Bevan v Napoli

Supreme Court of NSW|2022-06-30

Judgment

HER HONOUR: This matter involves an application for review of a costs assessment that was refused. As I understand it, the amount in dispute is less than $37,000.
The plaintiff is Christopher Bevan. The first defendant is Joan Napoli as executor of the estate of the late Johanna Margaret Bevan, the plaintiff's mother. The second defendant is the Costs Assessment Manager ("the Manager").
By way of summons filed 24 November 2021 the plaintiff relevantly seeks: 1. A declaration that the plaintiff is a non-associated third-party payer of costs payable by the plaintiff to the estate of the late Margaret Johanna Bevan ("Mrs Bevan"), in accordance with cl 3 and 4 of the Will of Mrs Bevan dated 8 March 2018 ("the Will"), or alternatively, payable to the other beneficiaries named in the Will in accordance with cl 3 and 4 of the Will, upon the proper interpretation of, firstly, cl 3 and 4 of the Will and, secondly, ss 171(1)(a)(i) and 171(2) of the Legal Profession Uniform Law 2014 (NSW) ("LPUL"). 2. A declaration that the fair and reasonable costs payable by the plaintiff to the estate of Mrs Bevan ("the estate"), or alternatively, to the other beneficiaries named in the Will, in accordance with cl 3 and 4 of the Will, as quantified by an assessor pursuant to ss 199 and 200 of the LPUL, are the costs of representing Mrs Bevan in NCAT proceeding No. 2017/234141 ("the NCAT proceedings"), in terms of subparagraph 1(d) of the first defendant's costs agreement with Mrs Bevan dated 5 July 2017, by the first defendant and counsel named in cl 4 of the Will. 3. An order that the decision of the second defendant, in his capacity as the Manager, Costs Assessment, dated 28 October 2021, to refuse to accept for filing and to then allocate to a costs assessor for assessment, the plaintiff's Non-Associated Third-Party Payer Application for Assessment of Costs dated 1 October 2021 ("the plaintiff's Application for Assessment") be set aside pursuant to s 93B(3) of the Legal Profession Uniform Law Application Act 2014 (NSW) ("Application Act"). 4. An order that the plaintiff's Application for Assessment be remitted to the second defendant, in his capacity as the Manager, Costs Assessment, pursuant to s 93B(3) of the Application Act, to perform the following steps: 1. to accept the plaintiff's Application for Assessment for filing in accordance with ss 198(1)(b) and (2) of the LPUL; 2. to assign a file number to the plaintiff's Application for Assessment in accordance with reg 34 of the Legal Profession Uniform Law Application Regulation 2014 (NSW); and 3. to allocate the plaintiff's Application for Assessment to an assessor for assessment in accordance with reg. 34 of the Legal Profession Uniform Law Application Regulation 2015 (NSW).

Background

On 9 August 2021, Mrs Bevan died aged 89 years.
In her Will dated 8 March 2018 Mrs Bevan gifted her estate to her three children, the plaintiff (Christopher) Costs Applicant, Mark and Sandra (the plaintiff's siblings), in equal shares but subject to Christopher reimbursing her estate for costs in relation to the NCAT proceedings. Clauses [3] and [4] of the Will state: (CB 181) "[3] Subject to clause 4 hereof, I give the whole of my estate to my executors to divide equally among those of my children Christopher John Bevan, Mark Francis Bevan and Sandra Margaret Cryer who survive me by 30 days. Provided that should any child of mine fail to attain a vested interest by die leaving children then those children shall, on attaining the age of eighteen (18) years, take equally the share of my estate which their parent would have otherwise taken. [4] I direct that my executors shall deduct from my son Christopher John Bevan's share of my estate my legal costs in the NCAT Guardianship Division Proceedings initated by him, being case no 2017/234141, including my solicitor's costs and the costs of both barristers Michele Fraser and Margaret Pringle and the amount deducted shall be divided equally between my son Mark Francis Bevan and my daughter Sandra Margaret Cryer."
The defendant, Ms Napoli, is the sole executor of the Will because her co-executor, brother and legal partner, Robert Napoli, predeceased her in 2019. Ms Napoli is principal of the law practice trading as Robert Napoli & Co. Ms Napoli acted for Mrs Bevan in the NCAT Proceedings.
The plaintiff applied for copies of the tax invoices for the costs referred to in cl 3-4 of the Will ("the bills") from Joan Napoli trading as Robert Napoli & Co ("the legal practitioner"). On 30 August 2021, the legal practitioner provided all but one of her tax invoices that were requested by Mr Bevan on 13 September 2021. Mr Bevan applied for assessment of the costs in the tax invoices provided.

The legal principles

The legislation governing this matter is the LPUL and the Application Act because instructions were received after 1 July 2015: See cl 18, sch 4.
The plaintiff relied on s 198(1)(b), as being a "third-party payer".
Third-party payers are dealt with under s 171 of LPUL. Third-party payers are divided into two categories, being an "associated third-party payer" or "non-associated third-party payer". The plaintiff asserts that he falls into the latter category.
Section 171 of LPUL reads: 171 Third party payers (1) For the purposes of this Law-- (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) has already paid all or a part of those legal costs under such an obligation; 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. (2) The legal obligation referred to in subsection (1) can arise by or under contract or legislation or otherwise. (3) A law practice that retains another law practice on behalf of a client is not on that account a third party payer in relation to that client. (4) The Uniform Rules may provide that particular references in this Law to a client include references to an associated third party payer.
Section 198 of LPUL sets out who may apply for a cost assessment. Section 198(1) reads: 198 Applications for costs assessment (1) Applications for an assessment of the whole or any part of legal costs payable to a law practice may be made by any of the following - (a) a client who has paid or is liable to pay them to the law practice; (b) a third party payer who has paid or is liable to pay them to the law practice or the client; (c) the law practice; (d) another law practice, where the other law practice retained the law practice to act on behalf of a client and the law practice has given the other law practice a bill for doing so.
Section 93B of the Application Act reads: 93B Manager, Costs Assessment (1) The Chief Justice of New South Wales may appoint a registrar of the Supreme Court as Manager, Costs Assessment. (2) The Manager, Costs Assessment has the functions conferred on the Manager, Costs Assessment by or under this or any other Act. (3) The acts and decisions of the Manager, Costs Assessment are reviewable by the Supreme Court in the same manner as acts and decisions of other registrars are reviewable by the Court. (4) Service by the Manager, Costs Assessment of a copy of an application for a costs assessment on relevant parties in accordance with the costs assessment rules is taken to be notification by a costs assessor as required by section 198(8) of the Legal Profession Uniform Law (NSW).
Uniform Civil Procedure Rules 2005 (NSW) ("UCPR") 49.19(1) provides: 49.19 Review of registrar's directions, certificates, orders, decisions and other acts (1) Subject to subrule (2), if in any proceedings a registrar gives a direction or certificate, makes an order or decision or does any other act, the court may, on application by any party, review the direction, certificate, order, decision or other act and make such order, by way of confirmation, variation, discharge or otherwise, as the court thinks fit.
In Voicu v The Owners-Strata Plan No 1624 [2020] NSWSC 296 Basten J, (sitting at first instance), stated at [15]: "[15] The Manager, Costs Assessment, is a registrar appointed to the position of Manager by the Chief Justice. The "acts and decisions of the Manager, Costs Assessment are reviewable by the Supreme Court in the same manner as acts and decisions of other registrars are reviewable by the Court". That provision engages Uniform Civil Procedure Rules 2005 (NSW) ("UCPR"), r 49.19, which states that "if in any proceeding a registrar gives a direction or certificate, makes an order or decision or does any other act, the court may, on application by any party, review the direction, certificate, order, decision or other act and make such order, by way of confirmation, variation, discharge or otherwise, as the court thinks fit."
In Polsen v Harrison [2020] NSWSC 1167, I stated at [22]: "[22] A review pursuant to UCPR 49.19 is not an appeal and is not subject to the restrictions that apply to appeals: Tomko v Palasty (No 2) [2007] NSWCA 369. It is not incumbent upon the applicant for review to demonstrate a material error of either fact or principle in the registrar's judgment under review: Solarus Projects Pty Ltd v Vero Insurance Ltd [2013] NSWSC 328 at [34]-[40]. However, the applicant must show that there is a reason to depart from the Registrar's decision: Tomko at [7]. On review, this Court is to make its own decision, having regard to the material that was before the registrar and such further evidence as the Court permits be adduced: Portal Software International Pty Ltd v Bodsworth [2005] NSWSC 115."
Both parties referred to Shillington v Harries [2013] NSWSC 2013 ("Shillington") where Latham J considered the definition of 'third-party payer'. The facts were briefly summarised in paragraphs [1]-[10] of Latham J's judgment: [1] The plaintiffs in this matter, Michael Shillington (the first plaintiff) and Michael Crowley (the second plaintiff), are trustees pursuant to a Family Court appointment in respect of the sale of two rural properties in NSW. Mr Shillington is a solicitor and Mr Crowley is an accountant. [2] The defendant, Richard John Harries, is the respondent husband to Family Court proceedings commenced by his former wife. The defendant was the owner, together with his two sisters, of the two subject properties. The defendant instructed the firm Lee Dalton and Associates to act for him in relation to the family law proceedings. [3] The first plaintiff's firm, Whiteley, Ironside and Shillington, carried out the legal work associated with the performance of the plaintiffs' obligations under the terms of the trust. [4] Following the sale of the properties, the plaintiffs informed the defendant's solicitors on 1 November 2011 that the proceeds of sale would not be distributed pending a resolution of a dispute concerning the trustees' costs and clarification of the correct interpretation of the Court's orders. The defendant had previously entered into a contract to purchase a farming property in Queensland and was pressing the plaintiffs to distribute the proceeds of sale so that he could complete the settlement. The defendant instructed his solicitor to advise the plaintiffs that they would be held personally liable for any damages arising out of a delay in settlement. [5] On 22 November 2011, the plaintiffs instructed a firm of solicitors, Hicksons Lawyers, to act for them in Family Court proceedings brought by the defendant to enforce distribution of the funds and to have the plaintiffs removed as trustees, among other proposed remedies. [6] On 23 November 2011 orders were made in the Family Court clarifying the extent of the respective interests in the properties and directing the distribution of the proceeds of sale, but for $150,000.00 which was to be retained by the plaintiffs pending further orders. Any further application by a party to these proceedings was to be brought by 29 November 2011. [7] When the matter was returned to the Family Court on 30 November, these orders were continued, subject to any further application by 17 January 2012. No further applications were made. [8] On 9 February 2012, the defendant filed an application for an assessment of costs against the plaintiffs, ostensibly on the basis that the defendant was a "client". The plaintiffs objected to the application on the basis that the defendant lacked standing, in that he was neither a "client" nor a "third party". A costs assessor appointed to deal with the application sought further submissions from the defendant. The defendant's submissions of 2 May 2012 claimed that he was a "third party payer". [9] In June 2012 the costs assessor determined that the defendant was a third-party payer and that an assessment of the costs of the legal services provided by Mr Shillington's firm and by Hicksons Lawyers could be made. The costs assessor accepted that there was no jurisdiction to assess costs incurred as a result of the provision of services by the second plaintiff, which were accountancy services. The assessment was withheld pending proceedings in this Court. [10] The summons filed on 18 September 2012 by the plaintiffs sought a declaration that the defendant is not a "client" or a "third party payer" pursuant to the Legal Profession Act 2004 (the Act) with respect to legal services carried out by the first plaintiff's firm and Hicksons Lawyers. That summons was amended at the hearing to add proposed declarations (3, 4 and 5) to the effect that the costs of the services provided by the second plaintiff are not legal costs and that the defendant is not a client or a third-party payer in respect of them. The defendant maintains that these additional declarations are unnecessary. In any event, they are not in dispute.
With respect to whether the defendant beneficiary in Shillington could be deemed as a third-party payer, Latham J stated at [32]-[36]: [32] As I have already noted, the touchstone of the definition of "third party payer" is a legal obligation to pay all or part of the legal costs incurred by the client. The plaintiffs maintain that the legal obligation to pay the costs of Whiteley, Ironside and Shillington and of Hicksons Lawyers fell on the trustees and remains there. In the absence of any legal obligation on the defendant to pay any of those costs, it is submitted that he cannot come within the definition of "third party payer" or "associated third party payer" or "non associated third party payer." [33] The defendant submits that the beneficiaries of the trust are, at the very least, "non associated third party payers" because they owe a legal obligation to the trustees (the clients) to pay the legal costs. This argument is premised on the fact that the legal costs are payable from the proceeds of sale held on trust for the beneficiaries. [34] The argument goes further, by way of reliance upon the fact that the relevant "legal obligation" may be created by the operation of contract, legislation or otherwise (s 302A(2)). The defendant ultimately submits that, because he, as a beneficiary, effectively indemnifies the plaintiffs against any loss arising out of the expenditure of costs legitimately incurred in the administration of the trust, his legal obligation to pay those costs is recognised by the words "or otherwise" : see Claudio Grizonic v Suzanne Ranken Suttor & Ors. ; Dawn Wade v Suzanne Ranken Suttor [2001] NSWSC 471 at [56] to [58]. [35] There is, in my view, a relevant distinction between a legal obligation, as that term is used in the Act, and an equitable obligation arising out of the indemnification by the beneficiaries of a trust with respect to the reasonably incurred expenses of the trustees. In Hardoon v Belilios [1901] AC 118, Lord Linley explored the basis of such an indemnity in the following terms :- ... the plainest principles of justice require that the cestui que trust who gets all the benefit of the property should bear its burden unless he can show some good reason why his trustee should bear them himself. The obligation is equitable and not legal, and the legal decisions negativing it, unless there is some contract or custom imposing the obligation, are wholly irrelevant and beside the mark. (italics not in original) See also Balkin v Peck (1998) 43 NSWLR 706 at 711 - 712. [36] I am not persuaded by the defendant's submission that "otherwise" is capable of comprehending other than legal obligations. To adopt such a construction would seem to me to ignore the context within which the term appears, in particular, the deliberate omission from the Act in 2006 of an express provision recognising the right of a beneficiary to apply for an assessment of legal costs paid out of the assets of a trust."

The reasons and decision of the Manager of Costs Assessment dated 25 October 2021

On 28 October 2021, the Costs Assessment Manager (referred to as the MCA) notified the plaintiff of his reasons of decision and responded to the plaintiff's costs assessment application by way of email. The Costs Assessment Manager in his reasons stated (CB 135): "…this costs assessment application does not relate to the legal costs incurred by Mr Bevan and makes no reference to a Court order being made supporting this application or permitting one to be made on behalf the deceased estate. Despite that, Mr Bevan asserts that he entitled to lodge this costs assessment application, concerning the estates legal costs. The first issue that arises is the matter of who can make an application for costs assessment? You may be aware that section 198 of the Legal Profession Uniform Law (NSW) ("the Act") sets out the persons who can apply for a costs assessment. … The costs assessment application lodged is a Non-Associated Third-Party Payer v Client seeking to have the legal costs incurred by of Joan Napoli as the executor of the estate of the fate Margaret Johanna Bevan, named costs respondent, assessed. The supporting documentation to your costs assessment application indicates Mr Bevan is a beneficiary of the deceased estate. But also, probate was granted to separate executors of the estate which appointed them as the legal personal representatives of it. Noting they are the costs respondents named in this costs assessment application. Despite not being appointed as a legal personal representative of the deceased estate, Mr Bevan has applied to have the legal costs incurred by the estate assessed. Mr Bevan's pursuit of this application despite the MCA's previous correspondence raises ongoing concern as to whether or not there is jurisdiction for this application to be referred for assessment. More importantly, the MCA's view that Mr Bevan does not have standing to file it, as he does not fall within the definitions of a client, third party payer, non-associated third party payer, generally a party who is able to apply for a costs assessment under the Act. Each applicant in lodging their application must demonstrate an entitlement and jurisdiction to do. This necessity was addressed in Obiter dicta comments made by Hall J in Rural and General Insurance v Goldsmiths Lawyers [2012] NSWSC 358… As Mr Bevan has not been appointed as the legal personal representative of the estate, he in the MCA's view cannot be considered as the client of the law practice, as he did not and could not provide instructions on behalf of it. Instead Mr Bevan asserts he is a third party payer, under an obligation to pay the costs that are claimed by the law practice, who represented the estate. Section 171 of the Act, clarifies who can be a third party payer, including a Non-Associated third party payer… The legal obligation referred to in sub section 1 above, is an obligation imposed on a particular person, for them to make payment of the legal costs in dispute, that they are liable for. ln this instance Mr Bevan needs to demonstrate that he, himself, is obligated in his own personal capacity to make payment of the legal costs in dispute and subject to assessment. It is the MCA's view that Mr Bevan has not done so. This approach appears to be supported by the reference to a "non-associated third party payer", within sub-section 1(b), identifying the legal obligation as being owed to the client or another person but not the law practice. With that in mind, it would logically follow that the clear legislative intention of the act is for the obligation that a third party payer owes for payment of the legal costs in dispute, needs to be an obligation directly owed to the law practice, as a non-associated third party payer does not have such an obligation. The obligation that a non-associated third party payer would have to meet those costs would be set out in a document setting out the contractual relationship between the parties, with a supporting clause expressing who is to bear exposure of legal costs claimed. This is consistent with a lease scenario. However, no such contractual obligation would appear to exist in this matter from the last will and testament of the deceased. This particular matter, being the entitlement of a beneficiary to lodge a costs assessment concerning the invoices issued by a law practice acting for the legal personal representatives of deceased estate was considered by Latham J in the matter of Shillington v Harries [2013] NSWSC 2013. In deciding that matter the Judge considered the same question on the prior legal profession legislation, that is similar, if not the same in parts to the current Act, that applies to this application. In doing so, the Judge said the following at paragraph 29: [29] In my view, the clear meaning of the text of the legislation, in particular ss 4 and 349A, do not permit the defendant to be characterised as a "client" of Whitely, Ironside & Shillington or of Hicksons Lawyers. The legal services that were provided by Whitely, Ironside & Shillington and by Hicksons Lawyers were provided to the plaintiffs pursuant to the statutory trust. They were not provided to the defendant and they were not provided for the defendant. … And at [30] and [31] the Judge said: [30] I do not accept the proposition implicit in the defendant's submissions that the plaintiffs engaged either firm on behalf of the beneficiaries. The primary obligation on the plaintiffs under the trust was the obligation to deal with the trust property for the benefit of the beneficiaries. The engagement of both firms of solicitors by the plaintiffs was an essential step in carrying out that obligation. However, the beneficiaries played no part in retaining those firms or in providing instructions to them. [31] Whilst the criteria "obligation to pay" is central to the definition of "third party payer", it also underpins the definition of "client". It is clear that, prior to the introduction of s 302A, "client" was premised upon a legal liability to pay for legal services, either because the services were provided to or for that person, or for some other reason. The defendant was not legally liable for the legal costs incurred by the plaintiffs as trustees. No invoices issued to him and no proceedings for the recovery of costs, as a debt owing to the legal firms, could be taken against him. In going on to examine the concept of whether or not the beneficiary met the definition of a third party payer, the Judge said at paragraph 35-37: "[35] There is, in my view, a relevant distinction between a legal obligation, as that term is used in the Act, and an equitable obligation arising out of the indemnification by the beneficiaries of a trust with respect to the reasonably incurred expenses of the trustees. In Hardoon v Belilios [1901] AC 118, Lord Linley explored the basis of such an indemnity in the following terms:- ... the plainest principles of justice require that the cestui que trust who gets all the benefit of the property should bear its burden unless he can show some good reason why his trustee should bear them himself. The obligation is equitable and not legal, and the legal decisions negativing it, unless there is some contract or custom imposing the obligation, are wholly irrelevant and beside the mark. (italics not in original) See also Balkin v Peck (1998) 43 NSWLR 706 at 711 - 712. [36] I am not persuaded by the defendant's submission that "otherwise" is capable of comprehending other than legal obligations. To adopt such a construction would seem to me to ignore the context within which the term appears, in particular, the deliberate omission from the Act in 2006 of an express provision recognising the right of a beneficiary to apply for an assessment of legal costs paid out of the assets of a trust. [37] Furthermore, the beneficiaries have not indemnified the trustees in respect of legal costs incurred by the trust, in circumstances where the Family Court orders provided that the costs of the trustees were to be met from the proceeds of sale and an amount of $150,000.00 was quarantined from the proceeds of sale for that purpose. Any right to an indemnity that may have existed is not enforceable unless the trust funds are insufficient to indemnify the trustees: Hardoon v Belilios; Balkin v Peck." Then at paragraph 41 and 42: "[41] Here, there is no legal obligation on the part of the defendant to pay the "trustees' legal costs. The Family Court orders did not impose an obligation on the defendant or the other beneficiaries to pay the legal costs of the trustees. The fact that the legal costs are payable out of the monies held in trust does not create a legal obligation in the beneficiaries to pay those costs. [42] A consideration of decisions in other jurisdictions where the model legislation applies reinforces the conclusion that the defendant is not a third party payer or any subsidiary of that category. The following cases discuss the meaning of "third party payer" for the purposes of an application for assessment of legal costs." With all the above comments in mind, the MCA determines that Mr Bevan does not have standing to make this application, as he is not a client, third party payer or non associated third party payer, that would meet the relevant definition within the Act to seek assessment of the legal costs incurred by the executor of the estate. ln doing so the MCA confirms that Mr Bevan's costs assessment application cannot be accepted for filing.
Hence, the Costs Assessment Manager determined that Mr Bevan did not have standing to file a costs assessment application as he did not fall into the category of "non-associated third-party payer" under s 171(1)(c) of the LPUL.

Judicial grounds of review

The summons filed by the plaintiff sets out 7 grounds of review. They are: 1. The Manager, Costs Assessment erred at p 2 par 8 of the letter communicating his decision dated 28 October 2021 ("the Manager's letter") by finding that the plaintiff does not have the necessary standing to file his Application for Assessment because the plaintiff does not fall within the definition of "non-associated third-party payer" of the estate's costs within the meaning of ss 171(1)(a)(i) and 171(2) of the LPUL. 2. The Manager erred at p 3 pars 4 and 5 by finding that the plaintiff had failed to demonstrate that he, himself, is obligated in his own personal capacity to make payment of the legal costs in dispute the subject of his Application for Assessment. 3. The Manager erred at p. 3 par 8 by finding that, in order to qualify as the "non-associated third-party payer" of the estate's costs within the meaning of ss 171(1)(a)(i) and 171(2) of the LPUL, the plaintiff must have incurred an obligation to meet the costs in a document setting out the contractual relationship between the parties with a supporting clause expressing who is to bear the costs claimed, but no such contractual obligation would appear to exist from the last Will. 4. The Manager erred by failing to find that, on their proper interpretation, cl 3 and 4 of the Will created a legal obligation on the plaintiff to reimburse the estate for Mrs Bevan's costs, or alternatively, to repay Mrs Bevan's costs to the other beneficiaries named in the Will ("the other beneficiaries"), being an obligation to reimburse the estate, or alternatively, to repay the other beneficiaries, the costs in dispute arising "otherwise" than under a contract within the meaning of s 171(2) of the LPUL. 5. The Manager erred at p 3 par 9 to p 5 par 2 by citing and applying the decision in Shillington in support of his conclusion (made at p 5 par 2 of his decision) that the plaintiff does not have the necessary standing to file his Application for Assessment because he is not a "non-associated third-party payer" of the estate's costs within the meaning of ss 171(1)(a)(i) and 171(2) of the LPUL. 6. The Manager erred by failing to find that, upon the proper interpretation of s 171 of the LPUL: 1. the plaintiff is a "third-party payer" of the costs in dispute because he is under a legal obligation (as a condition of receiving his gift of one-third of the estate under the Will) to pay the costs in dispute to the estate for distribution to the other beneficiaries named in cl 3 and 4 of the Will, or alternatively, to pay the costs to the other named beneficiaries, within the meaning of s 171(1)(a)(i) of the LPUL; 2. the plaintiff owes that legal obligation otherwise than under a contract, because he owes that legal obligation under the terms of cl 3 and 4 the Will, within the meaning of s 171(2) of the LPUL; 3. the plaintiff is a "non-associated third-party payer" of the costs in dispute because the legal obligation owed by the plaintiff is owed to the client, namely, the executor of the estate of the deceased, or alternatively, is owed to another person or persons, namely, other named beneficiaries in the Will, within the meaning of s 171(1)(c) of the LPUL; and 4. accordingly, the decision in Shillington is distinguishable from the facts of this case. 1. The Manager erred: 1. by concluding that the plaintiff had no standing to apply for assessment of the costs in dispute under ss 171(1)(a) and (c) of the LPUL by filing the plaintiff's Application for Assessment; 2. by rejecting the plaintiff's Application for Assessment for filing under s 198(1)(b) of the LPUL; and 3. by refusing to allocate the plaintiff's Application for Assessment to an assessor under reg 34 of the Application Regulation for a determination pursuant to ss 199 and 200 of the LPUL.
Despite being expressed in various grounds of review, the central question is whether the plaintiff falls within the definition of a non-associated third-party payer, and whether the decision in Shillington was wrongly decided. It is difficult to fully comprehend the many varied submissions on what is on any view a discreet issue.

The plaintiff's submissions

The plaintiff in this Application for Assessment asserted that the legal practitioner performed all four tasks or retainers under her global engagement from Mrs Bevan concurrently, she billed Mrs Bevan for those four retainers in one global bill of costs. However, Mrs Napoli now seeks to recover, on behalf of the client's estate as her executor, all the costs that she billed, for all four of the tasks or retainers which she performed during her global engagement by Mr Bevan, under the obligation imposed upon him by cl 4 of the Will (as non-associated third-party payer of the task (d) costs to his mother's estate).
Further, the plaintiff's counsel, by letter, clarified, that Mr Bevan's complaint about his liability to the estate for costs is not a complaint about the fair and reasonable amount of costs billed by the legal practitioner to the late Mrs Bevan, as the client, but rather about the identification and fair and reasonable quantum of those costs which relate only to the costs incurred by Mrs Bevan in responding to the NCAT proceeding in terms of cl 4 of the Will. The plaintiff's affidavit and the correspondence annexed to it identifies that there were 4 retainers the subject of the costs billed to Mrs Bevan but only one of those retainers relates to the NCAT proceeding.

The first defendant's submissions

The defendant submitted that the answer to whether the plaintiff was a non-associated third-party payer lies in whether he comes within the description contained within s 171(1)(c).
The plaintiff claimed in his submissions to the Cost Manager that he was a "non-associated third-party payer". It follows that the plaintiff asserts that he is "not a client" but is under a legal obligation to pay all or any part of the legal costs for legal services provided to the client and owes that obligation to the client or another person but not to the law practice. The first defendant says that the plaintiff is not a third-party payer because he is and was under no legal obligation to pay all or any part of the legal costs for legal services provided to the client. The only person who was under a legal obligation to pay the legal costs was the deceased. She paid them.
The plaintiff is under no "legal obligation" at all in relation to the legal fees. Rather, the correct characterisation of the situation is that the executor is under an obligation, in distributing the Estate equally amongst the deceased's three children subject to cl 4 of the Will, to deduct from the plaintiff's share the amount of the legal costs described in cl 4. That puts the plaintiff under no obligation at all. Furthermore, there is a temporal element to s 171 and it is that a person is a third-party payer if it can be said that the person is under a legal obligation "to pay" the legal costs (or any part of them) provided to the client at the time they are provided. The notion of a legal obligation "to pay" is different to "reimburse" or "pay back", both of which may be obligations that arise after the relevant costs have been incurred.
Furthermore, the obligation "to pay" imports with it the proposition that if a person is liable to pay then the payee (here the solicitor) must be able to enforce the obligation at law. Exploration of that issue involves considering how the legal liability to pay legal costs was established, and under what terms. The legal liability was established between Robert Napoli & Co and the deceased by the acceptance of Robert Napoli & Co of a retainer to act for the deceased. The terms of the retainer in so far as they related to payment, and legal liability to pay, were established by the Costs Agreement and Disclosure dated 5 July 2017. That document is addressed to the deceased and is on the letterhead of Robert Napoli & Co. It is clear that the document establishes liability to pay legal fees only on the part of the deceased and there is no room for argument that it established legal liability in any other person.
As the first defendant confirmed in her letter dated 13 September 2021 the legal fees were paid. At such time, any liability to pay legal fees was extinguished and cl 4 of the Will did not operate to somehow establish a new liability to pay to Robert Napoli & Co those fees. That the amount the executor is required to deduct from the plaintiff's share of the deceased's estate equates to the amount of fees paid by the deceased to the law firm does not convert that amount into an obligation on the part of the plaintiff.
The plaintiff's proposition that he became a non-associated third-party payer after the costs had been paid because his share of the estate was to be diminished by the amount of legal costs the deceased paid to Robert Napoli & Co in proceedings brought by him does not withstand the analysis made above.

The plaintiff's submissions in reply

The first defendant's thesis is that the first defendant, in her capacity as the executor, is the one under a "legal obligation", when distributing the estate to the children who are its beneficiaries under the Will, to "deduct" from the plaintiff's one-third share of the estate the legal costs referred to in cl 4 of the Will which he seeks to have assessed.
The first defendant contends that the plaintiff is under no legal obligation at all and that the only party under any legal obligation is the first defendant in the performance of her executorial duties when the time arrives to distribute the estate to the beneficiaries, i.e. a "legal obligation" to make a "deduction" from the plaintiff's interest in the estate and distribute the "deducted amount" to the other two beneficiaries pro rata under cl 4.
The first defendant develops this argument by suggesting that the "legal obligation" to "pay" money for legal costs in s 171 is different to a requirement to "reimburse" or "pay back" the costs to the client (s 171(1)(a)), being the estate in this case (cl 4).
The first defendant's thesis on the proper interpretation of s 171 of the LPUL suffers from a number of fundamental defects by reference to the principles of statutory interpretation enunciated by the High Court, most succinctly in Project Blue Sky Inc. v Australian Broadcasting Authority (1998) 194 CLR 355 ("Project Blue Sky") at 381-382 [69]-[71], citing Commissioner for Railways (NSW) v Agalianos (1955) 92 CLR 390 at 397 ("Agalianos"). Those principles require the relevant provision to be construed by reference to the principle that "the context, the general purpose and policy of a provision and its consistency and fairness are surer guides to its meaning than the logic with which it is constructed", a principle first enunciated by Dixon CJ in 1955 in Agalianos at p. 397. The following factors inform the context, the general purpose and the policy of s 171, it is contended.
First, s 171 of the LPUL is legal profession consumer protection legislation to be construed in accordance with the general purpose and public policy of protecting clients and third parties responsible for the payment of costs from members of the legal profession by enabling clients and third parties to have costs independently assessed.
That public policy is reflected in the "Overview of Part 4.3" of the LPUL and explanation for the enactment of ss 169-171 of the LPUL given by the Victorian Parliament (as the LPUL is an enactment of the Victorian Parliament which has been adopted as the law of New South Wales by s 6 of the Application Act). See p 97 of the Victorian Explanatory Memorandum to the Bill (explanatory memorandum); Boyce v McIntyre [2009] NSWCA 185 ("Boyce") at [19]-[22], esp. [22], on the predecessor to s 171 ( s 171(2)).
So much appears to be conceded by the first defendant in her recital of the facts at paragraph 23 as well as her analysis of cl 4 of the Will. She concedes that "the Executor is under an obligation ... to deduct from the plaintiffs share the amount of the legal costs described in cl 4". That is an obligation that is to be performed by the first defendant as the executor of the Will on behalf of the plaintiff as a beneficiary. It is standard practice in every trust where obligations are performed by the trustee on behalf of the beneficiaries. The plaintiff has no standing to perform his own legal obligation because he has no control of the trust fund to be applied to perform his legal obligation on his behalf, in accordance with the terms of cl 4 of the Will.
Such an approach to the interpretation of the phrase "legal obligation" in s 171 accords with the ordinary meaning of "pay". It also accords with the policy informing enactment of s 171 as reflected in the Explanatory Memorandum.
The plaintiff contends that this analysis of s 171 is flawed in several respects. First, it fails to appreciate that the obligation owed by the plaintiff to the estate is an obligation owed in equity because it is an obligation which he owes as a beneficiary of the trust constituted by cl 4 of the Will to the trust. By the same token, the obligation which will arise when all debts and testamentary expenses of the estate are paid, and the time arrives for the first defendant, as the executor, to distribute the estate, is an equitable obligation owed by her, as trustee of the estate, to the plaintiff and other beneficiaries, as beneficiaries of the testamentary trust created by the Will. Section 171 uses the term "legal obligation" to simply mean an obligation which is recognised by the general law, so that it encompasses an equitable obligation and countervailing equitable obligations within a trust, including a deceased estate, which are payable by set-off under the Will.
Secondly, the first defendant's approach fails to appreciate that the definition of "legal obligation" in s 171(2) encompasses an obligation arising under contract or legislation or otherwise, so that it squarely encompasses legal, equitable and statutory obligations.
Thirdly, the first defendant's approach is flawed because it limits itself to the first limb of the definition of "legal obligation" in s 171(2), which is a legal obligation arising under a contract. She focuses on the deceased owing a contractual obligation to the first defendant, as the law practice, to pay the costs in the first instance under the Costs Agreement. That approach is flawed because the plaintiff qualifies as third-party payer of the costs as an equitable obligation in his capacity as a beneficiary which is owed to the first defendant as executor rather than owing her any obligation as the law practice. The first defendant has allowed herself to become confused as to the capacity in which she is joined as the costs respondent to the Assessment Application and as a defendant to this proceeding. It is her conflation of her distinct roles which lies at the heart of the application for special costs orders against her. She conducts herself as the law practice, rather than as the executor of the Will, in her administration of the estate, especially in her administration of cl 4 of the Will in respect of the plaintiff.
In particular, the plaintiff relies upon the third limb of the extended definition of "legal obligation" in s 171(2) and its recognition of a legal obligation arising "otherwise" than under contract or by statute, relevantly, in this case, arising under the terms of the Will in the context of the testamentary trust created by the operation of cl 4 of the Will.
The first defendant relies upon Shillington. The plaintiff argues that Shillington is distinguishable. The costs to which the beneficiary sought an assessment of were costs billed by the executor in his capacity as the solicitor who had acted for himself in administering the estate. The costs sought to be assessed were costs which the executor, as the law practice administering the estate, billed to himself, as the executor of the Will responsible for administering the estate.
Latham J, in Shillington, found that the beneficiary had no standing to apply for assessment as a thirdparty payer because the beneficiary had no obligation to pay or repay the costs to the estate. That is a correct analysis of the facts in that case as the executor owed the costs to himself in two legal capacities: debtor and creditor. There was no term of the Will which required the beneficiary to reimburse the estate for those costs as a beneficiary.
That beneficiary in Shillington approached the matter wrongly. What he should have done was apply to this Court for leave to be appointed representative of the estate under UCPR 7.10 and then, as the administrator ad litem appointed to the estate, he could have applied to have the estate's costs assessed on the ground that the executor had a conflict of interest, as the billing law practice, in refusing to seek assessment of his own costs, as billing law practice, within the meaning of UCPR 7.10(1)(b). Thus, the case is clearly distinguishable because in this case the plaintiff is legally obliged, under the terms of cl 4 of the Will, to reimburse the estate for the costs of the NCAT proceeding long after they were paid without having been assessed as to their fairness and reasonableness. In this case, the executor has an obvious conflict of interest as she is the billing law practice who received these costs in 2017-2018 without having had her costs independently assessed.
In this case, the plaintiff has an equitable obligation to reimburse his late mother's estate for one component of the four distinct components of the legal costs which the testator has incurred to the first defendant as her solicitor (that is, as the billing law practice). Furthermore, the first defendant has an equitable obligation to perform the plaintiff's legal obligation to reimburse the estate for the NCAT proceeding costs on his behalf in her capacity as the trustee of the trust fund out of which that legal obligation is to be satisfied under cl 4 of the Will. Unlike in Shillington, the plaintiff does not seek assessment against a billing law practice of costs billed to the estate by the law practice. The plaintiff seeks an assessment against an executor of an estate of costs already paid.
In Boyce, the Court of Appeal found that, although "there is no contractual relationship between Mrs McIntyre and [the law practice], and [the law practice] did not act as Mrs McIntyre's solicitors, [n]evertheless, the Legal Profession Act entitles persons in Mrs McIntyre's position - who are not clients of law practices - to require the assessment of legal costs that they did not personally incur." See Boyce at [5], [55], [56]. The Court of Appeal went on to find that "the point to be noticed about a 'non-associated third-party payer' is that such a person, while being under a legal obligation to pay the 'legal costs' for legal services provided to the client, owes no legal obligation to the law practice that provided the legal services": See Boyce at [19] and [55]-[56].
This proposition by the Court of Appeal is completely at odds with the contention made by the legal practitioner that there can be no "legal obligation" by the plaintiff to pay the costs referred to in cl 4 of the Will because that obligation is not owed to her in her capacity as the law practice. Rather the obligation is owed to her in her capacity as the executor of the estate and it is a legal obligation which is to be performed by her as trustee of the trust fund to pay it in accordance with the terms of cl 4 of the Will.
The plaintiff has an obligation to indemnify his late mother's estate for her costs of the legal practitioner's representation of her in the NCAT proceedings. The plaintiff is in an identical position to Mrs McIntyre in Boyce. Mrs McIntyre owed her legal obligation to pay the costs for the lease that were paid to Cutler Hughes Harris by its client, not to Cutler Hughes Harris but rather to the client, Kosciusko Thredbo Pty Ltd. She owed her obligation not as the client but as a party with a legal obligation to reimburse the client for the costs. The only difference between the plaintiff's position and that of Mrs McIntyre is that the plaintiff owes his obligation as a trust obligation under the terms of cl 4 of the Will whereas Mrs McIntyre owed hers as a common law obligation under the terms of the lease because it was a contractual obligation that she owed.
Furthermore, in Boyce, the Court of Appeal squarely recognised that the legal obligation need not necessarily arise out of a contract but can be any form of obligation which is enforceable either at law or in equity. In particular, the Court of Appeal held in Boyce that s 302A read with s 350(2) of the Legal Profession Act 2004 (NSW) which are the predecessors to ss 171 and 198 of the LPUL affords persons in the position of non-associated third party payers the right to have legal costs assessed even though they are only liable to pay the amount of such costs to a party other than the law practice which charged that other party for those costs. Such a liability will ordinarily arise out of a contract entered into between a non-associated third-party payer and the client of the law practice. In many cases such a contract will be a lease or a mortgage (with the non-associated third-party payer being the lessee or mortgagor): See Boyce at [21] and [55]-[56].
This emphasis demonstrates that a contract is not the only source of the legal liability for the purposes of constituting a legal obligation under the legislation and that so much is recognised by s 171(2) which treats a legal obligation in contract as only one of three categories of obligation, together with a legal obligation under a statute and a legal obligation arising otherwise, which will include an equitable obligation as between a trustee and a beneficiary. To the extent that Latham J held that an equitable obligation by an executor to reimburse the costs out of trust money does not constitute a "legal obligation" for the purposes of s 171(2) in Shillington at [41], she was in error and should not be followed. Rather the broader interpretation given to the meaning of "legal obligation" in s 171(2) by the Court of Appeal in Boyce should instead be followed.
In particular, in respect of the statutory purpose of the definition of "legal obligation" in the predecessor to s 171(2) of the LPUL in Boyce, the Court of Appeal said: "...the introduction in 2006 of the non-associated third-party payer provisions in the Legal Profession Act 2007 (NSW)... can be seen as being for the purpose of consumer protection. In particular, the introduced provisions are for the protection to persons who agree, in effect, to indemnify other parties (such as lessors and mortgagees) in respect of legal costs for services rendered to those other parties": See Boyce at [22], [55], [56]. Accordingly, the definition of "legal obligation" in s 171(2) must be construed broadly as contended above, in accordance with this statutory purpose of consumer protection. See Project Blue Sky at [69]-[71].

Resolution

The primary question to be resolved on this appeal is whether the plaintiff was a "third party payer" under s 171 of the LPUL and therefore entitled to apply for an assessment of costs from the Costs Manager.
Third-party payers are dealt with under s 171 of the LPUL. Third-party payers are divided into two categories, being an "associated third-party payer" or "non-associated third-party payer". The plaintiff claimed in his submissions to the Manager that he was a "non-associated third-party payer". It follows that the plaintiff asserts that he is "not a client", but is under a legal obligation to pay all or any part of the legal costs for legal services provided to the client and owes that obligation to the client or another person but not to the law practice, Robert Napoli & Co.
The plaintiff has also argued that he is a "non-associated third-party payer" of the costs of Joan Napoli trading as Robert Napoli & Co, because he "is under a legal obligation to pay all or any part of the legal costs for legal services provided to the client (i.e. Mrs Bevan): See s 171(1)(a)(i) of the LPUL. Mr Bevan contends that the "the legal obligation referred to in s 171(1)(a)(i) is owed to the client (i.e. Mrs Bevan's estate) or another person (i.e. the plaintiff's siblings) but not to the law practice: see s 171(1)(c) of the LPUL. This, he argued is the statutory effect of cl 3-4 of the Will (CB 181).
The plaintiff says he qualifies as a non-associated third-party payer to the first defendant in her capacity as an executor. The plaintiff has sought to rely on a wide construction of s 171(2), which reads: (2) The legal obligation referred to in subsection (1) can arise by or under contract or legislation or otherwise. (My emphasis)
The plaintiff has argued that a legal obligation has been imposed upon him by virtue of cl 3 and 4 of the deceased's Will and that instrument falls within the scope of the sources of law that can identified through the word "otherwise". In my view, the plaintiff has construed this word too broadly, and his situation does not reflect the present state of authorities for the reasons that follow.
Shillington is authority for the proposition that beneficiaries are not non-associated third-party payers, with Latham J concluding that "The fact that the legal costs are payable out of the monies held in trust does not create a legal obligation in the beneficiaries to pay those costs": at [41]. However, the plaintiff has argued that the facts of Shillington are distinguishable from the present case.
Latham J was of the view that equitable obligations arising out of a trust are distinct from a legal obligation under the Legal Profession Act 2007 (NSW): See Shillington [35]. On these facts, the defendant being an executor rather than a trustee is not a relevant difference to distinguish the present facts from those in Shillington. Thus, the paragraphs stated above by his Honour remain authoritative.
The plaintiff referred to Project Blue Sky at [69]-[71], citing Agalianos. The plaintiff also referred to the "Overview of Part 4.3" of the LPUL and explanation for the enactment of ss 169-171 of the LPUL given by the Victorian Parliament as authority for the meaning of a provision to be determined "by reference to the language of the instrument viewed as a whole": Project Blue Sky [69], as well as the "the context, the general purpose and policy of a provision": Agalianos at 397.
On balance, in considering Latham J's observation in Shillington at [36] that the provision recognising "the right of a beneficiary to apply for an assessment of legal costs paid out of the assets of a trust" has been omitted from the text of the LPUL is a stronger indication that parliament did not intend for s 171(2) to include this type of relationship. This consideration weighs heavier than the one raised by the plaintiff that the purpose of s 171(2) is for consumer protection to protect parties who indemnify others, such as lessors or mortgagees.
In Shillington, Latham J analysed at [38]-[40] the Court of Appeal decision in Boyce, which is of great assistance in this case for these reasons.
In Boyce, Mrs McIntyre, was one of 675 lessees of retail premises at Thredbo from the lessor, Kosciusko Thredbo Pty Ltd ("KT"). A term of each of the standard form leases required the lessee to reimburse the lessor for the lessor's costs (a standard amount of $3,000) of the grant and renewal of the lease of the premises. The second respondent to the application for assessment of costs was Mr Boyce and his fellow partners of Cutler Hughes and Harris ('CCH'), the solicitors for the lessor. The first respondent to the application for assessment of costs was the lessor, KT, which filed a submitting appearance in the Court of Appeal.
At [21], Ipp, Macfarlan JJA and Hoeben J's stated that "such a liability will ordinarily arise out of a contract entered into between a non-associated third-party payer being the lessee or mortgagor". In my view, the words "will ordinarily arise" are not conclusive that cl 4 of the deceased's Will fits within the ambit of s 171(2).
The Court of Appeal found that, although "there is no contractual relationship between Mrs McIntyre and [the law practice], and [the law practice] did not act as Mrs McIntyre's solicitors, [n]evertheless, the Legal Profession Act entitles persons in Mrs McIntyre's position who are not clients of law practices to require the assessment of legal costs that they did not personally incur." See Boyce at [5], [55], [56].
The plaintiff's situation is distinguishable from that of the applicant, Mrs McIntyre in Boyce, as under Mrs Bevan's will, he is merely a beneficiary under the deceased's Will and does not owe legal obligations to Ms Napoli's client, his mother, Mrs Bevan, by reason of his position. Whereas, in the former case, Mrs McIntyre and others in the representative proceeding had a legal obligation under a lease to pay the sum of $3,000.00 to the Second Respondent, CCH. A truer characterisation of the situation is that the executor, Ms Napoli, is under an obligation to distribute the estate equally amongst the deceased's three children subject to cl 4 of the Will, to deduct from the plaintiff's share the amount of the legal costs described in cl 4.
The first defendant says that the plaintiff is not a third-party payer because he is and was under no legal obligation to pay all or any part of the legal costs for legal services provided to the client. The only person who was under a legal obligation to pay the legal costs was the deceased. Mrs Bevan paid them. The plaintiff is under no "legal obligation" at all in relation to the legal fees. Rather, the executor is under an obligation, in distributing the estate equally among the deceased's three children subject to cl 4 of the Will, to deduct from the plaintiff's share the amount of the legal costs described in cl 4.
An obligation "to pay" imports with it the proposition that if a person is liable to pay then the payee (here the solicitor) must be able to enforce the obligation at law. In my view, the first defendant could never have enforced the plaintiff's obligation to pay its fees when they were rendered to the deceased and the plaintiff could have successfully defended an action brought against him for the recovery of those legal fees. His defence would have been that he was under no legal obligation to pay them, either to the law practice or to the deceased (eg, by way of indemnity, reimbursement or the like).
The plaintiff's proposition that he became a non-associated third-party payer after the costs had been paid because his share of the estate was to be diminished by the amount of legal costs the deceased paid to Robert Napoli & Co is not correct.

Result

For these reasons, the plaintiff does not fall within the category of non-associated third party-payer. The review of the Cost Manager's decision fails. The plaintiff's summons filed 24 November 2021 is dismissed.

The Court orders: 1. The plaintiff's summons filed 24 November 2021 is dismissed. 2. Costs are reserved. DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 25 August 2022

Legal Profession Uniform Law Application Regulation 2014(NSW)reg 34

Legal Profession Uniform Law Application Regulation 2015(NSW)

Legal Profession Act 2004(NSW)

Legal Profession Act 2007(NSW)

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