Thomas v Romeo Lockleys Asset Partnership (No 2)
[2022] FCA 1276
•6 October 2022
FEDERAL COURT OF AUSTRALIA
Thomas v Romeo Lockleys Asset Partnership (No 2) [2022] FCA 1276
File number: SAD 105 of 2020
SAD 169 of 2020Judgment of: CHARLESWORTH J Date of judgment: 6 October 2022 Date of publication of reasons: 26 October 2022 Legislation: Fair Work Act 2009 (Cth) s 570
Federal Court of Australia Act 1976 (Cth) s 33V
Legal Profession Act 2006 (ACT) ss 269, 277
Cases cited: Thomas v Romeo Lockleys Asset Partnership [2022] FCA 1106
Tomlinson v Ramsey Food Processing Pty Ltd (2015) 256 CLR 507
Division: Fair Work Division Registry: South Australia National Practice Area: Employment and Industrial Relations Number of paragraphs: 57 Date of hearing: 29 September 2022 SAD 105 OF 2020 Counsel for the Applicant: Mr R Markham Solicitor for the Applicant: Adero Law Counsel for the Respondents: Mr T Duggan KC Solicitor for the Respondents: Crawford Legal Counsel for Adero Law: The non-party Adero Law appeared by its representative Mr R Markham SAD 169 of 2020 Counsel for the Applicant: Mr R Markham Solicitor for the Applicant: Adero Law Counsel for the Respondents: Mr T Duggan KC Solicitor for the Respondents: Crawford Legal Counsel for Adero Law: The non-party Adero Law appeared by its representative Mr R Markham ORDERS
SAD 105 of 2020 BETWEEN: CHRISTOPHER PETER THOMAS
Applicant
AND: ROMEO LOCKLEYS ASSET PARTNERSHIP, BEING THE PARTNERSHIP OPERTED BY LOCKLEYS FOODLAND PTY LTD & ROMEO LOCKLEYS HOLDINGS PTY LTD (ABN 12 244 067 815)
First Respondent
LOCKLEYS FOODLAND PTY LTD (ACN 108 166 276)
Second Respondent
ROMEO LOCKLEYS HOLDINGS PTY LTD (ACN 108 157 928)
Third Respondent
SAD 169 of 2020 BETWEEN: MARTIN SHINA
Applicant
AND: “ROMEO NSW PARTNERSHIP” BEING THE PARTNERSHIP OPERATED BY ROMEO NSW INVESTMENTS PTY LTD AND THE TRUSTEE FOR ROMEO NSW HOLDING TRUST (ABN 11 807 080 683)
First Respondent
ROMEO NSW INVESTMENTS PTY LTD (ACN 156 756 544)
Second Respondent
ROMEO NSW HOLDINGS PTY LTD (ACN 156 757 809)
Third Respondent
ORDER MADE BY:
CHARLESWORTH J
DATE OF ORDER:
6 OCTOBER 2022
THE COURT ORDERS THAT:
1.For the purposes of paragraph 6 of the orders made on 19 September 2022, the questions set out in Attachment A to these orders (Referred Questions) are referred to a Registrar of the Court (Referee), for inquiry and report pursuant to s 54A of the Federal Court of Australia Act 1976 (Cth) and r 28.61 and r 28.66 of the Federal Court Rules 2011 (Cth).
2.The Referee is to provide a report containing the Referee’s opinions in relation to the Referred Questions on or before 29 November 2022, or on such later date as the Court may determine.
3.Except to the extent identified in the Referred Questions, the Referee is not to inquire into:
(a)the consequences that should follow from any identified non-compliance with the provisions of any law regulating the legal profession; or
(b)whether there should be an uplift of Adero Law’s professional fees referable to due care and skill.
4.For the purposes of the referral, the Referee:
(a)is to proceed on the basis that Adero Law is entitled to be remunerated in accordance with Sch 3 of the Rules;
(b)is not required to conduct a detailed and complete assessment of costs but may otherwise inquire in to the Referred Questions with as much specificity or generality as the Referee thinks fit so as to assist the Court to determine whether to vary the lump sum assessment in paragraph 5 of the orders made on 19 September 2022;
(c)may request that Adero Law provide such additional information relevant to the Referred Questions as the Referee considers appropriate;
(d)is to include details of any requests for the provision of information and the response given by Adero Law to any such requests; and
(e)notwithstanding any suppression or non-publication order, may access and have regard to the following materials on the Court file:
(i)the reasons in: Thomas v Romeo Lockleys Asset Partnership [2022] FCA 1106;
(ii)the material filed in support of the interlocutory application (approval application);
(iii)a copy of the transcript of submissions made in support of the approval application; and
(iv)the affidavit filed in accordance with paragraph 6(b) of these orders.
5.Adero Law is to provide to the Referee copies of all documents provided to Ms Catherine Dealehr for the purpose of the preparation of any report for use in these proceedings, including all correspondence passing between Ms Dealehr and its representatives.
6.On or before 13 October 2022, Adero Law as an interested non-party is to:
(a)undertake a review of the time keeping records referred to in the report of Ms Dealehr dated 8 June 2022 (Dealehr Report), so as to ensure that they contain (and only contain) work that Adero Law asserts would ordinarily be properly chargeable to the applicant, and time entries Adero Law asserts are reasonably necessary for the performance of itemised activities; and
(b)file and serve on the applicant an affidavit:
(i)disclosing the outcome of its review and annexing (in electronic form as appropriate) the revised time records;
(ii)providing a description of the work undertaken prior to the entry into the costs agreement and an explanation as to why any such work is said to be chargeable to the applicant;
(iii)discretely identifying the fees and disbursements said to be chargeable to the applicant for the purpose of obtaining any report of a costs consultant;
(iv)providing a detailed description of the work undertaken in the preparation of pleadings, including the provision of work product justifying the professional fees and disbursements claimed against the applicant, and explaining those charges in light of the hours referred to in Table 11 and Table 21 of the Dealehr Report; and
(v)disclosing the extent to which any drafting, analysis, case theory preparation, modelling or other work product is a duplication or repetition of work produced in relation to any other litigation.
7.Adero Law is to bear its own costs of its participation in the referral.
8.Except with the leave of the Court, the applicant and Adero Law are not to withdraw their application for an order varying the amount specified in paragraph 5 of the orders made on 19 September 2022.
9.Liberty to apply.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
ATTACHMENT A
Referred QuestionsFor the purposes of the Referred Questions;
·the Dealehr Report is the report of Ms Catherine Dealehr dated 8 June 2022 forming annexure RMM 6-1 to the affidavit of Mr Rory Michael Markham affirmed on 9 June 2022.
·the Reasons are those published as Thomas v Romeo Lockleys Asset Partnership [2022] FCA 1106.
·the applicants are the applicant in this proceeding and the applicant in SAD169/2020.
1.With respect to the table contained at Reasons [136], what is the Referee’s opinion as to the allowable amounts for the items referred to in:
(a) the row titled Step 2: “Amount of professional fees pursuant to Scale”;
(b) the row titled Step 3: “Less reductions – non-claimable”;
(c) the row titled Step 4: “Less reductions – discounts”; and
(d) the row titled “Disbursements”?
Without limitation, in answering Question 1, the Referee is directed to address Questions 2 to 6 and such other subject matter as the Referee considers appropriate.
2. Does the Referee agree with:
(a) the opinions in the Dealehr Report as to the determination of operator positions?
(b) the deductions identified in Tables 11 and 12 of the Dealehr Report?(c)the adoption of a time based approach rather than an item based approach with respect to any particular activity or task?
3.What is the nature of the tasks underlying the activities referred to in Table 10 of the Dealehr Report, including the tasks referred to as “Plan Prepare, Draft” and “Review, Analyse”?
4. On an assessment of costs, would all such tasks be chargeable to the applicants?
5.To what extent are the hours attributable to those tasks reasonably necessary for their proper performance?
6.To the extent that the tasks included the input or manipulation of data in a spreadsheet or model for the purpose of alternate dispute resolution procedures or otherwise for the provision of advice:
(a) what did that task require?
(b) what is the appropriate hourly rate applicable to the task?
REASONS FOR JUDGMENT
CHARLESWORTH J
On 19 September 2022 the Court made an order pursuant to s 33V of the Federal Court of Australia Act 1976 (Cth) (FCA Act) approving the settlement of these two representative proceedings. Reasons for the order were published as Thomas v Romeo Lockleys Asset Partnership [2022] FCA 1106 (Reasons). Abbreviations appearing in the Reasons will be employed below.
The effect of the Court’s order was to approve settlement on the terms set out in a Deed. As explained in the Reasons, the Deed provided for the payment of certain sums by the respondent to be distributed to the lead applicants and certain Group Members (Settlement Sum). The Deed also provided for an additional payment, referred to as a “contrition payment”. The parties’ intention in relation to the contrition payment was to ensure that the whole of the Settlement Sum was directed to the lead applicants and Group Members, without deduction referable to any financial liability they may owe to their own lawyers, Adero Law (Costs Amount). The Deed contemplated that the quantum of the Costs Amount was to be $825,000.00 or such lesser sum as may be fixed by the Court.
On the application for approval, the parties sought an order that the Costs Amount be $825,000.00. The Court determined that the Cost Amount should be fixed in the lesser sum of $560,893.52 and granted liberty to the parties (and to Adero Law as an interested non-party) to apply for the variation of that sum. The relevant orders in each matter were as follows:
Costs
5.For the purpose of the Deed of Settlement and Release, the Costs Amount is $560,893.52.
6.The applicant, the respondent and Adero Law (interested non-party) have liberty to apply to vary the amount fixed by paragraph 5, such liberty to be exercised on or before 11 October 2022.
7.In the event that a party or the interested non-party exercises the liberty in paragraph 6, the question be referred to a Registrar for inquiry and report pursuant to s 54A of the FCA Act and r 28.61 and r 28.66 of the Federal Court Rules 2011 (Cth), on terms of reference and subject to conditions to be fixed by the Court.
8.In the event that the liberty in paragraph 6 is exercised by the interested non-party, the interested non-party is to bear its own costs of the application, including the costs of participating in the inquiry.
9.All outstanding costs orders otherwise be vacated.
As explained in the Reasons, I did not wholly accept all of the conclusions set out in a report of a costs consultant, Ms Catherine Dealehr, upon which the lead applicants and Adero Law relied, although I accepted that the quantification of costs should be approached in a broad brush way.
Under the Deed, the respondents are liable to pay the Costs Amount in three instalments of 30%, 30% and 40% of the total. The Deed expressly provides that if the Costs Amount was fixed by the Court in a sum less than $825,000.00, then the instalments shall reflect the same proportions.
Adero Law and the lead applicants exercised the liberty in paragraph 6 of the orders (variation application). Through its representative, Mr Rory Markham, Adero Law made further submissions on its own behalf (and on behalf of the lead applicants) to the effect that:
(1)the Court should reconsider findings it made as to the complexity of the work and the seriousness of various breaches by Adero Law of its obligations under the Legal Profession Act 2006 (ACT) (LP Act);
(2)the Costs Amount should be varied to $707,995.10, and the respondents required to pay instalments reflective of the higher amount; and
(3)in addition, there should be a referral to a Registrar for investigation and report to enable Adero Law to justify its claim for a further amount of $110,000.00 with such amount to be withheld until the referral process is complete.
On 6 October 2022, I made orders dealing partially with the resolution of the issues raised on the variation application and referring to the Registrar certain questions for inquiry and report. These are my reasons for making those orders.
ISSUES
Mr Markham submitted that the Court should revisit aspects of its reasoning culminating in conclusions that certain global discounts should be applied to the amount that Adero Law asserts it would ordinarily be entitled to charge the lead applicants for the provision of professional services. It was submitted that there should be an uplift under the Scale for care, skill and attention to reflect the complexity of the proceedings. It was submitted, and I accept, that some of the factual and legal matters bearing on the global discounts should be determined by the Court without reference to a Registrar.
The submissions of Mr Markham did not delineate between matters asserted on behalf of Adero Law and matters asserted on behalf of the lead applicants. I will accordingly proceed on the basis that the lead applicants join in all of the submissions. The circumstance that the lead applicants appear to present a joint position with Adero Law should be afforded some weight. However, for reasons that will become apparent, I have not altered my view concerning the seriousness of Adero Law’s non compliance with the LP Act. If anything, the submissions of Mr Markham had the effect of disclosing to the Court further information that causes me to view the non compliance more seriously.
Mr Markham has been heard as to the terms of reference and conditions that should govern the referral process provided for in the orders of 19 September 2022.
These reasons otherwise deal with three issues conveniently approached under the headings Professional Fees and Disbursements, Uplift and Breach.
Professional Fees and Disbursements
It is necessary to have regard to the purpose of the order granting the parties and Adero Law liberty to apply to vary the Costs Amount as fixed by the Court. The grant recognised that the Court had made a significant deduction to the claimed amount because of its lack of confidence in the materials provided to Ms Dealehr upon which her opinion was necessarily based. I emphasise again that I do not criticise Ms Dealehr for acting on materials that were limited in that respect.
Adero Law based its claim for costs on work in progress records (WIP records) comprised of items of work charged by various operators in six minute units. It provided to Ms Dealehr the entirety of the WIP records for the purposes of the preparation of her report. At the time of approving the Settlement I was not satisfied (and I remain unsatisfied) that the WIP records had been interrogated in any meaningful way by Adero Law before they were provided to Ms Dealehr for her review. In other words, I was not satisfied that the responsible personnel within the law firm had turned their own minds to the question of whether the entries in the WIP records were a proper reflection of the fees and charges that Adero Law was lawfully entitled to charge the lead applicants, whether under their costs agreements (now known to be void) or under the Scale. I explained why that was so in the Reasons and need not repeat the detail here.
In determining questions of costs in representative proceedings it is, of course, appropriate to adopt a broad brush approach. Ordinarily, it is not the role of the Court to conduct a detailed assessment or interrogation of the question. However, the circumstances of the present case invite a different approach. Ordinarily, the Court might safely proceed from an assumption that a claim by a lawyer to be entitled to payment is a claim that has first been quantified by the lawyer before it is asserted vis à vis the client and, by extension, by way of submissions and proposed orders in this Court. In my evaluation, I do not consider it proper for a costs consultant to be provided with records relating to costs (of the kind comprised in the WIP records) that have not first been subjected to careful scrutiny by the lawyer asserting the entitlement to be paid. That is especially so in cases where the costs consultant has not had access to work product said to have been produced in the provision of legal services and is in no position to assess the reasonableness of the costs charged for it. At the very least, the practice is one that may cause the Court to place a lesser weight on the expert opinion of the costs consultant.
In the present case, time did not permit Ms Dealehr to interrogate whether the time expended on tasks referred to in the WIP records was reasonable. She did not have before her the work output of the solicitors who recorded the time entries and so proceeded from the starting point that the representations as to reasonableness of the times attributed to stated tasks must be accepted at face value. In the Reasons, I identified a number of factors that affected the Court’s confidence in the reliability of the WIP records more generally. Adopting a broad brush approach, I applied a reduction of $200,000.00 to account for those circumstances. That deduction amounted to approximately 25%. The purpose of granting liberty to apply to the parties (and to Adero Law) was to make some provision for the possibility that the professional fees chargeable to the lead applicants exceeded the sum arrived at following my broad brush assessment. In proceeding in that way I had regard to the circumstance that delay in the final ascertainment of the Costs Amount would not be causative of delay in the payment of the Settlement Sum to the lead applicants and Group Members, nor was it apparent that the Group Members would necessarily suffer additional expense if the liberty were to be exercised by Adero Law.
Mr Markham submitted that the Court should now proceed in two steps. First, he submitted that the Costs Amount should be immediately increased because, he submitted, the Court should be satisfied that there is presently a sound basis to make that increase on the material before it. To that end Mr Markham referred to material that he said should assuage the Court’s concerns about the amounts expended in the preparation of (for example) pleadings and certain concerns about disbursements.
I am not satisfied that the Court should revisit its 25% reduction by reference to evidence concerning discrete tasks without reference to the whole of the costs claim. There should be no further consideration of any particular item of charging until such time as the Court is satisfied that Adero Law has conducted its own review of its own claim and until such time as the Referee has provided the Court with his or her report. As at the date of my most recent orders, that had not been done. The circumstance that the Court may take a broad brush approach to the consideration of a claim for costs does not mean that the legal practitioner asserting the claim may take such an approach in identifying for itself the professional fees it is properly entitled to charge. On the Court’s assessment of a costs claim, it is not appropriate to proceed on the basis of WIP records containing entries that have not been subject to consideration by the file principal, particularly, as to whether they should properly be written off or written down. The WIP records provided to a costs consultant should reflect what the law firm asserts can properly be invoiced.
I have previously observed that Adero Law may well be able to establish that the WIP records were a proper and reliable reflection of the work reasonably and necessarily undertaken. The referral of the matter to a Referee was identified as an appropriate mechanism for an inquiry into such matters as the reasonableness of the times recorded in dedication to stages and tasks, including by reference to work product generated by solicitors working on the matter. I remain of the view that the referral of the matter to a Referee is appropriate for that purpose, notwithstanding the position adopted by the lead applicants and notwithstanding the terms of the Deed. I need not repeat what I said in the Reasons in relation to that topic.
It was submitted, and I accept, that some of the findings contained in the Reasons should not be revisited by a Referee except to the extent provided for in the terms of reference. The Court’s assessment of the seriousness of Adero Law’s breaches of the LP Act (and the consequences that should flow from them) is appropriately a matter for a Judge of the Court to determine.
I have otherwise had regard to the additional submissions in determining the questions to be referred to a Referee for inquiry and report. It is for the lead applicants and Adero Law to consider whether they wish to proceed with that process, in light of the conclusions that now follow.
Uplift
I have concluded that the question of whether there should be an uplift to account for care, skill and attention should be deferred until the Court has the benefit of the Referee’s report. It is anticipated that the Referee will express an opinion about the nature of the work undertaken, particularly the tasks asserted by Adero Law to involve complexity and the proportion of work dedicated to complex tasks in the context of the two proceedings as a whole.
Breach
Ms Dealehr concluded that Adero Law had failed to comply with its obligations under the LP Act in various respects. She identified that upon an assessment of costs there may be a deduction of the amount payable to Adero Law, as provided for by s 277(4) of the LP Act. Based on her experience in cost assessment matters, Ms Dealehr expressed the view that deductions within the range of 5% and 30% might be applied, depending on the seriousness of the breach. I accept Ms Dealehr’s opinion that a deduction within that range may be appropriate.
Ms Dealehr’s opinion as to the appropriate costs amount allowed for a discount of 15% to reflect the various breaches that she had identified. There is no elaboration as to how she arrived at that percentage, other than to imply that she considered the seriousness to be in the mid-range of those she had encountered in her professional experience.
In the course of the approval hearing, it was not submitted by the lead applicants (or by Adero Law as an interested non-party) that the breaches identified by Ms Dealehr had not occurred. Nor was it submitted that a deduction to account for the breaches should not be made.
As explained in the Reasons, I viewed the breaches to be particularly serious, such that a deduction of 25% should instead be applied.
In their additional submissions, the lead applicants and Adero Law contend that the Court was in error to view the breaches of the LP Act as sufficiently serious to justify that discount. They submit that a discount of 20% should instead be applied. If that submission were to be accepted, it would translate to an increase in the presently ordered sum of $28,406.91.
The Court was particularly disapproving with Adero Law’s contravention of s 269(1)(d) of the LP Act. As explained in the Reasons, I consider that the breach had the consequence that the lead applicants were not placed in a position to enable them to make an informed assessment as to whether or not the class actions would be futile, even if the pleaded claims succeeded and sounded in awards of damages. Shortly stated, I consider there to be a very real risk in these proceedings that any judgment sum might be consumed entirely by costs payable to Adero Law. I expressed the view that a lead applicant should be made aware of such a risk before commencing class actions of the kind now before me and particularly before incurring any legal liability to pay the invoices of their own lawyer and assuming the responsibilities of a lead applicant. I considered that the settlement incorporated in the Deed might well be the solution to a problem, not uncommon in litigation, that persisting with a claim may be an exercise in diminishing returns. That is especially so in proceedings under the Fair Work Act 2009 (Cth) (FW Act) where the costs of a litigant will not be recoverable from an unsuccessful respondent unless the conditions in s 570 are fulfilled. Nothing in the additional submissions has dissuaded me from those views.
The additional submissions concerning this topic focused principally on the Court’s conclusions about the significance of provisions in the FW Act that confer standing on the Ombudsman and on Unions to commence proceedings alleging contraventions by employers and seeking remedies for payments to be made to employees reflecting their entitlements under the FW Act. I expressed the view that the existence of those mechanisms should be made known to litigants before they enter into a retainer with a lawyer for the provision of legal services in proceedings of this kind. I remain of that view in respect of cases where there is a risk that engagement of a law firm may result in the futility of the claim.
Mr Markham’s submissions on this issue may be summarised as follows:
(1)in proceedings commenced by the Ombudsman, the Ombudsman does not act “on behalf of” employees;
(2)there was no guarantee that the lead applicants would have pursued alternate mechanisms to obtain their claim to entitlements, had they been advised of the existence of those mechanisms;
(3)there was no guarantee that the Ombudsman or a Union would commence proceedings in relation to the claimed entitlements even if either or both of the lead applicants had asked them to do so;
(4)Mr Christopher Thomas, as the lead applicant in one of the proceedings, was in any event aware of the availability of the alternative mechanisms to pursue his claimed entitlements “at all material times” but was strongly of the view that they would not be an effective means to pursue his claim;
(5)there was no guarantee in any event that a proceeding commenced by a Union would be one that would not give rise to the same cost benefit analysis as that which might arise on a class action pursued by lead applicants through their chosen legal representatives; and
(6)a legal representative is under no obligation to advise a prospective client that there might exist a cheaper option to achieve the same outcome.
Mr Markham is correct to say that the Reasons employ language that may be fairly understood to mean that the Ombudsman acts as a representative of an employee in proceedings in which the Ombudsman has standing to seek a remedy for payments to be made to the employee. The Ombudsman is not the legal representative of the employee in that context such that, for example, the acts or omissions of the Ombudsman are not binding on the employee for the purposes of principles of res judicata or issue estoppel: Tomlinson v Ramsey Food Processing Pty Ltd (2015) 256 CLR 507, French CJ, Bell, Gageler and Keane JJ (at [46]).
However, those submissions do not address the gravamen of the Court’s concern. The Court identified the availability of alternate mechanisms as informing the seriousness of Adero Law’s breach because, in the ordinary course, the availability of the alternative mechanism is provided for under the FW Act itself. It seems to me that a purpose of s 269 of the LP Act is to put a client or prospective client in possession of information sufficient to enable an informed decision to be made about whether to commence litigation of the kind in contemplation. I remain of the view that is appropriate to assess the seriousness of the breaches in the present case having regard to that general legal context, which includes the availability of other mechanisms for obtaining a remedy.
It may also be accepted that the Ombudsman is not obliged to pursue claims on behalf of employees who lodge complaints with her. The Reasons contain no finding to that effect. Rather, the reasoning is such that the prospective client may, if fully informed, consider that lodging a complaint with the Ombudsman is a preferable means of pursuing his or her claims, when compared with the pursuit of a claim through a law firm that may be commercially futile (even if successful). The Reasons stress the importance that the disclosure under s 269 of the LP Act has in all cases arising in the present legal context. That is not to say that the lead applicants would in fact have pursued alternate mechanisms had the disclosure required by s 269 of the LP Act been made. Again, the Reasons contain no factual finding or assumption as to what the lead applicants in the present case would in fact have done had Adero Law not contravened the LP Act by failing to disclose the likely cost of the proceedings from the outset.
The Court has before it an unsworn statement signed by Mr Thomas as the lead applicant in the Thomas Proceeding. He speaks strongly against a deduction in respect of Adero Law’s non-compliance with the LP Act because it is only the respondents that stand to benefit. He foreshadows a submission he expected Mr Markham to make to the effect that any difference between the amount ordered by the Court and the amount of $825,000.00 should be paid to a charity named in his statement.
In oral submissions, Mr Markham took the point further. He submitted that the word “incurred” as used in the definition of Adero Costs in the Deed did not equate to “payable”. He submitted that in determining a different “reasonable amount” the Court need not and should not factor in a deduction for its non compliance with the LP Act. He submitted that it would not be “reasonable” to order a lesser amount by reference to Adero Law’s breach because it would not be reasonable in the circumstances for the respondents to benefit from that deduction. He said that the lead applicants considered that outcome to be “perverse”.
As emphasised at [65] of the Reasons, the structure of the Deed ought not be a reason to avoid consideration of the consequences that might otherwise have flowed under the LP Act by virtue of the identified non compliance with its provisions. As I have mentioned, Adero Law made no submission at the approval hearing to the effect that Ms Dealehr was wrong in principle to identify that a deduction should be made. The time to argue that no deduction properly reflecting the seriousness of the breach should be made at all was at the approval hearing.
To the extent that I am invited to find that it is “reasonable” (within the meaning of the Deed) that Adero Law be paid a higher amount but directed to dedicate some of it to a charity, I decline the invitation. As explained in the reasons, the Deed itself plainly contemplates that a lesser amount may be ordered and that, if that were to occur, the party that would benefit from such an order was the respondent. The circumstance that the Costs Amount should be reduced by reference to Adero Law’s breaches cannot be a “perverse” outcome, principally because it is not inconsistent with the Deed, to which Adero Law is itself a party.
Finally on this topic, it is to be recalled that Ms Dealehr referred to a costs estimate provided to each of the lead applicants on the face of the retainer, expressed at clause 7 as follows:
7. Fee Estimate
7.1It is estimated that it will cost $400,000.00 in legal fees, costs and disbursements for Adero to perform the following Work in relation to the Claim:
(a) initial bookbuild;
(b) drafting and briefing counsel to prepare pleadings;
(c) first case management conference; and
(d) correspondence with the Respondent.
7.2The Claimant acknowledges that it is aware of the variables that may affect total legal costs and disbursements in relation to the Claim, and any Proceedings, including (but not limited to):
(a)the issues that arise, and complexities in relation to, the Claim;
(b)how long Proceedings, or the claim, continue before they are resolved;
(c)the amount of evidence to be compiled, produced, received, analysed, etc;
(d)the litigation and dispute resolution tactics adopted by the Claimant and the Respondent(s);
(e)the length of any hearing or trial;
(f)the number and nature of witnesses to be called upon to give testimony, reports, or otherwise provide evidence; and
(g)unexpected delays or issues that are outside the control of Adero.
7.3Adero will inform the Claimant as soon as possible if they need to revise the Estimate. Adero’s commitment is to ensure that the Claimant remains in control of their expenditure on legal services.
Ms Dealehr had regard to that estimate in concluding that there had been at least “partial” compliance by Adero Law with its cost estimate obligations under the LP Act.
The Court itself referred to that estimate and expressed the view that it was surprisingly high, given the early stage of each proceeding to which clause 7 expressly related (Reasons, [33]). The estimate was one of multiple factors affecting the Court’s confidence in the time keeping and billing records of Adero Law.
In the course of the most recent hearing the Court received evidence and submissions casting a new light on the estimate given in clause 7 of the retainer.
Mr Markham submitted that what is described on the face of the retainer as an estimate was in fact not a genuine estimate at all. He relied upon the statement of Mr Thomas in which it is said:
In connection with Adero Law’s non-compliance with the Legal Professions Act, I wish to make clear that at all times I understood that the initial $400,000.00 estimate was in connection with Adero Law seeking to undertake the matter on a no win, no fee basis. I was also aware that this estimate was made whilst also trying to secure … the necessary funding in order to ensure that the matter could be taken to hearing and run efficiently. I did not understand that the estimate was intended for the full matter. I also recall having facilitated through Adero Law various applications for litigation funding which were not ultimately pursued.
In oral submissions, Mr Markham asserted further facts concerning the “estimate”. He emphasised that Adero Law was acting on a “no win no fee” basis and so was shouldering the risk of an unsuccessful outcome in the litigation and emphasised the public interest in the due prosecution of actions for remedies under the FW Act. He said that the lead applicants were both aware that $400,000.00 was not intended to be an estimate of the total costs. That it was not an estimate of total costs is plain on the terms of the retainer itself. The Reasons do not treat it as such.
Mr Markham then referred the Court to clause 5 of the retainer. It relevantly provides:
Intention to Seek Funding
5.8A Funder may be engaged by Adero and the Representative Claimant on behalf of the Claimant and the Claimant’s Claim.
5.9Nothing in clause 5.8 may be taken as being a statement, representation, warranty, guarantee, covenant, undertaking or agreement whatsoever that funding will be secured.
5.10In the absence of funding being secured, Adero retains its discretion to terminate this Agreement.
5.11If a Funder is engaged, payment for fees incurred by the Claimant, for Work carried out by Adero prior to the Funder being engaged, will be negotiated between Adero and the Funder. Work carried out by Adero prior to the Funder being engaged that is not paid for by the Funder will be treated as Residual Costs.
5.12If a Funder is engaged, the Claimant will be notified of the terms of any funding agreement and the Claimant will have an opportunity to opt out of the Proceedings in accordance with section 33J of the Federal Court of Australia Act 1976 in due course.
5.13If a Funder is engaged and the Claimant does not enter into the funding agreement, Adero may terminate this retainer at its discretion.
Mr Markham went on to assert that there existed a secondary agreement with the lead applicants to the effect that Adero Law was only prepared to provide legal services to the value of $400,000.00, after which it could exercise the right in clause 5 to cease to act if it was unable to secure litigation funding. He referred to his affidavit evidence to the effect that Adero Law made unsuccessful attempts to obtain litigation funding. Mr Markham confirmed at least three times that clause 7 of the Deed was not in fact a considered estimate of the costs likely to be incurred but rather a cap that, if reached, may trigger a decision by Adero Law to cease acting for the lead applicants in accordance with a collateral agreement or arrangement. The arrangement was described in oral submissions as follows:
The arrangement was that Adero would commence the claim. It would commence the claim up to a value of $400,000. It would do so with the intent of trying to secure litigation funding, on the words of the lead applicant, to ensure that the matter could be taken to a full hearing, and ensure that it could be run efficiently. There was an understanding that when that secured funding would occur, there would be a termination of that retainer, and obviously the entry of a new litigation funding agreement. It is ordinary course in class actions for law firms to have a retainer and then to indicate that this is subject to securing litigation funding, and it is in the interest of group members to take that course because it preserves the limitation period and allows justice to be achieved more quickly.
From the bar table, Mr Markham again confirmed that Adero Law was not willing to shoulder the risk of no win no fee proceedings beyond performing work to the value of $400,000.00.
It was on that basis that Mr Markham invited the Court to revisit that part of the Reasons in which the Court expressed some dismay that an estimate of $800,000.00 was given with respect to tasks necessary to bring the two proceedings to the first case management hearing and, accordingly, to revisit its assessment of the seriousness of its failure to give an estimate of the total costs of the proceedings in accordance with s 269 of the LP Act.
Mr Markham submitted that the statement of Mr Thomas confirmed the existence of the collateral arrangement, further submitting:
It was not meant to be taken as a genuine estimate; it was taken, in discussion with the client, that this was the limit by which we could carry an exposed risk on our on financial balance sheet.
It is difficult to decide where to begin in analysing the consequences of these submissions.
In the course of the approval hearing Adero Law was afforded an opportunity to be heard in its own name and right. The circumstances just described were not disclosed by Mr Markham in the course of those submissions. Rather, Adero Law urged the Court to act upon the opinion of Ms Dealehr. Ms Dealehr was provided with a copy of the retainer, as was the Court. On its face, clause 7 of the retainer provides an estimate of the costs expected to be incurred in performing the tasks described therein. Neither the lead applicants nor Adero Law qualified their reliance on the terms of the retainer or the opinions of Ms Dealehr. Ms Dealehr was not apprised of the existence of the collateral arrangement now disclosed to the Court by Mr Markham. The effect of the collateral arrangement is essentially that clause 7 of the retainer does not mean what it says. Further, it may be inferred that it was a term of the retainer (at least as entered into by Mr Thomas) that Adero Law may cease to act after it had performed work in the prosecution of the claims to a value of $400,000.00 (irrespective of the stage of the proceedings) and may then cease to act in the exercise of its right under clause 5 if no litigation funding had at that time been obtained. Mr Markham did not pause to explain what consequences would follow for the conduct of a class action by the lead applicants who would presumably be left unrepresented in a proceeding in which they bore responsibilities, not only for the carriage of their own claim but for the interests of all of the Group Members.
The existence of the arrangement is corroborated to some extent by Mr Thomas’ statement, however that part of his statement to the Court raises more questions than it answers.
On the facts, there are two inconsistent scenarios, only one of which could be correct. The first scenario is that Adero Law gave a genuine estimate of costs in clause 7 of the retainer which was sufficiently high so as to attract the attention of the Court and to contribute to its loss of confidence in the integrity of its WIP records. That is the approach taken in the Reasons.
The second scenario is the existence of a collateral agreement inconsistent with clause 7 of the retainer that was not previously disclosed and that tends to contradict material previously relied on. There was direct reliance on the retainer by the lead applicants and Adero Law without qualification or disclosure of the existence or terms of the collateral arrangement, or by provision of the retainer to Ms Dealehr without disclosure to her of the existence of an arrangement inconsistent with clause 7. As I have said, Ms Dealehr’s opinions included an observation, favourable to Adero Law, that there had been partial compliance with s 269 by the provision of the estimate in clause 7. The lead applicants, represented by Adero Law, asked the Court to act upon her opinion.
Accepting for present purposes the existence and terms of the collateral arrangement, the Court is not moved to alter its assessment of the seriousness of the breach of s 269 of the LP Act in any direction other than upwards. The existence of the collateral arrangement would mean that the lead applicants were not provided with any estimate at all as to the costs of the litigation, even to the first case management hearing. All that was given was a promise to provide legal services until such time as $400,000.00 in each action was recorded, after which Adero Law might exercise a contractual right to withdraw.
Whatever appreciation Mr Thomas had of the arrangements with Adero Law, there is no evidence as to Mr Shina having any appreciation that the estimate in clause 7 was anything other than it appears on its face to be.
I do not consider the non disclosure to be explained by the circumstance that Adero Law expected the Court to adopt and act upon Ms Dealehr’s opinion or at least afford it an opportunity to be heard if it did not propose to do so.
In the outcome I will proceed from an assumption that I if am wrong in failing to be moved by the submissions made in relation to other matters affecting my assessment of the seriousness of Adero Law’s breaches and that in the ordinary course the proper assessment of the deduction should be 20%, then I would nonetheless decline to vary the ordered Costs Amount. That is because the additional submissions now advanced support a finding that there was no attempt by Adero Law to give a genuine estimate even to the early stages of the proceeding. That newly disclosed circumstance only serves to reinforce the conclusion that a 25% reduction is appropriate, having regard to all of the circumstances.
The order for the referral of questions to the Referee otherwise requires no elaboration or explanation.
I certify that the preceding fifty-seven (57) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Charlesworth. Associate:
Dated: 6 October 2022
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