Universal 1919 Pty Limited v Barraket Stanton Lawyers Pty Ltd - [2015] NSWSC 540

Supreme Court

New South Wales

Amendment notes

Medium Neutral Citation: Universal 1919 Pty Limited v Barraket Stanton Lawyers Pty Ltd [2015] NSWSC 540
Hearing dates: 5 May 2015
Date of orders: 07 May 2015
Decision date: 07 May 2015
Jurisdiction: Common Law
Before: McCallum J
Decision:
Declaration made that costs assessment application number 2014/212701 may be dealt with without a determination of this Court pursuant to s 350(5) of the Legal Profession Act. If the application does require such a determination, a determination is made, after having regard to the delay and the reasons for the delay, that it is just and fair for the application for assessment to be dealt with after the twelve month period.

Catchwords: COSTS – assessment – non-associated third party payer – whether application made out of time – where written request for information pursuant to s 350(6) of the Legal Profession Act not complied with
Legislation Cited: Legal Profession Act 2004 (NSW), ss 302A, 332, 332A, 350
Category: Principal judgment
Parties: Universal 1919 Pty Limited (Plaintiff)
Barraket Stanton Lawyers Pty Ltd (First Defendant)
122 Pitt Street Pty Ltd (Second Defendant)
Representation:
Counsel:
R Goodridge (Plaintiff)
J Sharpe (Defendants)
Solicitors:
George Xylas Solicitor (Plaintiff)
Barraket Stanton Lawyers (Defendants)

File Number(s): 2014/343894
Publication restriction: None

Judgment

HER HONOUR: Universal 1919 Pty Limited is the lessee of commercial premises in Pitt Street, Sydney. It is convenient to refer to it as the tenant. 122 Pitt Street Pty Limited is the current lessor of those premises. I will refer to that entity as the landlord.
These proceedings represent a short but important chapter in a continuing and acrimonious dispute between those parties as landlord and tenant. The tenant accepts that it breached the lease when it erected a partition obstructing a staircase between the ground floor and the basement of the leased premises without first obtaining the requisite approval from council. That breach has been rectified in that the tenant has removed the partition.
In accordance with cl 16.3 of the lease, the tenant has an obligation to pay “all costs and expenses (including legal costs) which the landlord incurs in connection with that default”. Legal costs were in fact incurred because the landlord retained a firm of solicitors, Barraket Stanton Lawyers Pty Limited, to act for it in respect of the breach. The tenant accepts that obligation but seeks to have the amount claimed on that account (which is considerable) assessed by a costs assessor under the Legal Profession Act 2004 (NSW).
An application for assessment was filed on 18 July 2014 and referred to an assessor. The application invoked s 350(2) of the Legal Profession Act, which confers a right to apply for an assessment of legal costs payable by a "third party payer". It is common ground that the tenant is a third party payer within the meaning of s 302A of the Act, since it is under a legal obligation to pay for at least part of the legal costs for legal services provided to the client, in this case, the landlord. It is also common ground that the tenant is a "non-associated third party payer" within the meaning of that section.
On 3 November 2014, the assessor determined that he did not have jurisdiction to deal with the application as it was not made within 12 months after the bill was given, or the request for payment made, to the third party payer; a requirement imposed by s 350(4). The assessor has nonetheless retained the papers pending an application by the tenant under s 350(5) of the Act for a determination by this Court that it is just and fair for the application for assessment to be dealt with after the 12-month period.
The tenant disputes the correctness of the assessor's determination on that issue and, by these proceedings, seeks various orders on that premise. The defendants to the application are the landlord and the solicitor.
Alternatively, the tenant seeks the determination under s 350(5) adverted to by the assessor in his determination. The landlord contends that the relief sought on that premise is misconceived in that the tenant should have appealed to the District Court, as allowed under the Legal Profession Act. The landlord submitted that this Court has, in that circumstance, no power to grant any of the relief sought in paragraphs 1 to 5 the summons. It will be necessary to return to that issue.
The landlord and the solicitor oppose the relief sought under s 350(5), contending that the tenant has not discharged its onus to establish that it is just and fair for the application to be dealt with out of time. Before proceeding to determine those contentions, it is necessary to record some of the chronology of the dispute between the parties.
In late 2012, the landlord and the tenant resolved an earlier dispute as to works proposed by the tenant to refit the premises. At that point the tenant agreed to pay "any undisputed legal fees or expenses" and, in due course, an amount was paid on that account.
The lease, initially for a period of ten years, was due to expire on 31 May 2013 and included an option to renew for a further period of ten years.
On 8 May 2013, the landlord wrote to the tenant alleging a series of breaches including the erection of the partition. The letter notified the tenant of a claim for fees in the sum of $34,883.50. The letter did not, in terms, demand payment of that sum, but should be understood as making a request for such payment.
On 24 May 2013, the tenant's solicitor responded with a request for "an itemised statement". In that context, it may be noted that s 332A of the Legal Profession Act permits any person who is entitled to apply for an assessment of legal costs to which a bill in lump sum form relates to request the law practice to give the person "an itemised bill".
On 11 June 2013, the landlord responded to that request with a demand for payment of $47,883.57, made up of the amount previously notified plus "further costs to date (estimated)" in the round sum of $13,000. The letter enclosed copies of the tax invoices that had been sent by the solicitor to the landlord for the initial sum claimed of $34,883.50. Those invoices recorded the people who had provided legal services, the hours of legal services provided and a generic description of events but, in my view, did not provide sufficient detail to allow a third party in the position of the tenant to know whether the services provided were properly attributable to the specific breach the tenant had admitted, particularly in the context of the broader dispute to which I have referred.
On 18 June 2013, the tenant's solicitor wrote again stating that his client "will comply" with the obligation under cl 16.3 of the lease, but would not pay the sum most recently demanded, in the order of $48,000. He noted that it was "unlikely that all of the costs demanded are payable by my client". As later material reveals, in my view that unlikelihood, as it was described, may in fact be regarded as a near certainty.
On 19 June 2013, the landlord's solicitor responded by now demanding the sum of $48,942.38, providing a further invoice itemising the difference, together with copies of the invoices referable to the disbursements claimed in the earlier tax invoices.
On 25 June 2013, the tenant's solicitor responded stating that his client was overseas, that he was "instructed to apply for an assessment" and that he was obtaining advice from senior counsel.
The solicitor for the landlord responded the following day, on 26 June 2013. His letter asked, rhetorically, why a clause as simple as cl 16.3 was in need of an opinion from senior counsel. That was perhaps a surprising comment in light of the number of hours of advice for which he himself had charged the landlord by that date for considering the terms of the same lease. The solicitor further asserted, wrongly, that his fees were not amenable to assessment on the application of the tenant. The solicitor very properly acknowledged in cross-examination before me yesterday that his letter was in error in that respect.
On 16 July 2013, the landlord sent a notice of breach for failure to pay the sum of $48,942.38 demanded in the previous letter, with an increment for interest and the cost of preparing the notice, taking the amount claimed at that point to $50,078.96. The solicitor for the tenant responded by letter dated 12 August 2013 with what I would respectfully describe as a conciliatory attempt to resolve the matter amicably, accompanied by a detailed exposure of the difficulties for his client in assessing the quantum of fees claimed. The letter said that his client "will not be initially seeking an assessment", asserting that he was taking that course with a view to attempting to resolve the proceedings otherwise. Regrettably, the landlord and its solicitor did not engage with the points cogently made in that letter and had indeed already commenced proceedings by that date.
The landlord had commenced proceedings by statement of claim filed in the Local Court on 7 August 2013 seeking the sum of $50,078.96. That was the amount that had been demanded in the notice of breach. From that point, the tenant engaged with the processes of the Local Court.
On 4 September 2013, the tenant filed a defence. The defence did not, in terms, invoke the provisions of the Legal Profession Act, but the tenant did plead an obligation to like effect as arising under the lease, that is, an obligation on the landlord to provide sufficient detail as to the composition of the costs claimed to enable the tenant to consider the reasonableness or appropriateness of those costs. The defence contended that insufficient information had by that date been provided in that respect.
In due course, the landlord filed and served an affidavit of a cost assessment expert. The content of that affidavit confirms the apprehension arising from the original tax invoices that the landlord and its solicitor had been engaged in the consideration of a broader claim, or at least that there was a real issue to be tried on that question. By way of example, the costs assessor referred, in considering the costs claimed to be reasonable, to the fact that there had been "consideration of past breaches and estoppel", and the fact that the matter entailed "urgency" due to the approaching date for exercise of the option to renew the lease for a further term of ten years.
That apprehension is re-enforced by the inherent unlikelihood that the landlord and the solicitor could reasonably have expended an amount in the order of $50,000 for the narrow default conceded by the tenant and the extent of fees evidently incurred after that default was acknowledged and rectified.
It may reasonably be apprehended, in my view, that the landlord was, at that point, considering other remedies and that the costs for the legal services undertaken in that context have been lumped together with those claimed in respect of the breach the subject of the notice.
The parties continued to argue in the Local Court over subpoenas by which the tenant continued to seek to obtain the documents it thought necessary to understand the quantum of the amount claimed. Ultimately, it appears from the material relied upon in the application before me, and I infer, the tenant briefed different counsel who immediately advised of the need to make an application for assessment. The application was filed promptly after that advice was given; that is, within four days.
The first issue raised by the plaintiff is whether at any point “the bill was given, or the request for payment was made to the client or third party payer”, within the meaning comprehended in s 350(4) of the Legal Profession Act, so as to trigger the commencement of time running against the tenant to make an application for assessment under s 350(2).
As noted Mr Goodridge, who appears for the tenant, s 332 of the Act classifies bills as being either in the form of a lump sum bill or an itemised bill. Section 332A confers an entitlement on any person who is entitled to apply for an assessment of the legal costs to which the bill relates to request the law practice to give the person an itemised bill, and in that event the law practice must comply with the request within 28 days after the date on which the request is made. The difficulty with the application of that provision to the circumstances of this case is that it is not suggested that the tenant was at any point given a bill in the form of a lump sum bill; rather, if anything occurred, it was that there was a “request for payment”, in the language of s 350(4). Accordingly, in my view, it is on that provision that attention must be focused in the present case.
The solicitor and the landlord argued in the proceedings before me that s 350(4) must be read disjunctively. That is, that it refers to a bill being given to a client (on the one hand) or a request for payment being made to a third party payer (on the other) and, accordingly, that time runs against a third party payer from the time the request for payment is made.
There is some sense in reading the section in that way, at least in so far as the section adopts different terms to reflect the different ways in which the person obliged to pay the legal fees in question might be approached for payment. Ordinarily, solicitors send bills to clients. If a third party is liable to pay that amount, the approach for payment might more readily be referred to as the making of a request rather than the giving of a bill.
The Act, however, must be read as a coherent whole having regard to its objects. The Act plainly contemplates that a non-associated third party payer should have a mechanism for obtaining an itemised bill (or at least its equivalent). In that respect, it may be noted that s 350(6) provides:

(6) If the third party payer is a non-associated third party payer, the law practice must provide the third party payer, on the written request of the third party payer, with sufficient information to allow the third party payer to consider making, and if thought fit to make, an application for a costs assessment under this section.

It is difficult to discern any practical difference between an itemised bill and another form of communication that provides "sufficient information to allow the third payer party payer to consider making and, if thought fit to make, an application for a costs assessment". Indeed, it might be thought that a non-associated third party payer has the highest need for such information. Ordinarily, such a party will have little or no other information on the strength of which to assess the reasonableness or appropriateness of the costs claimed. A party in that position is, in theory at least, at the highest risk of what Mr Goodridge referred to as “fee gouging”.
Unsurprisingly, it is possible to point to anomalies in the scheme of the legislation and, to a degree, complete coherence of the Act as a whole cannot be achieved. There is an anomaly in the provisions relevant to the present case. Whereas a request under s 332A imposes an express obligation on the law practice to comply within 21 days after the date on which the request is made, s 350(6) does not state a time limit within which the law practice must provide the information requested. However, having regard to the matters to which I have referred and, in particular, the high need of a non-associated third party payer for information of the kind allowed to be requested under sub-s 6, the Court should, in my view, strive for a coherent operation of the Act and one which has regard to its object of protecting payers of legal fees and regulating the legal profession.
The need for such protection is obvious in a profession in which the standard unit of measurement of time is six minutes; a unit explicable only as a convenient devisor of the unit of time of one hour and not otherwise having any logical correlation with the way in which legal services are usually provided.
It may be accepted that s 350(4) contemplates the provision of “a request” rather than “a bill”, but here the third party payer did request an itemised bill. In my view, that is the plain effect of the letter dated 24 May 2013. Whether or not that was a request which triggered the obligation under s 332A, it was plainly a “written request” within the meaning of s 350(6).
In my view, reading the legislation coherently, it should be concluded that where, after a request for payment is made of a third party payer, that third party payer makes a written request for information of the kind referred to in s 350(6) (as, in my view, plainly occurred in the letter of 24 May 2013), the request for payment is not to be taken to have been made for the purpose of s 350(4) until the third party payer's written request is satisfied.
I am persuaded that, on the proper construction of s 350, there was a written request on 24 May 2013 that has never been complied with. It follows from that conclusion that s 350(5) is not invoked, contrary to the conclusion in the determination of the costs assessor of 3 November 2014.
There remains, however, a difficult issue as to what relief may appropriately be granted in that circumstance. As already noted, the landlord contended that the relief sought in the summons in paras 1 to 5 is misconceived. By prayer 1, the tenant seeks an order that the solicitor and the landlord give to the tenant a bill of costs in itemised form. Like relief is sought in prayer 2, purportedly invoking s 332A of the Legal Profession Act. There is elsewhere in the Act an express power conferred on this Court to order a law practice to give a bill of costs (see s 728) but that is a power which arises on the application of a client, not a third party payer.
It is arguable that the Court would have power within its inherent power to order a law practice to provide an itemised bill in the circumstances of the present case but I do not think it is necessary to decide that issue in order to determine the present application. If, as I apprehend is the appropriate course, this matter is now to be remitted to the costs assessor to be determined in accordance with the application filed, the assessor will have power to seek an itemised bill from the solicitor (as indeed he has already done). That is, in my view, the more appropriate course.
It was submitted on behalf of the solicitor and the landlord, however, that if contrary to the conclusion reached by the costs assessor the application for assessment was within his jurisdiction, this Court has no power to make any orders because the proper course was for the tenant to exercise his right to appeal to the District Court. I do not accept that to be a correct statement of the law. Certainly, there is a right to appeal to the District Court but I do not think that Court’s power to determine such an appeal derogates from this Court's power in the exercise of its supervisory jurisdiction. It would be unfortunate if, owing to the existence of a right to appeal to the District Court, there was imposed upon the very people whom this legislation is intended to protect the burden of bringing duplicate proceedings. To accede to the submission of the solicitor and the landlord would mean that the tenant would first have had to appeal to the District Court seeking the result he will achieve as a result of the conclusions I have reached and then, separately, against the risk of being wrong in that respect, to approach this Court, which is the only court with power to grant the relief provided for in s 350(5). The law should not readily be understood to require such duplication. In my view, this Court does have power at least to grant the declaratory relief sought by the Plaintiff.
I do not think it is appropriate to grant declaratory relief in the terms sought in prayer 3 of the summons which, as submitted by Mr Sharpe on behalf of the landlord and the solicitor, is directed to the very issues which should be determined by the costs assessor. I do, however, think it is appropriate to grant declaratory relief to the effect of that sought in prayer 5, since that is what follows from my conclusion that time did not commence to run against the tenant pending provision by the solicitor of the information sought in the tenant's written request.

In case I am wrong in the conclusions I have expressed thus far, it is appropriate to indicate that if, on the proper construction of the legislation, a request for payment was made and time began to run against the tenant from some point in 2013, I would have been satisfied that it is just and fair for there to be an assessment, notwithstanding the fact that, on that analysis, more than 12 months passed before the application for assessment was made.
That conclusion is (I hope) clear from the reasons I have given in respect of the earlier conclusions I have expressed. However, it is necessary separately to address the question of delay on that premise.
In my view, the delay is adequately explained. The effect of the evidence before me is that the solicitor acting for the tenant, although approaching his client's concerns conscientiously and sincerely, was not aware until so advised by the barrister he consulted shortly before the application for assessment was filed that there was a 12 month limitation period running against his client.
In my view, the suggestion made during the course of argument that the client may nonetheless have known of that limit may be dismissed as fanciful. It may be acknowledged that there is no evidence before this Court as to what the client in fact knew. But in circumstances where the solicitor for the tenant was ignorant of that time limit and the solicitor for the landlord believed no assessment was available at all, I think I can properly infer that the client is unlikely to have had any better state of knowledge than the two lawyers. I apprehend that the only reason no affidavit was put on by the client is that it did not occur to those advising him that it would be considered necessary, having regard to the lengthy explanation put before this Court as to the steps that were being taken by the solicitor during that period.
In my view, the solicitor for the tenant at all times engaged sincerely and conscientiously with what can only be described as the bullish approach of the landlord. The fact that the Local Court proceedings proceeded as far as they did (undoubtedly incurring considerable costs) is unfortunate but that is not a reason to continue down that path at this point.
If I am wrong in my conclusion that the application for an assessment was not out of time it is, in my view, just and fair that there should be an assessment now, even if it is out of time. On that basis, having regard to the declaratory relief I propose to grant, I should simply record, in the terms of s 350(5), that if the application was made out of time, after having regard to the delay and the reasons for the delay, it is my determination that it is just and fair for the application for assessment to be dealt with after the twelve-month period.
For those reasons, the orders of the Court are:

A declaration that costs assessment application number 2014/212701 may be dealt with without a determination of this Court pursuant to s 350(5) of the Legal Profession Act.

If the application does require such a determination, a determination that, after having regard to the delay and the reasons for the delay, it is just and fair for the application for assessment to be dealt with after the twelve-month period.

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Amendments

20 May 2015 - Typographical error [17]

20 May 2015 - Typographical error [16]

Decision last updated: 20 May 2015

Medium Neutral Citation:	Universal 1919 Pty Limited v Barraket Stanton Lawyers Pty Ltd [2015] NSWSC 540
Hearing dates:	5 May 2015
Date of orders:	07 May 2015
Decision date:	07 May 2015
Jurisdiction:	Common Law
Before:	McCallum J
Decision:	Declaration made that costs assessment application number 2014/212701 may be dealt with without a determination of this Court pursuant to s 350(5) of the Legal Profession Act. If the application does require such a determination, a determination is made, after having regard to the delay and the reasons for the delay, that it is just and fair for the application for assessment to be dealt with after the twelve month period.
Catchwords:	COSTS – assessment – non-associated third party payer – whether application made out of time – where written request for information pursuant to s 350(6) of the Legal Profession Act not complied with
Legislation Cited:	Legal Profession Act 2004 (NSW), ss 302A, 332, 332A, 350
Category:	Principal judgment
Parties:	Universal 1919 Pty Limited (Plaintiff) Barraket Stanton Lawyers Pty Ltd (First Defendant) 122 Pitt Street Pty Ltd (Second Defendant)
Representation:	Counsel: R Goodridge (Plaintiff) J Sharpe (Defendants) Solicitors: George Xylas Solicitor (Plaintiff) Barraket Stanton Lawyers (Defendants)
File Number(s):	2014/343894
Publication restriction:	None