//
© 2026 Zoe. All rights reserved.
Zoe is a legal information platform. Always consult the Federal Register of Legislation for authoritative text.
[2013] VSCA 136
Court of Appeal (Vic)
2013-06-06
Ashley JA
Original judgment source is linked above.
Gadens Lawyers v Beba Enterprises Pty Ltd [2012] VSC 519 (Emerton J)
COSTS - Costs between solicitor and client - Legal Profession Act 2004 (Vic) - Jurisdiction of the Costs Court - Non-associated third party payer - Right of non-associated third party payer to apply for costs review under Division 7 of Part 3.4 of the Act - Loan agreement provided for borrower to pay lender's legal and other costs in event of default - Borrower defaulted and lender incurred legal and other costs - Further agreement reached for the repayment of loan and for payment of the lender's costs - Whether the borrower, a non-associated third party payer, could by agreement give up statutory right under Division 7 of Part 3.4 - Legal Profession Act 2004 (Vic) part 3.4 - Appeal dismissed.
1 This appeal raises questions concerning the right given to what the Legal Profession Act 2004 calls a 'non-associated third party payer' to apply for a costs review under Division 7 of Part 3.4 of that Act; and particularly the question whether such a payer, by agreement, can - and in this case did - in substance give up its statutory rights under that Division 7.
2 By 29 January 2009, Po Wah Yeung (Ms Yeung) had loaned to Beba Enterprises Pty Ltd (Beba) an amount of $3 million, the lending having commenced in 2008.
3 On 29 January a loan agreement was signed which, inter alia, documented the loan made, and provided for repayment of the principal on 31 January that year. The agreement also provided for:
(1) payment of interest on moneys due and unpaid, in the event of default, at 13.85% per annum;
(2) payment of 'all costs, charges and expenses (including legal costs as between solicitor and client) reasonably incurred by the lender because of any default by the borrower';
(3) the giving of securities: second ranking fixed and floating charges over the assets and undertaking of the borrower and another company, and a deed of guarantee and indemnity executed by the other company in favour of the lender.
4 The loan agreement provided that outstanding principal and interest was to be immediately due and payable on the happening of various events, including the borrower being in default in any payment which remained unrectified for seven days after notice was given to the borrower.
5 It is uncontroversial that the principal was not repaid on 31 January 2009, and that it remained outstanding as at December 2010.
6 By Notices of Demand dated 31 December 2010, addressed to Beba and the other company, the lender required repayment of the principal sum by close of business on 11 January 2011. The notice specified what action the lender might take in the event of non-compliance with the notice. The notice to Beba was delivered to its offices that day, together with a letter setting out the lender's concern in relation to Beba's default, its financial position more generally, and lack of cooperation by its management.
7 Between 5 and 7 January 2011 there were a series of written communications between the borrower's advisers, PricewaterhouseCoopers (PwC), and the lender's solicitors, Gadens Lawyers. Preceding that correspondence there had been a meeting between, on the one hand, Beba's director, Robert Cromb, and two advisors from PWC; and, on the other hand, a representative of the lender, two persons from PPB Advisory (PPB) (a firm of chartered accountants engaged by the lender to investigate Beba's financial position), and a partner of Gadens. That meeting was held on 5 January 2011.
8 The correspondence took the form of an initial draft offer by the borrower, which was followed by negotiation as to the final form of that offer. It was never in debate that the offer would include a proposed schedule for repayment of the principal.
We refer to your letter dated 31 December 2010 and our meeting today at your office. We propose the following payment terms for the Kookai Group to fully repay the $3m owing to your client Po Wah Yeung.
The following proposal is conditional on the notices of demand issued on 31 December 2010 being withdrawn. We will require in writing confirmation of this proposed repayment plan together with a letter confirming the withdrawal of the notices of demand by 4pm, Thursday 6 January 2011. This letter and the letter of confirmation from you will constitute a variation to the Loan Agreement.
Proposed payment terms
We would be happy to further discuss your costs once you can provide us a full estimate including by grade and by hour and the tasks you have performed on behalf of your client.
As agreed, interest at the agreed rate of 12% per annum will be paid weekly on the outstanding balances owing.
We confirm that your client's second ranking security over the assets of Beba and Epona will continue to secure the amounts owing to your client. We confirm that the Kookai Group will not increase its first ranking secured borrowings prior to 31 March 2011 except to repay amounts owing to your client.
The above payments of principal and interest will be in full and final settlement of all obligations owed to your client under the Loan Agreement and related documents and, upon the payments set out above being made the securities held by your client must be released.
10 The first response by Gadens, the lender's solicitors, took the letter of offer and returned it in amended form[1] as follows:
We refer to your letter dated 31 December 2010 and our meeting of yesterday at your office. We propose the following payment terms for the Kookai Group to fully repay the $3m owing to your client Po Wah Yeung together with a contribution in the sum of up to $60,000 towards fees owed to your client's advisors, Gadens Lawyers and PPB Advisory.
The following proposal is conditional on the notices of demand issued on 31 December 2010 being withdrawn. We will require written confirmation of your client's acceptance of this proposed repayment plan together with a separate letter confirming the withdrawal of the notices of demand by 5pm, today. This letter and the letter of confirmation from you will constitute a variation to the Loan Agreement.
Proposed payment terms
*(made up of $200,000 payment and $60,000 contribution to both Gadens Lawyers and PPB Advisory).
As agreed, interest at the agreed rate of 12% per annum will continue to be paid weekly on the outstanding balances owing.
We confirm that your client's second ranking security over the assets of Beba and Epona will continue to secure the amounts owing to your client. We confirm that the Kookai Group covenants that it will not increase its first ranking secured borrowings prior to 31 March 2011 except to repay amounts owing to your client.
Should any payment not be made on or before any due date as set out above, or the covenant referred to in the paragraph above is in any way breached or sought to be breached, the full balance then owing will become immediately due and payable to your client and your client will be entitled to enforce any of her rights pursuant to any of her securities which have been granted to her without the need to serve any further notice or demand on Beba and/or Epona.
The above payments of principal and interest will be in full and final settlement of all obligations owed to your client under the Loan Agreement and related documents and, upon the payments set out above being made the securities held by your client will be released.
We look forward to receiving your response to this proposal, including a confirmation that the notices of demand dated 31 December 2010 are withdrawn, prior to 5pm today.
11 Pausing, the response twice referred to an amount of $60K as an undifferentiated contribution towards fees owed by the lender to Gadens and PPB.
12 The borrower's response, in turn, inserted the words 'up to' preceding '$60,000' in the second sentence of the first paragraph, inserted the same words before '$260,000' on the last line of the repayment schedule, and added, in the bracketed sentence thereunder 'up to' before '$60,000', then 'subject to the Kookai Group being provided with evidence of such costs having been incurred by your client since 5 October 2010'. It also added, after the sentence referring to 12% interest, this sentence: 'For the avoidance of doubt, no interest will accrue on any contribution by the Kookai Group to your client's costs with PPB Advisory or Gadens.' Finally, it deleted the paragraph relating to future breach.
13 Gadens replied, rejecting the proposed changes, except for that relating to contribution towards costs not attracting interest. The reply also proposed an amendment to the paragraph dealing with future breach.
14 Four minutes after the solicitors emailed PwC the amended draft offer as an attachment to an email, they emailed PwC saying that their billing for three months to December 2000 was $25,655.30, that a further $15,816.35 in costs had been incurred by the lender but not yet billed, and that PPB's advice was that its fees were approximately $19,000 plus GST. The email concluded: 'The total amount exceeds $60,000 however our client has agreed to accept $60,000 in respect of her[2] fees from your client.'
15 It appears that discussions ensued between the solicitor representing the lender and representatives of PwC. They led to Gadens emailing a draft offer in its final form to PwC. That happened at 6.21pm on 6 January 2011. A new cut-off time of 11am on 7 January 2011 was set by paragraph 2 of the letter. The bracketed sentence immediately following the repayment schedule now referred, relevantly, to '$60,000 in aggregate as a contribution to both Gadens Lawyers and PPB Advisory'. The words 'in aggregate' underlined the undifferentiated content of the $60,000.
16 At 9.28am on 7 January 2011, the offer as finally amended, signed by Mr Cromb, was emailed by him to Gadens. Copies of the offer were also copied to Beba's then solicitors, and to PWC.
17 Gadens acknowledged receipt of the offer and stated that as terms for repayment of the debt had been agreed, the notices of demand were withdrawn.
18 The repayments of principal due under the schedule were made. The final payment, of $260,000, included the $60,000 to which I have referred a number of times. All this happened, it appears, somewhat earlier than the schedule required.
19 Shortly after the final repayment was made, solicitors newly engaged by the borrower wrote to Gadens requesting sufficient information to consider and if thought fit to make an application for a costs review. It drew this response, by Gadens' letter faxed 15 March 2011:
The above obligations and entitlements were pointed out to your client when your client was negotiating a repayment plan and when your client was represented by Arnold Bloch Leibler Lawyers.
Also, at that time your client requested us to provide a break down as to the legal costs involved. We advised that we were unable to provide a figure and suggested the fee would be in the vicinity of $60,000. That sum was to include the fees of PPB Advisory, who had been appointed as Investigative Accountants by our client.
Up to 28 February 2011, fees in the sum of $77,690.47 have been incurred, being $69,736.50 in legal fees, $928.02 and $7,025.95 GST and $20,044.09 in respect of fees (and GST) paid to PPB Advisory.
20 Beba's solicitors continued to press for provision of documentation showing how Gadens' fees were arrived at. On 21 March 2011 a Gadens' partner emailed the solicitors as follows:
We refer to previous correspondence and enclose the following:-
This clearly indicates that your client was at all times aware of the anticipated costs of $60,000.
21 The sentiment expressed in the last sentence of that letter proved to be wishful thinking. On 14 October 2011, Beba's solicitors filed a third party summons for Costs Review. The defendant to the summons was Gadens. The relief sought by the summons, as amended, was as follows:
(a) an order that the defendant provide the plaintiff with sufficient information to allow it to consider making, and if thought fit it make, an application for costs review under s 3.4.38 of the Legal Profession Act including provision of any agreement under which the said costs are said to be payable and delivery of bills of costs in taxable or itemised form;
(b) alternatively, that the costs of the defendant as described in the bills of costs appearing in the Schedule hereto, be taxed insofar as the items therein are claimed against the plaintiff as a third party payer pursuant to Section 3.4.38 of the Legal Profession Act, under the terms of:
(i) a Loan Agreement dated 29 January 2009; and/or
(ii) a Fixed and Floating Charge dated on or about 29 January 2009;
as described in the affidavit filed herewith.
22 In its initial form, the Schedule referred to in paragraph (b) listed 16 invoices, the first dated 27 February 2009 and the last dated 28 February 2011. In amended form, the Schedule referred to only four invoices. They were dated 29 October 2010, 30 November 2010, 23 December 2010 and 10 January 2011. The invoiced amounts totalled about $45,700.
23 Preliminary Questions were decided by the Costs Judge on 13 April 2012. Those questions, and his Honour's answers, were as follows:
Does the Costs Court have power to grant the relief sought in paragraph (a) of the Summons for Costs Review as amended?
be answered: YES
Is there an agreement between the applicant and the client that precludes the applicant from exercising the statutory right under the Legal Profession Act 2004 to review, in the Costs Court, and in this proceeding, the four bills included in the Summons as amended?
be answered: NO
If the answer to the first preliminary question is Yes, should the Costs Court grant the relief sought in paragraph (a) of the Summons in respect to the four bills being the subject of the Summons as amended?
be answered YES but only to the extent of itemised bills at this stage.
24 Gadens appealed. On 1 November 2012, a judge in the Trial Division allowed the appeal.
25 Now Beba appeals - and, if leave to appeal be necessary, seeks leave to appeal out of time. The respondent is content to have the matters dealt with on the merits.
(a) Finding that a non-associated third party payer can waive its right under the Legal Profession Act to a costs review.
(b) Finding that a non-associated third party payer can waive its right under the Legal Profession Act to a costs review of fees charged by a solicitor to a client by entering into an agreement with the client.
(c) Finding that the Appellant waived its right under the Legal Profession Act to a costs review of fees charged by the Respondent to its client by entering into the agreement dated 7 January 2011 with the Respondent's client.
(d) Finding that the existence of a binding agreement for the payment of legal costs by a third party with a client of a solicitor, relieves the solicitor from his obligation to provide sufficient information to allow the third party to consider making, and if thought fit to make, an application for a costs review.
27 The principal argument advanced for Beba in this Court had the following steps:
(1) in the language of the Legal Profession Act 2004 (the Act), it was a nonassociated third party payer;
(2) such a payer is given a statutory right of review of legal costs by s 3.4.38(2) of the Act;
(3) it is given a right to seek relevant information under s 3.4.38(7), and, if so advised, to apply for a costs review;
(4) by implication - derived from s 3.4.48A - it could not contract out of that right. Yet that is what the agreement reached on 7 January 2011 purported to do; and to that extent the agreement could not stand.
28 In order to understand the steps in this argument, it is necessary to refer to several provisions of the Supreme Court Act 1986 and Chapter 1 of the Rules, as well as to the Act. For the moment, I will only refer to provisions of the Act in their present form. But later it will be necessary for me to refer to amendments by which the Act developed into its present form.
29 Section 17D(1) of the Supreme Court Act provides, inter alia, that the Costs Court:
(a) has jurisdiction to hear and determine the assessment, settling, 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.
30 Section 24 of the Supreme Court Act relevantly provides that:
Unless otherwise expressly provided by this or any other Act or by the Rules, the costs of and incidental to all matters in the Court... is in the discretion of the Court and the Court has full power to determine by whom and to what extent costs are to be paid.
31 Order 63.02 of Chapter 1 of the Rules provides that the power and discretion of the Court as to costs is to be exercised subject to and in accordance with that order.
32 Ordinarily, a judgment or order is the most usual source of liability to pay costs in a proceeding in the Court. Absent agreement, taxation of costs is the ordinary means of determining the quantum of costs liability. Appendix A to Chapter I provides a scale of costs. The Costs Court is the arbiter in matters of taxation.
33 Rule 63.58 authorises, in some circumstances, supervision by the Court of costs payable by a client to the client's solicitor, or by another person to a client's solicitor. The limiting factor is that by some means the 'costs are required or permitted to be taxed in the Court'. Rule 63.62 addresses costs incurred in a contentious matter before commencement of litigation.
34 What O 63 does not address, so far as I can see, is the situation in which, in settlement of a proceeding, incorporated into terms of settlement, A agrees to pay B an 'all in' amount, or an amount plus a further agreed amount for costs. That is, O 63 does not provide a means by which B could later seek to raise an issue as to the quantum of costs.
35 Part 3.4 of the Act is headed 'Costs Disclosure and Review'. I note the following provisions.
36 Section 3.4.2A defines 'third party payer', 'associated third party payer' and 'non-associated third party payer' as follows:
(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
(b) a third party payer is an associated third party payer if the legal obligation referred to in paragraph (a) is owed to the law practice, whether or not it is also owed to the client or another person; and
(c) a third party payer is a non-associated third party payer if the legal obligation referred to in paragraph (a) is owed to the client or another person but not the law practice.
37 Section 3.4.9 requires a law practice to disclose various matters pertaining to costs to a client. Those matters include avenues open to the client in the event of dispute as to legal costs - relevantly for present purposes, costs review under Division 7. By s 3.4.10, disclosure must be in writing and be made before or as soon as practicable after the practice is retained. There are exceptions to the disclosure obligation. They include waiver by the client, and the client being a sophisticated client: see s 3.4.12(b)(ii) and (c).
38 Section 3.4.18A extends the disclosure obligation to any associated third party payer, to the extent that details or matters are relevant, and so far as they relate to costs payable by the third party in respect of legal services provided to the client.
39 Section 3.4.19 provides three alternative bases upon which costs may be recoverable: under a Division 5 costs agreement; in accordance with an applicable practitioner remuneration order; or as the fair and reasonable value of services provided. Practitioner remuneration orders may be made by the Legal Costs Committee in respect of non-litigious matters. The Committee is empowered to advise, inter alia, the Supreme Court judges on desirable adjustments in scales of costs in litigious matters: see s 3.4.25A(2).
40 Division 5 relates to costs agreements. They may be made between, inter alia, law practice and client and between law practice and associated third party payer: see s 3.4.26(1)(a) and (d).
41 I should refer to s 3.4.26(5). It provides that:
Except as provided by s 3.4.48A, a costs agreement cannot provide that the legal costs to which it relates are not subject to costs review under Division 7.
42 Costs agreements may in some circumstances be set aside. Application in that connection may be made by the client; and in some circumstances by an associated third party payer: ss 3.4.32(1), 3.4.26(6).
43 Division 6 deals with billing. There is an elaborate structure which provides for delivery of bills and for the giving of information, inter alia, that in the event of dispute a costs review may be sought. That information does not have to be provided to a sophisticated client.
44 Division 7 is headed 'Application by clients or third party payers for costs review'.
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.
46 Such an application may be made even if the costs have been wholly or partly paid.
47 I must next refer to s 3.4.38(7). It reads as follows:
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 review under this section.
A sophisticated client of a law practice, or an associated third party payer who would be a sophisticated client if the third party payer were a client of the law practice concerned, may contract out of this Division.
49 Pausing, it can be seen from this resume that an associated third party payer, unlike a non-associated third party payer -
(1) is under a legal obligation to a law practice to pay all or part of the legal costs for legal services provided to the client;
(4) may enter into a costs agreement with a law practice;
(5) may enter into a costs agreement which, consistently with s 3.4.48A, provides that the legal costs to which it relates are not subject to review under Division 7;
(7) has the protection of the billing provisions set out in Division 6, including entitlement to request an itemised bill: see s 3.4.36(1).
50 Next, the resume shows that both associated and non-associated third party payers may apply for a cost review. Section 3.4.38(7) is readily explicable. An associated third party payer will have been provided with billing particulars; not so a non-associated third party payer.
51 Against the factual and statutory background which I have described, I turn to the reasons of the learned trial judge. I put to one side an argument pursued by Gadens below which the judge, in my respectful opinion, rightly rejected.
52 Her Honour framed the main issue debated before her this way:[3]
Gadens submits that Beba has compromised its statutory right to a costs review by entering into the settlement agreement, which required it to make a contribution to legal and other costs as a fixed sum and, so it is submitted, in final satisfaction of its obligation to pay legal and other costs under the loan agreement. Beba contends, in substance, that when it entered into the settlement agreement it did not agree to waive its statutory right as a non-associated third party payer to have legal costs reviewed by the Costs Court under the Legal Profession Act.
53 The judge then analysed the manner in which the settlement agreement was arrived at. She referred to the correspondence which I have earlier set out.
54 Then her Honour set out the competing submissions. Gadens had submitted that:
(1) Ms Yeung and Beba had achieved by accord and satisfaction a substantial and wide-ranging resolution of a commercial transaction between them;
(2) Ms Yeung had given up certain entitlements under the agreement and
security documents. In return, the payments to be made by Beba included a $60,000 contribution towards the fees of Gadens and PPB, paid 'in full and final settlement of all obligations owed by Beba to the lender under the loans agreement and related documents';
(3) by making the agreement, the parties were putting an end to disputes about how much was recoverable for Gadens' and PPB's costs. Preexisting rights in relation to legal and other costs were put aside, replaced by the certainty of a $60,000 payment;
(4) the settlement agreement was structured so as to confirm an intention to compromise Beba's obligation to pay legal and other costs. $60,000 was an undifferentiated sum;
(5) by entering into the agreement, Beba obtained advantages: re-negotiation of the loan, extension of time to pay, a preferential interest rate.
(1) the agreement was not a binding agreement that could be taken to compromise its rights in respect of its obligation to pay the lender's legal costs. Under the settlement agreement it was required to do no more or less than it was required to do under the loan agreement. No consideration flowed from Beba. In fact, the settlement agreement required it to do less than under the loan agreement. It could pay over time and was not subject to a penalty interest rate. Its statutory right to seek a costs review was left intact;
(2) there was no evidence that Beba's right of review was in contemplation by the parties when the settlement agreement was entered into. Beba had sought insertion of a contractual term requiring Gadens to substantiate its bills. That request having been refused, all Beba gave up was the insertion of a contractual term.
56 The judge identified the relevant principles of accord and satisfaction by citing a passage in the judgment of McColl JA in El-Mir v Risk.[4] It was not in debate in this Court that the passage cited accurately set out the relevant principles.
57 Her Honour held that this was an instance of accord and satisfaction. She said this:[5]
The settlement agreement is in the form of a brief letter dealing with limited but important matters arising under the loan agreement. As Gadens submitted, it purports to amend the loan agreement, principally in respect of the amount and timing of repayments and the interest rate on the outstanding amount. Importantly, it also provides for the payment of a contribution towards fees paid or payable by the Client to its advisers, Gadens and PPB Advisory as a result of Beba's default. Insofar as the settlement agreement effected a compromise of rights and obligations under the loan agreement, it was in respect of those discrete matters. The loan agreement continued to apply in respect of a range of matters after the settlement agreement was entered into.
It is common ground that Beba defaulted on the loan. The Client incurred costs and expenses as a result of Beba's default. At the time of the settlement agreement, Beba was under an obligation under the loan agreement to pay the reasonable costs and expenses incurred by the Client as a result of its default. By the settlement agreement, Beba and the Client agreed that the Client would withdraw the Notices of Demand that had been issued on default and that Beba would repay the loan in accordance with the terms in the settlement agreement and pay the sum of $60,000 as a contribution to the legal and advisory costs incurred by the Client.
Beba's submission that the settlement agreement was not a binding agreement, but merely an arrangement by which it was allowed more generous and flexible repayment terms by the Client, has little merit. By the settlement agreement, the parties renegotiated, some of the terms of the loan agreement. The settlement agreement operated to bind the parties as a variation to the loan agreement. Each of Beba and the Client gave something and got something in return. Beba avoided what the Costs Judge described as the 'catastrophic implications' of defaulting on the $3 million loan on the basis that it would repay the loan in accordance with the new terms of repayment. The new terms of the loan were agreed to by the Client on the basis that she would not have to rely on the default provisions of the loan agreement and the charge to recover the amounts to which she was entitled. In addition, Beba would make a payment of $60,000 to compensate the Client for the costs and expenses she had incurred without the need for the Client to substantiate those costs and expenses.
In my view, both the structure of the settlement agreement and the evidence about its negotiation make it clear that the parties to the agreement had in mind that the payment of $60,000 would conclusively resolve the issue of what costs the Client was entitled to recover as a result of the default and that it would not be open to one or other of them to re-open or revisit this question. The parties settled the question of costs in a way that made it very difficult to disentangle the legal costs from the other elements of the compromise package so as to enable the Costs Court to review the legal costs. The parties did not specify, and the Court cannot now know, whether the $60,000 that was paid was to be applied rateably across the fees of PPB Advisory and Gadens, or according to some other arrangement. Although Beba now seeks review of only four bills of costs, its original summons appended 16 bills of costs from Gadens to the Client. In the circumstances, no particular item of legal costs could be identified as having been claimed and paid. If the parties intended that Beba retain its entitlement to have the Client's legal costs reviewed by the Costs Court, the settlement agreement would have addressed how that could occur, given the difficulty arising from grouping together the legal and advisory costs and the fact that what was paid was described as 'a contribution', rather than a payment of the full amount of the legal costs or the full amount of the advisory costs.
Moreover, although Beba received an estimate of both the legal and advisory costs from Mr Chait prior to entering into the settlement agreement, when it agreed to pay $60,000 to the Client, Beba had not seen any of the bills for these costs. Nonetheless, it agreed to pay the amount of $60,000 to discharge its liability for the Client's costs and expenses generally.
In the circumstances described, it is difficult to imagine that the parties had in mind that it would be open to one party to re-open the question of legal costs only. I am satisfied that the parties intended that the payment of the $60,000 constitute a compromise of their respective rights in relation to the legal and advisory costs incurred by the Client by reason of Beba's default. By agreeing to the payment of $60,000, the parties put an end to any question about how much of the legal costs were recoverable and how much of the PPB Advisory costs were recoverable by the Client under the loan agreement. They did so in the context of putting to an end a larger dispute as to whether there had been a default, whether the whole sum due under the mortgage was repayable immediately and so on.
The Costs Judge reached a different conclusion on the parties' intention. His Honour gave weight to the respective negotiating positions of the parties in construing the settlement agreement. He found that Beba was in a weaker negotiating position and was attempting to obtain clarity in relation to the $60,000 demand as part of the settlement of the more important implications of default under the loan. His Honour concluded that Gadens' two rejections of Beba's requests for this information and Beba's 'eventual capitulation' could not be taken as evidencing an intention to settle on the basis of waiver of any review rights under the Legal Profession Act; after all, paying legal costs and reviewing them is contemplated and authorised by the Act.
Although the last proposition is unexceptional, I do not agree that Beba's 'eventual capitulation' does not evince an intention to settle on the basis that it waive its rights to review. To the contrary, Beba's capitulation evinces an intention not to insist on substantiation of the legal and advisory costs. For the reasons I have given, the terms of the settlement agreement and the course of its negotiation tell against an intention that Beba maintain its review rights, that is, its right to re-open the question of how much it was obliged to pay for the Client's legal costs. In my view, by acknowledging in the settlement agreement that the amount of $60,000 was 'a contribution to' the Client's legal and advisory costs, Beba cannot now be heard to say that it paid the legal costs and reserved its right to have those costs reviewed by the Costs Court. As Gadens submitted, this was not a case where the mortgagee said to the mortgagor, 'My legal costs are X' and the mortgagor responded, 'I will pay X and I will have it taxed later'. The parties agreed, in essence, that the Client would 'take Y and call it quits', that is, it would accept a particular amount in full satisfaction of whatever it was owed to reimburse it for its legal and advisory costs and that would be the end of the matter.
I have therefore concluded that there was an accord and satisfaction in respect of Beba's obligation to pay the legal and other costs that had been incurred by the Client as a result of Beba's default under the loan agreement. The provision for the payment of $60,000 in the settlement agreement replaced the Client's right under the loan agreement to its legal and other costs arising from Beba's default. As a corollary, Beba lost its entitlement to re-open the amount of costs payable, either by having Gaden's bills of costs reviewed by the Costs Court or otherwise. Beba waived its right to a review by reason of the compromise that it entered into. Although the settlement agreement did not refer to any compromise or waiver of Beba's rights under the Legal Profession Act, it is implicit that Beba gave up those rights when it agreed to pay the amount of $60,000 in satisfaction of its obligation to pay the Client's costs arising from its default.
58 Pausing again, it can be seen that the main battleground before the judge below - but not, as will be seen, in this Court - was whether there was an agreement by which each party gave up something; and whether the agreement disclosed that Beba had given up its statutory rights to a costs review.
59 The issue that dominated submissions in this Court appears to have been the subject of scant attention below. This is what the judge said about the matter:[6]
As a final matter, Beba relied on s 3.4.48A of the Legal Profession Act to submit that as a non-associated third party payer, it could not contract out of its rights under Division 7 of Part 3.4 of the Legal Profession Act, including the right to apply to the Costs Court for review. Section 3.4.48A provides:
A sophisticated client of a law practice, or an associated third party payer who would be a sophisticated client if the third party payer were a client of the law practice concerned, may contract out of this Division.
Section 3.4.48A makes no mention of non-associated third party payers. Beba submits that, by implication, non-associated third party payers may not contract out of their rights under Division 7, whether they qualify as sophisticated or not.
I reject the submission that s 3.4.48A gives rise to the implication that a non-associated third party payer cannot waive its right to costs review by agreement with the client. Section 3.4.48A deals only with the rights of 'clients' and 'associated third party payers', and it treats them as clients of law practices. It allows those clients and associated third party payers who can be described as 'sophisticated' to waive their rights under Division 7, including their right to costs review. By implication, 'unsophisticated' clients and 'unsophisticated' associated third party payers cannot waive their right to costs review even if they enter into an agreement that purports to have this effect. The fact that s 3.4.48A only refers to 'clients' and 'associated third party payers' shows the provision to be directed to regulating the contracting out of rights in costs agreements rather than in agreements at large. If s 3.4.48A was intended to have the effect that non-associated third party payers in need of statutory protection could not contract out of their rights under Division 7, it would have enabled 'sophisticated' non-associated third party payers to contract out, just as it does for sophisticated clients and sophisticated associated third party payers.
In my view, s 3.4.48A has nothing to say, either expressly or by implication, about the position of non-associated third party payers, who by definition are not parties to the costs agreement.
Accordingly, Beba, as a non-associated third party payer, was not precluded from entering into an agreement with the Client by which it waived its right to have the Client's legal costs reviewed.
60 Consideration of the reasons of the Costs Judge shows that the sole issue relevantly agitated before him was whether, as a matter of fact, by accord and satisfaction, Beba had given up its rights to a costs review. His Honour concluded that it had not done so. He observed, inter alia, that 'clear language would be required for an individual to have relinquished that right'.
61 I have mentioned the course of events before the Costs Judge and the judge below to highlight the fact, as it seems to me, that Beba's position has progressively changed as the matter has successively been argued before the Costs Judge, the judge below, and now this Court. If the argument now emphasised is sound as a matter of legal analysis, then it should succeed. But it is quite unsatisfactory that this lynch-pin argument should not have been fully developed until the third time that the matter has been before a court. Moreover, as will be seen, a new argument altogether was raised in this Court respecting the ability of Gadens to rely upon the settlement agreement. This reinforces my observation about the unsatisfactory nature of what has happened. It is particularly so when the entire amount paid under the agreement as an aggregate contribution to the costs of Gadens and PPS was $60,000, and when, if the matter ever came to a review, it would seem likely that most at least of the legal costs would be substantiated as reasonable.
(1) the rights granted by Division 7 are only capable of being waived or surrendered as provided by the Act;
(2) there was no contracting out provision respecting Division 7 until 2006. As then introduced, s 3.4.48A simply provided that a sophisticated client might contract out;
(3) in 2007, the section was expanded to include sophisticated associated third party payers;
(4) the 2007 amending Act also introduced the concept of non-associated third party payers;
(5) the obvious intent of Parliament by the 2007 amendments was to exclude non-associated third party payers from s 3.4.48A;
(6) that is because such payers are the most vulnerable people contemplated by the Act. They do not have the benefit of costs disclosures or of a costs agreement;
(7) the provisions of Division 7 are of a character which cannot be displaced by private agreement;[7]
(8) the judge below wrongly treated s 3.4.48A as being a mechanism for regulating the contracting out of rights in costs agreements, rather than agreements at large. Division 7 relates to costs review, not costs agreements;
(9) there was no accord and satisfaction because the purported release (Gadens) was not a party to the settlement agreement;[8]
(10) the judge used the term 'waiver'. But waiver is an intentional act done with knowledge, whereby a person abandons a right by acting in a manner inconsistent with that right. Here, payment of the $60,000 was not inconsistent with Beba seeking disclosure of the costs claimed;
(11) it was not the case, contrary to the judge's statement, that an order under s 3.4.36 would 're-open the question of legal costs'. Beba's obligation to pay the lender's legal costs continued.
63 The contention raised by sub-paragraph (9) above was the new argument to which I referred at [61] above. Note also the disappearance of the submission, pressed before the judge below, that Beba gave no consideration when it entered into the settlement agreement.
(1) the judge's conclusion that any prohibition on contracting out did not apply to non-associated third party payers was correct;
(2) non-associated third party payers have no contractual relationship with the lawyer. The concept of 'contracting out' has no application in such circumstances;
(3) even if there was a prohibition on non-associated third party payers contracting out of cost review rights, that did not mean that such rights, once in existence, could not be compromised;[9]
(4) Beba's submissions implied that there was a prohibition on a client or associated third party payer reaching an enforceable compromise as to an amount charged for legal costs. But that could not have been Parliament's intention;
(5) the contention that the respondent was not a party to the settlement agreement, and therefore could not claim the benefit of accord and satisfaction, overlooked the fact that the present application was a precursor to a costs review application, the purpose of which must be to recover money paid to the lender in reimbursement for legal costs. Further, on such an application the lender would be deemed a party, and would be bound by the outcome of the review. It would be for the lender to make any refund. Its liability to Gadens would remain unchanged.
(6) Beba, contrary to its submission, did not agree to pay the amount demanded by the lender. It compromised amounts to which the lender claimed to be entitled. There was an overall compromise involving no amount of costs specifically paid. The agreement was not consistent with the idea that Beba was taking the course, permitted by the Act, of paying the costs and then reviewing them.
65 In my opinion, the judge was correct to conclude that s 3.4.48A did not preclude Beba entering into an agreement which finally compromised legal costs as between itself and the lender, such as to shut out its right to request information under s 3.4.38(7) and to apply for a costs review under s 3.4.38(2). That conclusion, I consider, flows from both the language of the present provisions, and historical development of the Act. I have already referred to the extant provisions. Before going on, I should refer to the way in which the relevant provisions of the Act developed.
(1) there was no reference to third party payers at all;[11]
(2) the concept of a 'sophisticated client' did not exist;
(3) section 3.4.26(5) simply provided that 'a costs agreement cannot provide that the legal costs to which it relates are not subject to costs review under Division 7';
(4) there was no equivalent of s 3.4.48A.
67 It is notable that there was no exception to the blanket ban on a costs agreement providing that costs not be subject to costs review.
(1) a definition of 'sophisticated client' was inserted;
(2) the context of that term was put into its present form;
(3) section 3.4.48A was inserted as follows: 'a sophisticated client of a law practice may contract out of this Division.'
69 Three matters should be noted. First, there was now a reference to a 'sophisticated client', but there was still no reference to a third party payer. Second, by s 3.4.48A, a sophisticated client could contract out of Division 7. Third, there was an apparent lack of symmetry between s 3.4.26(5) and the new s 3.4.48A.
70 Act No 12/2007 effected major changes to relevant provisions. They were, almost entirely, brought into their present form. I note particularly that an associated third party payer could enter into a costs agreement with a law practice, that s 3.4.26(5) was amended by inserting 'Except as provided by s 3.4.48A' and that s 3.4.48A was amended by inserting a reference to an associated third party payer which would be a sophisticated client if the payer were a client.
71 The judge below concluded, in substance, that there was a relationship between ss 3.4.26(5) and 3.4.48A. That is, the latter provision was in step with the right conferred by the former. I agree.
72 At first, in the Act, there was a blanket ban on a costs agreement providing that there should be no costs review; and there was no need for, or equivalent of, s 3.4.48A. Then an exception was created by s 3.4.48A in its initial form. That exception was not accompanied by amendment of s 3.4.26(5). That was remedied by the amending Act of 2007, which made the two provisions compatible.
73 Next, the language of s 3.4.48A, with its reference to contracting out, has an evident relationship with the conception of a costs agreement. A client and an associated third party payer may enter into such a contract. In doing so, they are permitted by s 3.4.26(5) to contract out of Division 7 - by reference to s 3.4.48A - but only if the client is, or the associated third party payer is akin to, a sophisticated client. A reading that the provisions are in step makes more sense, in my opinion, than a construction that s 3.4.26(5) addresses the time of making a costs agreement, whilst s 3.4.48A addresses contracting out either at that time or when a contract to contract out of Division 7 is made at some later time. I reject such a construction.
74 If s 3.4.48A has the field of operation which I have described, it makes perfectly good sense why the section does not refer to non-associated third party payers. Such persons cannot enter into a costs agreement. Except for the definitional section, they are not referred to in any of Divisions 1-6 of Part 3.4.
75 It is a corollary of the conclusions which I have already expressed that neither ss 3.4.26(5) nor 3.4.48A says anything about the ability of a client or associated third party payer to reach a binding settlement with a law practice respecting the quantum of legal costs charged, or of a non-associated third party payer to reach a binding settlement respecting the quantum of costs charged with the person who is under a legal obligation to pay those costs. Each of these situations - costs having been incurred and charged out - is temporally distant from the time when a costs agreement may be entered into (and then only between clients or associated third party payers with a law practice).
76 In that event, subject to considering Beba's submission that Division 7 is legislation of a kind that cannot be displaced by private agreement, it appears to me that non-associated third party payers, a fortiori clients and associated third party payers, are not prevented by Division 7 from entering into binding agreements to pay a quantified amount in costs, such agreements precluding a party from later seeking information or applying for a costs review.
77 I pause for a moment to consider the consequences of Beba's argument that the provisions of Division 7 cannot be displaced by private agreement. The argument advanced for Beba that non-associated third party payers are the most vulnerable group, for which reason it is understandable that they are precluded from contracting out, has little attraction when the consequences of Beba's construction are understood. It would mean that sophisticated clients and associated third party payers who would be sophisticated clients if they were clients could contract out of Division 7; and that not only non-associated third party payers, but also unsophisticated clients and associated third party payers could not do so. That is because none of those classes of persons fall within s 3.4.48A, and the inference that contracting out is prohibited would apply equally to all of them.
78 I should say a little more about the consequences flowing from acceptance of Beba's construction. It would mean that unsophisticated clients could not enter binding agreements with law practices about costs charged out, likewise unsophisticated associated third party payers. So also, non-associated third party payers (whether sophisticated or not). Any agreement, whether or not entered into by a party with full information about the costs charged, would be at risk of a costs review at the instance of the payer. Moreover, application for review could be made, in some cases, as long as 12 months after payment of costs, and even later in some circumstances: see s 3.4.38(5) and (6). It is also the fact, contrary to Beba's submission, that the payment might have been made in a litigious proceeding. If a proceeding was settled, and terms of settlement were signed requiring the defendant to pay the plaintiff an amount plus a further amount as the plaintiff's quantified costs, the defendant would appear to fit the description of a non-associated third party payer.
79 In my opinion, the consequences which I have outlined make it extremely improbable that Parliament could have intended them. Whilst it must be recognised that Part 3.4, and specifically Division 7, is designed to protect persons obliged to pay legal costs, it does not follow that the desirability of parties bringing an end to a legal dispute, including its costs ramifications, and whether or not involving litigation, should be ignored. Nor would it do much for the administration of justice if agreements settling costs issues (whether solely relating to costs, or part of a wider resolution), entered into in apparent good faith, could be at risk of being partly set aside at the instance of the payer, the other party then being at risk, in some cases, of having to repay some part of moneys already received and paid to the party's legal practitioner.
80 The structure of Part 3.4 as I have described it, together with the improbability that Parliament intended consequences such as I have outlined, makes it improbable that Division 7 should be understood to be legislation of a kind that cannot be displaced by private agreement. Admiralty Commissioners v Valverda (Owners),[12] cited by Beba's counsel, does not suggest a contrary conclusion. Lord Wright[13] said that the question whether there can be contracting out, or waiver, of statutory provisions requires consideration of the scope and policy of the particular statute. In that case there was (although it did not determine the outcome of an appeal) 'an imperative public enactment' governing the position of State Departments and State Servants.
81 Counsel for Beba also relied upon the dissenting judgment of Mason CJ in Commonwealth v Verwayen.[14] But neither does what his Honour there said demand a conclusion favourable to Beba. His Honour stated that, 'in one sense, all statutes give effect to some public policy.' But the critical question was whether 'the benefit is personal or private or whether it rests upon public policy or expediency'. In the former situation, it was 'possible to "contract out" of the statutory provisions', and 'equally possible to deprive them of effect by other means such as waiver.'
82 In my opinion, the relevant statutory provisions mainly provide a personal and private benefit. That is so although they have a regulatory and protective impact which is to the public good. To understand that impact as being the determinant would be to ignore the improbable consequences which would follow.
83 It remains to mention two matters. First, s 3.4.48A is replicated by provisions in other States and Territories.[15] There is an unreported case which refers to the New South Wales provision. Neither counsel cited the case. In Amirbeaggi & ors v Business in Focus (Australia) Pty Ltd & ors[16] Brereton J in the Equity Division of the Supreme Court of New South Wales held in an ex tempore judgment on a summons for summary judgment and a motion for dismissal that a deed (the parties to which were solicitors and their clients) by which arrangements were made for the circumstances in which and time at which legal costs already incurred by a client were to be paid was a costs agreement under the New South Wales legislation. His Honour further held that, since the deed provided that it might be pleaded in defence of a costs review application, and since none of the clients was a sophisticated client, the deed was, by operation of the legislation, void.
84 That was all that needed to be decided. But then his Honour, noting that the matter had not been raised in argument, reviewed a number of cases in which it had been held that a party may waive its right to assessment of a bill of costs. He concluded that this was prevented, in a case to which it applied, by the equivalent of s 3.4.48A of the Act, except in the case of a sophisticated client. He also concluded that the solicitors' proceeding was one for the recovery of legal costs, a proceeding which the Legal Profession Act of New South Wales prohibited being commenced or maintained where, as was the case, the solicitors themselves had initiated a costs assessment application. In that context, the judge discussed what it was that would make a proceeding one to recover legal costs.
85 What was necessary for his Honour's decision ended when he held that the deed, being a costs agreement, was void. There would be just the same result in this State, for exactly the same reason. See ss 3.4.26(5) and 3.4.31(1) of the Act. The observations thereafter made by his Honour were made without the benefit of argument. The situation falling for determination in this case did not arise.
86 Amirbeaggi has twice been referred to in unreported judgments.[17] Neither judgment was cited by counsel, but neither says anything about the present issue.
87 The Court gave the parties an opportunity to make written submissions as to the significance or otherwise of Amirbeaggi.
88 Counsel for Beba, whilst noting that the situation there was one of solicitor and client, and of a costs agreement - neither of which features was present in the present case - submitted that the decision was helpful to his client. What Brereton J said about the plain intention of the legislation should apply 'in all circumstances other than those which were provided for specifically by the Act'. Further, counsel submitted, his Honour had dealt with the approach to determining whether a claim for recovery of costs could be converted, in particular circumstances, into an agreement incidentally having a connection with costs recovery. If there could be an accord and satisfaction having the latter effect, counsel contended, it could only be between solicitor and client or between solicitor and associated third party payer.
89 Counsel for Gadens submitted that the finding by Brereton J that the deed was a costs agreement between solicitor and client was the critical step in his Honour's reasoning. Counsel submitted also that the circumstances in which the judgment was given - see my observations at [82]-[84] above - suggested that the decision should be approached with some caution. Then, so far as Brereton J referred to the decision of the New South Wales Court of Appeal in Koutsourias v Metledge & Associates[18] (a proceeding between solicitor and client) in connection with the distinction between a proceeding for the recovery of legal costs and a proceeding founded on an agreement incidentally having a connection with costs recovery, the reasoning of Hodgson JA[19] suggested that Beba would fail in any event.
90 The submissions advanced for Gadens substantially reflect the situation as I have described it at [82]-[84] above. In the circumstances, I do not regard the obiter dictum observations of Brereton J as standing in the way of the conclusion which I have reached. Further, I am inclined to think that the reasons of Hodgson JA in Koutsourias, if they could be applied to the present legally and factually different case, would not assist Beba.
91 The second matter that I wished to mention is this: Nowhere in his Reasons for Judgment did the Costs Judge state or imply that a client and a non-associated third party payer could not make a binding agreement in respect of costs charged out. Whilst, as I have pointed out, the argument advanced in this Court seems not to have been raised before his Honour, it is at least highly improbable that, given his very considerable experience of the Act, he would not have recognised the availability of the argument if it was of any worth.
92 Although at times the judge referred to 'waiver', her emphasis throughout was upon the question whether there had been accord and satisfaction as a part of which the parties reached a compromise respecting legal costs payable by Beba to the lender. Her Honour resolved that question in the affirmative, understandably dismissing Beba's argument that it had given nothing up. Her Honour's compelling analysis of what passed between the parties specifically respecting costs shows why their resolution of the costs issue was intended by them to conclusively bring that issue to an end, such that neither party could re-open or re-visit it.
93 Further as to the judge's use of the word 'waiver' in her reasons, this should be said: A number of the judges in Verwayen referred to the different ways in which the term 'waiver' is used, ranging from its strict legal connotation to what Davison J said was use loosely to indicate non-insistence upon a right either by choice or by default.[20] His Honour's observation highlights what appears to me to have been her Honour's non-technical use of the word. This was a case of the parties contracting out.
94 Next, it is a corollary of what I said at [83] respecting the correspondence about costs and the ultimate form of the paragraph in which Beba agreed to make an undifferentiated aggregate contribution of $60,000 towards the costs of Gadens and PPB, payment thereafter of the $60,000 was inconsistent with Beba later seeking provision of information under s 3.4.38(7) or making a costs review application under s 3.4.38(2). The language of the agreement rendered the constituent parts of the $60,000 opaque in a number of respects.
95 I turn to Beba's submission, made for the first time in this Court, that there was no relevant accord and satisfaction because Gadens, which seeks the benefit of the agreement, was not a party to it. That submission avoids the substance of the matter. Beba's obligation to pay the lender's legal costs arose, initially, under the loan agreement and security documents. It was an obligation to pay the lender. The settlement agreement required payment of the agreed amount of $60,000 to the lender. It was the lender's contractual obligation to pay Gadens its costs. Beba's request for information from Gadens is the necessary precursor to a costs review application (although such an application would not be a certainty). In the event of
such an application being made, the lender would be entitled to participate in the costs review, and 'is taken to be a party to the review and ... bound by the review' (s 3.4.38(9)(b)). The reason is evident. If a review resulted in a costs reduction, the lender would be obliged to repay the amount 'overpaid'. Its liability to Gadens would be unaffected by the result of that review. In all these circumstances, it appears to me to be artificial in the extreme for Beba to contend that Gadens is not so intimately connected with the lender as to be entitled to rely upon the settlement agreement. It would be bizarre if the lender, having made the agreement with Beba, could now be exposed to a prospect of having to repay an amount to the borrower because its solicitor, the recipient of the moneys, could not resist a request for information. Baxter v Obacelo and Anor, cited by Beba's counsel,
concerned the problem of multiple tortfeasors, and settlement with one for less than the full amount claimed. The circumstances were remote from those which arise in this case, and the passages upon which counsel relied must be understood in that setting.
96 I would refrain from deciding whether Beba requires leave to appeal, but rather, in light of Gadens' position, would be content to assume that it is, and to make orders granting Beba leave to bring an application for leave out of time, and granting that application. I would dismiss the appeal.
97 Having had the considerable benefit of reading the draft reasons of Ashley JA I agree that the appeal should be dismissed.
[1] The underlined passages were those included by Gadens, and underlined in the original.
[3] Gadens Lawyers v Beba Enterprises Pty Ltd [2012] VSCA 519 [24].
[5] Gadens Lawyers v Beba Enterprises Pty Ltd [2012] VSCA 519 [36]-[44]. Her Honour's references to 'the Client' were a reference to Ms Yeung.
[6] Gadens Lawyers v Beba Enterprises Pty Ltd [2012] VSCA 519 [45]-[48].
[7] Counsel cited Admiralty Commissioners v Valverda [1938] AC 173, 185-186 (Lord Wright), and Commonwealth v Verwayen (1990) 170 CLR 394, 405 (Mason CJ).
[8] Counsel cited Baxter Obacelo Pty Ltd and Anor [2001] HCA 66; (2001) 205 CLR 635, 656 [45] (Gleeson CJ and Callinan J), 657-658 [54] (Gummow and Hayne JJ).
[9] This submission was the subject of a notice of contention.
[11] Although 'client', for the purposes of Division 7, was defined in a way which might have included a person now identified as a third party payer.
[15] Legal Profession Act 2004 (NSW) s 395A, Legal Profession Act 2007 (Qld) s 344, Legal Profession Act 2008 (WA) s 309, Legal Profession Act 2007 (Tas) s 338, Legal Profession Act 2006 (NT) and Legal Profession Act 2006 (ACT) s 304A.
[16] [2008] NSWSC 421 [19]-[32].
[17] Bell v Carmody [2010] NSWSC 356; Jaha v Defteros Lawyers [2012] VSC 512.
[18] [2004] NSWCA 313, [9]-[11] (Hodgson JA).
[20] Verwayen v Commonwealth (1990) 170 CLR 394, 457.
Beba Enterprises Pty Ltd
Gadens Lawyers [2013] VSCA 136
(2001) 205 CLR 635
(1990) 170 CLR 394