderman is not relevant in these proceedings.
[14]Wooster v Morris, above n 1, [94].
The submission that Piper Alderman took action to ensure that its legal costs were minimised or that the costs of Piper Alderman were proportional to those of the applicants in the Superannuation proceeding is also not relevant to the issues in these proceedings. In any event, the quantum of costs charged by Piper Alderman in the Superannuation proceeding appears to be significantly out of proportion to the amount in dispute.
Finally, I do not accept the submission of Piper Alderman that the order providing that the applicants receive the entirety of the former trustees’ interest in the MFSF was intended to compensate them fully as the successful plaintiffs in the Superannuation proceeding. On the contrary, far from receiving a ‘windfall’, as contended by the respondents, the applicants received around $530,000 despite their entitlement to $924,509 plus interest of $289,916.70 from 30 June 2010 to 1 November 2013, as well as interest on any unpaid portion up to 1 November 2013. In consenting to the orders proposed at the end of the judgment dated 1 November 2013 and to the orders made on 11 November 2013, such an amount could not be said to anywhere near full compensation for their success in the Superannuation proceeding. Further, as the successful plaintiffs in the Superannuation proceeding, they were to be paid their costs of and incidental to the Superannuation proceeding, including all reserved costs and the costs of the special reference. The amount of around $530,000 goes nowhere near compensating the successful plaintiffs in the Superannuation proceeding and it is implausible for the respondents to suggest otherwise.
Jurisdiction of the Costs Court
Legislative background
In order to determine the issues in dispute with respect to the jurisdiction of the Costs Court, it is necessary to examine the relevant provisions of the SCA and the Rules, as well as the LPA. First, each summons for review has been filed pursuant to s 3.4.38 of the LPA, which relevantly provides as follows:
(a)A client may apply to the Costs Court for a review of the whole or any part of legal costs.
(b)A third party payer may apply to the Costs Court for a review of the whole or any part of legal costs payable by the third party payer.
(c)An application for a costs review may be made even if the legal costs have been wholly or partly paid.
…
(10) In this section—
“client” includes the following—
(a) an executor or administrator of a client;
(b) a trustee of the estate of a client;
‘Legal costs’ is defined to mean ‘amounts that a person has been or may be charged by, or is or may become liable to pay to, a law practice for the provision of legal services including disbursements but not including interest’.[15] ‘Legal services’ is defined to mean ‘work done, or business transacted, in the ordinary course of legal practice.[16] Section 3.4.2A of the LPA contains a definition of the phrase ‘third party payer’, relevantly stating that:
[15]Legal Profession Act 2004 s 1.2.1(1) (definition of ‘legal costs’).
[16] Ibid (definition of ‘legal services’).
(1) For the purposes of this Part—
(a)a person is a “third party payer”, in relation to a client of a law practice, if the person is not the client and—
(i)is under a legal obligation to pay all or any part of the legal costs for legal services provided to the client; or
(ii)being under that obligation, has already paid all or a part of those legal costs; and
…
(2)The legal obligation referred to in subsection (1) can arise by or under contract or legislation or otherwise.
The powers and functions of the Costs Court are set out in s 17D of the SCA, which relevantly states as follows:
(1) The Costs Court—
(a)has jurisdiction to hear and determine the assessment, setting, taxation or review of costs in all proceedings in the Court;
…
(f)must hear and determine costs reviews under Division 7 of Part 3.4 of Chapter 3 of the Legal Profession Act 2004;
…
(2)The Costs Court has such powers of the Court as are necessary to enable it to exercise its jurisdiction.
(3)The Costs Court must exercise its jurisdiction with as little formality and technicality, and with as much expedition, as the requirements of this Act, the Rules and the proper consideration of the matters before the Court permit.
Standing of the MFSF
I accept the respondents’ argument that, within the terms of the legislative scheme, it is the former trustees, and not the MFSF, who were the clients for the purposes of s 3.4.38 of the LPA. Nonetheless, the MFSF is the entity that paid the legal costs incurred by the clients pursuant to a legal obligation to do so. As such, the MFSF falls within the definition of a third party payer under s 3.4.2A of the LPA, as a payer of the legal costs incurred by the former trustees in the Superannuation proceeding. As a third party payer also has standing to apply for a review of costs under s 3.4.38 of the LPA, in my view, the MFSF has standing in these two proceedings.
Issues raised in each of the respondents’ summons
The issues raised in the summonses are not as broad as those canvassed in the respondents’ submissions. I accept that the Costs Court has no jurisdiction to deal with issues of liability for payment of the legal costs – that is, whether the MFSF is able to recover from the former trustees, either from Upper Swan as trustee of the MFSF or from its former director, or even from the respondents. In my view, these are inter partes issues that are to be determined otherwise than through an application for a review of costs.
However, it has been made clear by the applicants that no orders of these kinds are being sought from the Costs Court. First, as discussed above, there is no need for the Costs Court to make a finding in relation to the right of indemnity of the former trustees as an order has already been made that the former trustees have no right of indemnity from the MFSF in respect of the Superannuation proceeding, and the reasons for that order have been given.
Secondly, the applicants have stated that they are not seeking orders relating to liability for costs from the Costs Court. Rather, they are seeking to have the costs reviewed on the basis that MFSF was not liable to pay the costs, so that the Costs Court may quantify the amount the MFSF is able to recover from those who are liable – whoever that may be. Effectively, the applicants are seeking to distinguish between legal costs improperly rendered by the respondents – by way of overcharging obligations or otherwise – and legal costs properly rendered by the respondents and improperly paid out of the funds of the MFSF. However, the process of taxation of the costs in and of itself cannot determine the issue of who would be liable for the latter category of costs.
The Costs Court has jurisdiction to assess legal costs rendered by a law practice to a third party payer pursuant to s 3.4.38 of the LPA. Issues relating to standing aside, so much is admitted by the respondents. What is contested is whether the Costs Court has the jurisdiction to assess those legal costs on the basis that the former trustees have no right of indemnity out of the MFSF as determined in the Superannuation proceeding. In my view, the assessment of the respondents’ legal costs on such a basis falls clearly within the scope of the Costs Court’s jurisdiction as defined in the terms of the legislation. As stated above, the MFSF is in the position of a third party payer in that it paid the former trustees’ legal fees in the Superannuation proceeding. To say that a decision holding that the former trustees had no right of indemnity against the MFSF – invalidating the very legal obligation pursuant to which MFSF paid the former trustees’ legal costs – falls outside the scope of the jurisdiction to assess those legal costs, would be placing an interpretation on the words of the legislation that cannot have been intended.
Costs of DLA Piper
DLA Piper argues that their costs cannot be taxed under s 3.4.38 of the LPA because they were retained for the purposes of preparing an expert report, and therefore were not in the requisite relationship of legal practitioner and client. As noted above, s 3.4.38 provides the Costs Court with jurisdiction to assess costs payable in relation to ‘legal services’ defined to mean ‘work done, or business transacted, in the ordinary course of legal practice’.[17]
[17]Legal Profession Act 2004 s 1.2.1(1) (definition of ‘legal services’).
In the context of the costs of DLA Piper, it is instructive to look at the factual basis of the rendering of the charges to the MFSF overall as they contradict the submissions now raised by DLA Piper.
DLA Piper was originally retained in 2011 to provide advice on whether the BDBN was binding on the trustees of the MFSF. The applicants were provided with a copy of DLA Piper’s client agreement.[18] In the context of the applicants’ summons to DLA Piper in this proceeding, by letter dated 20 May 2014 to the applicants’ former solicitors, DLA Piper stated:
All our services were provided pursuant to the original agreement. When we were retained to provide expert evidence in the matter we effectively had one business days’ notice within which to provide that opinion. Obviously there was no time then available to estimate in advance the fees likely to be incurred.
[18] Forwarded to the applicants’ former solicitors by letter dated 20 May 2014.
Mrs Morris, on behalf of the MFSF, agreed to be bound by the letter, the standard conditions, the schedule of expenses and any other attachments in the client agreement. Relevantly, the letter provided to her stated:
… you may apply to a Taxing Master of the Supreme Court for a review of the whole or any part of those legal costs.
The two relevant invoices sought to be reviewed by the applicants have a disclosure statement attached to them that state ‘if you dispute our costs, you have the following rights under the [LPA]’. These rights include that the addressee of the account ‘may apply for a costs review under Division 7 of Part 3.4 of the [LPA]’. The invoices are:
(a) Invoice no. 713028547 dated 31 October 2012 for $3,206.50 and addressed to Mrs Morris, Upper Swan Nominees Pty Ltd. The invoice has a heading ‘Morris Family Superannuation Fund: Advice regarding death benefit nomination’ and encompasses the period 25 October 2012 to 30 October 2012; and
(b) Invoice no. 713039239 dated 27 February 2013 for $38,323.78 addressed to Mrs Morris, Upper Swan Nominees Pty Ltd. The invoice has a heading ‘Morris Family Superannuation Fund: Advice regarding death benefit nomination’ and encompasses the period 29 January 2013 to 20 February 2013 (although the front page of the invoice states ‘up to and including 27 February 2013’).
The two invoices describe in a brief format the type of work undertaken. Those descriptions appear to include ‘legal services’ as well as a ‘letter of expert advice’. It is not possible to conclude from the invoices that the costs relate solely to an expert report but it is possible to conclude that some, if not most, fall within the definition of ‘legal costs’.
In these circumstances, DLA Piper appears to have conducted itself as a legal practitioner in its dealings with Upper Swan. It certainly dealt with Upper Swan on that basis when it informed it in writing at all relevant times that it may apply for a costs review under Division 7 of Part 3.4 of the LPA. In my view, the applicants have standing to seek a review of the costs of DLA Piper in the circumstances.
In respect of DLA Piper’s submission that no orders were made by the Court in respect of the costs of the expert report, I note that in his subsequent report dated 12 March 2013, the Special Referee recommended that the defendants in the Superannuation proceeding pay the whole of the plaintiffs’ costs of the special reference. No orders were made with respect to the costs of the expert’s report, as this together with the remaining disputes, including the liability of the defendants for the parties’ costs in the Superannuation proceeding, were to be determined by the Court. In the orders made on 11 November 2013 in the Superannuation proceeding, costs were to be argued at the same time as costs in other proceedings concerning the estate of Maxwell Morris. Subsequently, on 2 May 2014 when costs were sought in the Superannuation proceedings and the other proceedings, any further argument concerning costs was adjourned pending the outcome of these two proceedings in the Costs Court. Notwithstanding the fact that no formal orders have been made, it is clear from the findings in the Superannuation proceeding that Upper Swan is not entitled to an indemnity from the MFSF for these costs.
Finally, it is an unusual step to even engage an expert to opine on the very issue that the parties agreed to be decided by the Special Referee, that is, whether the BDBN was binding. Even if it can be said that it was reasonable to retain an expert, it was unreasonable, in my view, to retain DLA Piper when it had been ‘intimately involved’ in advising the former trustees on the dispute, as determined by the Special Referee.
Piper Alderman’s threat to seek unbilled fees of $160,000 from the applicants
Piper Alderman’s threat to seek payment from the MFSF of further unbilled professional fees of approximately $160,000 allegedly relate to work done by Piper Alderman since the hearing before the Special Referee. The Special Referee delivered his report on 7 March 2013, the period when the former trustees were the trustees of the MFSF. In the judgment delivered on 1 November 2013, it was determined that the former trustees were not entitled to an indemnity from the MFSF and they should bear the burden of the costs of the Superannuation proceeding. In my view, because of the judgment in the Superannuation proceeding as well as the fact that the applicants are not in a client and practitioner relationship with Piper Alderman, Piper Alderman cannot now seek to recover its unbilled fees from them.
Further, a threat now made to seek recovery of unbilled fees of $160,000 from the applicants at this juncture does not fit comfortably with the overarching obligations of a practitioner under the Civil Procedure Act 2010 (‘the CPA’), in particular, ‘the overarching purposes in relation to the conduct of civil proceedings to facilitate the just, efficient, timely and cost-effective resolution of the real issues in dispute’[19] and to resolve or determine the dispute and to narrow the issues.[20]
[19]Civil Procedure Act 2010 s 1(1)(c).
[20]Ibid ss 19, 23.
Conclusions
I have concluded that the applicants have standing to seek a review of the costs of Piper Alderman and DLA Piper and the Costs Court has jurisdiction to assess the costs that are the subject of the summonses. I have also concluded that the findings made in the Superannuation proceeding are binding and effective on the parties.
I will hear the parties as to the further directions to be made in both proceedings and as to costs of this hearing.
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